What Are Soulbound Tokens (SBT) - The Digital Identity Tokens

Soulbound Tokens (SBTs) are non-transferable digital identity tokens that store unique records, such as education credentials, memberships, achievements, traits, etc. Soulbound Tokens were proposed and promoted by Vitalik Buterin himself.

In May 2022, Vitalik Buterin proposed the concept of Web3’s Soul, a foundation for what is known as DeSoc or Decentralized Society. DeSoc is governed by its users and the SBTs work as unique records for the DeSoc.

Vitalik Buterin, alongside Puja Ohlhaver and Glen Weyl, created the idea of Soulbound Tokens thanks to the inspiration from World of Warcraft, where item rewards are called soulbound. And just like soulbound in World of Warcraft, Soulbound tokens also cannot be traded to other users or wallets.

Cryptocurrency tokens and NFTs can be freely transferred from one account to another. Soulbound tokens, however, are non-transferable. They are permanently stuck to the same wallet or account. These wallets where you can issue Soulbound Tokens or SBTs are called Souls.

Souls serve as unique digital records where you can show your personal achievements or work history to people. You can imagine Soul like your “LinkedIn profile” but stored permanently on a blockchain. Your Soulbound Tokens inside your Soul can be imagined as separate modules that build that unique profile of yours.

But what is the purpose of having SBTs and Souls in the first place? Why not just use a traditional CV or use LinkedIn? Well, here is the deal. 

A Soul can generate an SBT to another Soul, and this generation process can be attested by other Souls. This process can be useful for companies or entities that want to issue SBTs as unique digital records that represent something important and need to have third-party verifications.

Another use case. The feedback mechanism can also be replicated here, where one Soul can advocate for another Soul. The goal is to create a web3 utopia where users will compete for reputation and better credentials, and not a money-first ecosystem like standard crypto tokens or NFTs.

The web3 world has been evolving rapidly in the past few years. However, there is one problem. The web3 space does not really have any reputation mechanism. Many entities or developers work with each other on multiple web3 protocols, yet the public remains clueless as to who is who due to the privacy and pseudonymity in the blockchain. 

This issue has caused many web3 applications to stay communicative on web2 platforms. The best example of this is how web3 governance platforms still use Discord to mitigate the risk of a Sybil attack. This is where Soulbound Tokens can step in.

Souls can generate self-certified SBTs for their own wallets. Souls can also generate SBTs for other Souls. Since the SBT issuance is publicly recorded on the blockchain, anybody can identify a Soul’s social circle and where it has previously issued all the SBTs.

SBTs can become the connecting dot for the lack of trust in these web3 platforms and prevent Sybil attack in the example above. Since SBTs are non-transferrable, they are meant to become your unique digital credentials and records.

Another SBT purpose is to confirm the digital identity of the Souls (wallet owners) and their reputation. SBTs are needed to simplify and decentralize the process of identification and collaboration.

With just a simple PDF or LinkedIn profile, many of them can easily be faked. Recently, Binance's CEO claimed that only 50 or so profiles out of 7,000 Binance Linkedin profiles are real. Many applicants to health institutions also often lie about their experiences.

SBTs will aim to solve all these issues by creating a digital record that everybody can verify through the blockchain. Digital identity verification is the ultimate proof that decentralization is better in the centralized vs decentralized argument.

Imagine if a Soul receives commendation and credentials from publicly verifiable Souls which are related to reputable institutions. That alone will serve as immutable proof that the owner of that Soul is genuine.

Another potential use case of SBTs is to improve the concept of airdrops. Many big airdrops have happened in the past, and usually, the distributions were very disproportionate. 

For example, when Uniswap airdropped their UNI tokens, many individuals had 10-20 wallets and received multiple airdrops, even though they didn’t contribute more. 

Soulbound tokens will be able to revolutionize the airdrop mechanism, where Souls with better contributions and credentials will receive more tokens.

Since SBTs are not live yet, the technicalities around them remain vague. The most common question around SBTs usually involves the scenario where you lose your private keys to a hacker or something.

Vitalik Buterin himself believes this type of risk can be mitigated by introducing a group of entities or high-profile individuals that will be called the guardians. These guardians will be able to help an owner recover his Soul if it has been compromised.

However, all the details around this proposal remain vague at this point. The risks involved with SBTs will remain blurry as long as we still don’t know how the entire system works with these guardians and the recovery method.

Soulbound tokens will become part of the crypto future. The fact that it has been personally promoted and proposed by Vitalik Buterin should increase its potential even more. Soulbound, unlike normal cryptocurrencies and NFTs, has a chance to actually become useful in everyday life outside its monetary value.

As long as Vitalik and his team can solve the potential risks (such as identity thefts or SBT distribution abuse), this might become the next big thing in the Ethereum world.