Soulbound Tokens (SBTs)
Key Takeaways
- Soulbound tokens are unique digital assets representing personal information.
- SBTs are crucial for establishing trust and verifying identities in decentralized ecosystems.
- Soulbound Tokens have potential applications in various industries.
- Some SBT challenges are privacy, security, standardization, adoption, legal issues, and interoperability.
“Soulbound Tokens (SBTs) are non-transferable digital assets on the blockchain that represent an aspect of a person’s identity, credentials, or achievements.” Unlike non-fungible tokens (NFTs), SBTs cannot be bought, sold, or traded.
As decentralized ecosystems mature, SBTs are becoming essential for building reputation systems and verifiable identities on the blockchain. In 2022, Vitalik Buterin, co-founder of Ethereum, political economist Glen Weyl, and lawyer and inventor Puja Ohlhaver published a pape r advocating for a future governance based on a Decentralized Society (DeSoc).
Their vision was for a DeSoc where individuals and communities could form efficient networks based on equality and trust. They believe SBTs could serve as trust sources by providing verifiable identities and reputations.
What are Soulbound Tokens?
Unlike traditional tokens or cryptocurrencies, SBTs are permanently tied to a specific wallet and cannot be traded or sold. They are designed to serve as verifiable personal information records, such as academic degrees, professional certifications, or memberships in decentralized autonomous organizations (DAOs).
SBTs are crucial in building decentralized identity and reputation systems in the Web3 space, aiming to create a more trusted and transparent ecosystem.
NFTs and SBTs both exist on the blockchain and represent unique assets. However, there is a key difference:
- NFTs are transferable: They can be bought, sold, or traded on marketplaces. NFTs often represent ownership of digital art, collectibles, or virtual assets.
- SBTs are non-transferable: This attribute makes them ideal for representing permanent, personal records that remain linked to a specific individual or entity.
While NFTs focus on ownership and value exchange, SBTs emphasize identity and reputation.
| Features | NFTs | SBTs |
|---|---|---|
| Transferability | Can be bought, sold, and traded | Non-transferable |
| Ownership | Represents ownership of a unique digital item | Represents identity and achievements |
| Market value | Can have significant market value | Typically have no intrinsic market value |
| Purpose | For ownership and trade | For identity and achievements |
Possible Uses of SBTs
Some early projects and ideas have looked into possible uses for SBTs, including:
- Digital credentials: SBTs could be used to verify educational qualifications, certifications, and work experience directly on the blockchain.
- Reputation systems: SBTs could also be used to represent an individual’s reputation or social standing within a community.
- Governance: There are proposals for using SBTs to grant voting rights or other privileges based on an individual’s contributions to a decentralized organization. For example, SBTs could be used to represent permanent membership or voting rights within DAOs, ensuring that the tokens remain non-transferable to maintain integrity in governance.
- Access control: SBTs could help manage access to specific resources or services. For example, they could grant access to Web3 resources, ensuring that only verified individuals have access.
How Different Industries Can Use SBTs
The potential specific uses of SBTs are limitless. From gaming to government, social media to healthcare, the possibilities are vast. In social media, SBTs could help verify identities and credentials, building more trust and accountability in online interactions while protecting privacy.
In another example published in a 2024 paper , scientists argue that SBTs could “facilitate user authentication across different hospitals, effectively creating a federation of interconnected institutions.” This could make sharing patient records easier and improve the efficiency and accuracy of healthcare services.
The following are just a few of the many potential and specific uses of SBTs.
| Sectors | SBTs Use Cases |
|---|---|
| Education | Diplomas, certificates, transcripts, course completion badges |
| Healthcare | Medical records, vaccination history, certification |
| Government | Voter registration, identity verification, government benefits |
| Gaming | In-game achievements, character progression, exclusive items |
| Finance | Credit history, financial certifications, investment records |
| Social media | Reputation scores, community memberships, verified accounts |
| Decentralized Organizations (DAOs) | Membership verification, voting rights, contribution history |
| Supply Chain | Product authenticity, provenance, traceability |
| Art and collectibles | Artist verification, limited edition releases, provenance tracking |
| Events | Ticket verification, access control, VIP status |
| Professional networks | Job certifications, skill verification, recommendations |
| Real Estate | Property ownership verification, lease agreements, rental history |
| Intellectual property | Copyright ownership, licensing agreements, trademark registration |
| Charity and non-profits | Donation verification, volunteer hours, impact tracking |
| Sports | Player statistics, team affiliations, fan engagement |
Creating a Soulbound Token: Step-By-Step Guide
Although SBTs are at their initial stage, it is technically possible to create them using the steps provided below. Individuals can make a token that follows the core principle of SBTs by ensuring that the token cannot be transferred between wallets.
- Purpose and identification: *Users must clearly state the reason for creating the SBT, whether to verify credentials, assign DAO membership, or recognize achievements.
