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Crypto is rapidly developing with new and futuristic concepts in the technological landscape. Soulbound tokens can be considered non-transferable NFTs that represent a person’s identity and achievement in Web3.
Last updated Oct 25, 2022 at 01:28 AM
Posted Oct 19, 2022 at 01:00 PM
Non-fungible tokens (NFT) are blockchain items that enable owners to demonstrate possession of a physical or digital property. Each NFT is distinctive and cannot be duplicated; thus ownership of an NFT may usually be purchased and sold.
NFTs are not attached to a specific individual or organization, and many users buy NFTs to make a profit, according to a recent Twitter poll. Popular NFT ventures like CryptoPunks or Bored Ape Yacht Club can resell for hundreds of thousands of dollars on marketplaces like OpenSea. NFTs routinely transfer hands to whoever the highest bidder is.
What if there were a digital token associated with a person that couldn't be purchased or sold? To solve the present constraints of NFTs and other decentralized frameworks, Ethereum co-founder Vitalik Buterin, economist Eric Glen Weyl, and lawyer Puja Ohlhaver suggested soulbound tokens (SBT) in May 2022. Let’s explore in detail what these tokens are and how they can benefit us.
What are Soulbound Tokens?
Soulbound tokens are just eternal, non-exchangeable NFTs, which cannot be frittered away or removed from your decentralized blockchain wallet.
The concept of Soulbound Tokens appears to be influenced by the game World of Warcraft, which also motivated Buterin, who took the name for his beloved Ethereum blockchain from the series. In World of Warcraft, "soulbound" means that an item cannot be traded or transferred to another player. With this in mind, it's simple to understand where the title and concept for SBTs originated.
Some SBTs may function like real-life accomplishment tokens, such as those obtained in video games upon completing a specified activity or reaching a predetermined milestone. Instead of a badge for fighting an opponent or rescuing the queen (or prince! ), you get an SBT for finishing a degree, gaining a professional certification, winning an award, and so on. Even if it's for something as specific as becoming the world's leading authority on kickball, your associated SBT would act as a medium for others to validate your success.
Soulbound tokens as achievement certificate
However, SBTs are for more than mere accomplishments. They can be linked to a wide range of other characteristics, attributes, and personal details. An SBT, for example, might be used to confirm your identity, birthdate, political leanings, charitable works, criminal conviction, health information, citizenship, religious background, military history, and other information. The advantages are virtually limitless.
The important thing to know is that Soulbound tokens are all of your sensitive data divided into distinct NFTs and saved in your decentralized blockchain wallet.
Anyone can claim to have attended Harvard by designating their former university on Facebook. However, using SBTs, Harvard's "Soul" (aka their private wallet) would have to provide your "Soul" (aka your private wallet) an SBT of a diploma to confirm that claim. SBTs might be issued as proof of connection to members of a particular group or organization. This would make claiming fake qualifications practically impossible.
Working of Soulbound tokens
Buterin and his co-authors point out that as the assets cannot be purchased or exchanged from one account to another, they may be able to assist in addressing some of the issues afflicting decentralized finance, such as fraud and stealing. They think that as NFT thefts become more widespread, SBTs are where the main strength of the system rests.
What occurs when an individual or firm sends your Soul a token that you do not want? Because SBTs are eternal, are you trapped with them indefinitely? No, ideally. The researchers noted that for the system to be efficient, it must have capabilities that allow users to conceal or remove an SBT from the public. However, as this mechanism is not established, the fundamentals of this are unknown.
Non-financialized and/or non-transferable tokens are not a novel concept. In reality, today's successful programs are based on similar concepts. POAP, for example, confirms event participation with badges that have no economic value. Non-transferability is used by Proof-of-Humanity to correlate profiles with a unique, in-person human.
The way Soulbound Tokens operate in a larger Distributed Community setting is what distinguishes them. The authors of the paper "Decentralized Society: Finding Web3's Soul," acknowledge that the notion is still young and immature. SBTs, though, have the potential to be fundamental key components upon which progressive, configurable, and decentralized networks and Web3 communities are formed.
SBTs' possible applications are only restricted by our capacity to create, conceive, and execute them. Nonetheless, here are a few promising applications:
SBTs Applications
Changing doctors or health insurers can be a stressful process. It necessitates hours spent on the phone obtaining health information, confirming your identification, and attempting to recall whether you used your mother's mother's surname or the neighborhood you grew up in as a security code. SBTs with something like a medical Soul that has all of your medical history would make this time-consuming process unnecessary.
Credit is the foundation of conventional payment markets. Due to technical difficulties in establishing an individual's or company's ability to repay a loan, crypto initiatives have so far had difficulty meeting this challenge at scale. This could be solved by SBTs using proven reputation.
Proof of education can become one of the most popular applications of SBTs. Companies can look into a candidate's Soul Wallet to confirm their graduation degree or various credentials. Even a government-issued identity document could serve as an SBT. Consider an unchangeable smart passport, which officials may update as citizens travel and request visas.
A Sybil assault, in which a single or organized group of people accumulates a sufficient number of governing tokens and manipulates proposal voting in their favor, is one of the most serious dangers to decentralized autonomous organizations (DAOs). DAOs can have built-in measures to avoid such risks by leveraging SBTs, such as analyzing the relationship between SBTs held by Souls who favor a specific vote and depreciating accordingly.
Identity-related applications might seem unattractive. However, in an age of misinformation, reality distortion, and political distrust, the capacity to swiftly and readily evaluate the reliability of data is becoming increasingly valuable.
SBTs can be used by cyber attackers to track down, attack, and harm members of specific groups. The notion of governing entities is very troubling. Holders of a specific SBT, for example, may be refused access to facilities, medical treatment, traveling permissions, and voting power, among other things.
The concepts, application cases, and solutions are still being debated, created, and fleshed out. In this regard, the future of SBTs is unwritten.
However, in their simplest and most complete manifestation, Soulbound Tokens have the potential to become a basic component of the Decentralized Society paradigm, in which groups grow around shared networks and commodities owned and administered by the Souls who use them.