Before I introduce you to Soulbound Tokens (SBTs), let me give you an overview of Ethereum protocols first and set the context.

When I talk to web3 newbies, the concept of “ownership” is often hard to understand.

We can find the answers in the 𝐬𝐦𝐚𝐫𝐭 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬, which contain pre-defined rules and data structures for the tokens.

🔹 ERC-20 defines fungible tokens on Ethereum. Each token is interchangeable. There is 𝐧𝐨 𝐮𝐧𝐢𝐪𝐮𝐞𝐧𝐞𝐬𝐬 for each token. Using the standard ERC-20 smart contract, we can 𝐜𝐫𝐞𝐚𝐭𝐞 𝐚 𝐧𝐞𝐰 𝐭𝐨𝐤𝐞𝐧 in minutes.

In the smart contract, it records how many tokens are owned by a certain address.

🔹 ERC-721 defines non-fungible tokens (NFT). Each token is 𝐮𝐧𝐢𝐪𝐮𝐞 and cannot be divided. 

In the smart contract, once an NFT is minted (created), it is assigned with a unique token ID, and there is a map to record which address the token ID belongs to. For example, crypto punk 9463 belongs to Bob’s address.

🔹 ERC-1155 can hold both fungible and non-fungible tokens in one smart contract. It is useful in games when we need to use fungible tokens for game coins (not unique) and non-fungible tokens for game props (unique). In this way, we just need to maintain one smart contract for each game.

In the smart contract, there are two maps to hold the fungible tokens and non-fungible tokens separately.

🔹 Soulbound Tokens (SBT), proposed in May, are digital identity tokens that represent the traits that make up a person or entity. For example, certificates, user profiles, and health records can be represented by SBT.

The smart contract is similar to ERC-721, but the 𝐭𝐫𝐚𝐧𝐬𝐟𝐞𝐫 function is disabled, so SBT is bound to the original owner forever. 

Over to you: We can see NFTs (ERC-721) are not dividable because each NFT is assigned with one token ID in the smart contract. Can you think of a way to make it dividable in the smart contract?

Soulbound Tokens

You’ve heard of NFTs – now get familiar with the term “SBTs” – a concept Vitalik Buterin expects take the world by storm by 2024. Details here.

Purpose-built decentralized digital identity tools necessary to represent the “Soul” of Web3 participants already exist. Infrastructure, in the form of W3C Decentralized Identifiers (DIDs) and Verifiable Credentials (VCs), is in place and being utilized by trustworthy organizations around the world. There is a strong argument that DIDs and VCs can satisfy all use cases envisioned for the SBT concept.

Soulbound Tokens (SBTs) are a new form of NFTs, introduced by Vitalik Buterin, with a couple of additional features.

– It’s non-transferable.
– It’s revokable.

Basically, if the NFT is assigned to your wallet address, you can’t transfer it to anybody else.

As a result, it’s non-monetizable devoiding the token of any financial value.

Secondly, the issuer can, at any time, revoke your access or change the status of the SBT.

So, the issuer has sole authority on the SBT and not you.

Then what the hell is it for?

It actually has a few plus sides.

You can use SBTs as invitations to a group.

The invitee can never sell it to anyone else and you can demote or promote the invitee by changing the invitation by editing the SBT.

It works great for any type of certificate, award, or even health records as well.

Finding Web3’s Soul

Buterin and his fellow authors detail their vision for a fully decentralized society (DeSoc) and how we could make it a reality with Soulbound Tokens (SBTs). 

📌Represent credentials, commitments and linked to our “Souls.”

📌Tokenized representations possible traits, features and achievements that make up a person or entity

📌Souls can also issue and attest SBTs to other Souls. Students will receive an SBT, for example, from a college, which will also be represented by its own Soul.

📌Non-transferable identity and reputation tokens allow individuals to verify all of their information — their education, work history, credit score, medical history, professional certifications, etc. — using blockchain technologies.

Soulbound Tokens: Social credit system or spark for global adoption?

Supporters say they are a much-needed evolution of Web3, humanizing decentralized finance; critics say they are unnecessary, expensive and possibly even dangerous…

Web3 should be more than financial assets

SBTs would form an essential building block for a decentralized society, or DeSoc, which points away from the current hyper-financialized state of Web3 and depends on non-transferable social relationships of trust.

People would have like two or three [wallets] that represent different, very distinct aspects of your life. You might have one for your health profile, which would all be encrypted and would only have access to doctors or something… one that represents a professional life, like your CV…one that represents personal relationships – those might all be unlinked from each other.