- Attributes: It is also important to define the attributes the token will represent, such as the issuer, type of achievement, or identity.
Smart Contract Creation
- Smart contract tool: Individuals can write smart contracts using tools like Remix IDE or Hardhat. These tools function as specialized software designed to simplify the creation and management of smart contracts. It’s comparable to using a word processor for writing a document—Remix IDE or Hardhat serve as the “word processors” for smart contracts, streamlining the process for users.
- Non-transferable rule: Include a rule in the contract to ensure the token remains non-transferable by disabling the transfer () function.
- Metadata: Add the token name, purpose, and issuer details in the smart contract.
- Blockchain platform selection: Choose a blockchain that supports non-transferable tokens, such as Ethereum, Solana, or Binance Smart Chain.
- Transaction fees: Consider transaction fees to ensure the minting process remains cost-effective.
- Testing: Use test networks like Rinkeby or Goerli to test the smart contract before deployment on the main network.
Minting
Users can deploy the smart contract using a compatible wallet, such as MetaMask or Phantom.
- Execute the mint function: This function will create the Soulbound Token and assign it to the specified wallet address.
- Verify token status: Check that the SBT is non-transferable and functions as expected. You can do this by trying to transfer the token and verifying that it fails.
- Ensure wallet compatibility: Ensure the wallet receiving the SBT is compatible with your blockchain platform and can securely store the token.
- Confirm transfer: Verify that the SBT has been successfully transferred to the wallet and is linked to the user’s identity. This might involve checking the wallet’s transaction history or using tools provided by the blockchain platform.
It is important to remember that while this method would theoretically work for creating non-transferable tokens, the official standards for SBTs are still evolving. As the concept matures and standards are finalized, additional features or modifications may be necessary to comply with future protocols or guidelines specifically for SBTs.
Challenges and Considerations
- Privacy concerns: Linking personal identity, credentials, or achievements to a blockchain can expose sensitive information if not properly secured.
- Security risks: Smart contracts can have vulnerabilities that may be exploited if not thoroughly tested, leading to issues like loss of data or control over the SBT.
- Lack of standardization: Since the concept of SBTs is still in development, there are no universally accepted standards, which could lead to fragmentation in implementations.
- Adoption barriers: Widespread adoption of SBTs depends on the willingness of organizations and users to embrace decentralized identity systems.
- Immutability: Once minted, SBTs cannot be altered. This creates challenges if credentials or reputations need to be updated or corrected.
- Legal and regulatory issues: SBTs may face regulatory scrutiny, especially if used for identity verification or other sensitive functions.
- Interoperability: Ensuring that SBTs work across different platforms and ecosystems remains challenging as the technology evolves.
- Revocation: Unlike traditional credentials, there is no easy way to revoke or invalidate an SBT without burning it, which might create complications in some cases
It is important to note that SBTs were conceptualized for use in decentralized systems, but their success depends heavily on the development and maturity of such ecosystems and their implementation.
Without widespread adoption of decentralized platforms, the utility of SBTs could remain limited or even co-opted by institutionalized or centralized entities. This could break with the original idea of decentralization and raise concerns about control, privacy, and the potential for centralized gatekeeping, which goes against the core ethos of Web3.
Conclusion
Soulbound Tokens offer a new way to create verifiable, non-transferable digital assets on the blockchain representing identity, achievements, and credentials.
Unlike NFTs, SBTs cannot be traded, bought, or sold, making them ideal for reputation systems, governance, and access control in decentralized systems. Early experiments suggest that SBTs could be key in decentralized identity verification in many areas.
Although creating an SBT is possible using current blockchain tools, the standards for SBTs are still in development. The lack of standardized practices and regulatory frameworks may present challenges, including privacy concerns, security risks, and limitations in adoption.
It’s crucial to remember that the success of SBTs depends on the growth and acceptance of decentralized systems. Without this, there is a risk that SBTs could be adopted by centralized entities, which would undermine the core principles of decentralization and trustless systems that Web3 aims to establish.
In the meantime, SBTs can be seen as an evolution from NFTs, offering a new direction for blockchain technology. They show promise in advancing decentralized systems for identity and reputation verification. As a result, they have the potential to play a significant role as decentralized ecosystems continue to grow.
FAQs
No, SBTs cannot be transferred once they are issued. They are permanently tied to a specific wallet address and cannot be moved or traded. However, they can be burned if necessary, removing them from the blockchain. SBTs are tied to an individual’s digital identity and reputation in the blockchain space, while Soulbound items are tied to video game achievements. Yes. Although individuals cannot buy or sell Soulbound tokens, they can burn them. This is usually done by sending the token to a “burn address” (a wallet that no one can access) or through a function provided by the smart contract that issued the token, rendering it permanently unusable.Can Soulbound tokens be transferred to another wallet?
What is the difference between a Soulbound token and a Soulbound item?
Can you burn Soulbound tokens?