Not solved: Questions like what happens when a person or organization sends your Soul an SBT that you don’t want? SBTs are permanent, so are you stuck with them forever?

🔵 What Happens If You Lose your Soul?

Buterin proposed a community-wide adoption of something known as the “social recovery model.” With social recovery, users can appoint a set of individuals or institutions as “guardians.”

🔵 The Dark Side

SBTs could be used by bad actors to identify, target, and harm members of specific communities. The potential when it comes to governing bodies is particularly alarming. For example, holders of a specific SBT could be denied entrance to facilities, denied medical care, refused travel permits, have their voting rights revoked, and more. 

This is one of the reasons why the authors note that users must have a way to discard or hide their SBTs if needed. The use cases are limitless.

Whilst still conceptual, SBTs could be available by end of the year. It will be a community effort to develop SBTs and make them “sociable”.

Soulbound Tokens Use Case

What are Souls and Soulbound tokens (SBTs) ?

• “Soul” means account, wallet, etc.
• Souls can hold SBTs, which are non-transferable, revocable, and initially public; private use cases will become more possible later.
• SBTs can track “affiliations, memberships, and credentials” such “educational credentials, employment history, or […] writings or art.”
• Souls can self-issue SBTs, but they can also be attested to by other Souls “who are counterparties to these relationships.”

SBTs are non-transferrable NFTs. Once you receive an SBT, you hold it in a Soul wallet forever. Only the issuer can burn the souldbound token.

🎨 𝗙𝗼𝗿 𝗮𝗿𝘁𝗶𝘀𝘁𝘀

Artists can design their own SBTs for diverse purposes, including attaching NFTs to a chain to deepen provenance. SBTs and the social networks they chart can help fight plagiarism, deep fakes, and more.

⏳ 𝗦𝗼𝘂𝗹 𝗟𝗲𝗻𝗱𝗶𝗻𝗴

Web3’s DeFi sector has trouble facilitating loans without upfront collateral. SBTs could establish a “censorship-resistant, bottom-up alternative to top-down commercial and’social’ credit systems.”
The point? SBTs let people use their reputations as loan collateral instead of money.
“Loans and credit lines could be represented as non-transferable but revocable SBTs, so they are nested amongst a Soul’s other SBTs,” the paper’s authors wrote. “[That’s] until they are repaid and subsequently burned, or better yet, replaced with proof of repayment.”

🔄 𝗖𝗼𝗺𝗺𝘂𝗻𝗶𝘁𝘆 𝗿𝗲𝗰𝗼𝘃𝗲𝗿𝘆

SBTs track what communities you’re a part of, so if you need to recover your Soul, you may “draw on a maximally broad collection of real-time relationships for security” Some practical issues remain, but the concept is doable.

💸 𝗦𝗼𝘂𝗹𝗱𝗿𝗼𝗽𝘀

“Souldrops” are airdrops based on Soul’s SBTs and other tokens. A DAO that wants to convene a layer 1 protocol community could souldrop to developers with 3 out of 5 conference attendance SBTs or POAPs. Protocols could weight token drops across SBTs. A non-prot whose aim is to plant trees may drop governance tokens to Souls who possess environmental action, gardening, and carbon sequestration tokens, perhaps dropping more to carbon sequestration token-holders.

🛡️ 𝗗𝗔𝗢 𝗱𝗲𝗳𝗲𝗻𝘀𝗲

DAOs, which focus on community governance, face sybil attacks, where users use several wallets to increase their voting power. SBTs would help protect against these attacks by separating “unique Souls and probable bots” to deny “voting power to a Soul that seems to be a Sybil.”

📝 𝗣𝗿𝗼𝗽𝗲𝗿𝘁𝘆 𝗿𝗶𝗴𝗵𝘁𝘀

Most NFTs give their owners the right to use, destroy, or profit from an asset all at once. Outside of NFTs, it’s rare for one person to have all these property rights. You can utilize a rented apartment but not ruin it, etc. SBTs can emulate mainstream property approaches and construct web3-specific ones.

𝗜𝗻 𝗰𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻…

The future of NFTs will be more social and expansive than many of us could have envisioned.
😄 Notice: you can’t sell your soul if you don’t have one.
❓ What other possible SBT use cases can you think of?
🔁 If you like the concept, hit that share button!

Related Reading: The Creator Economy : Role of Cryptos & NFTs 

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