WHAT ARE SOULBOUND TOKENS, AND HOW DO THEY WORK?

 Gamers will never forget the countless hours of effort it took to eventually obtain the rare Soulbound goods in World of Warcraft. These items are referred to as "Soulbound" since only the players are the sole owners of them and they are not exchangeable with any other players. This specifically inspired Vitalik Buterin, the inventor of Ethereum, to consider the possibility of NFTs being Soulbound.

This video game feature has a lot of potential applications in the real world, which makes it highly exciting for Vitalik to integrate in the web3 ecosystem. As a result, he and his other partners developed the idea of Soulbound tokens, which are digital identity tokens that identify a person or an organisation. These distinctive qualities, traits, or backgrounds that make up the individual or the group are represented by these tokens.

What are Soulbound tokens (SBTs)?

SBTs, also known as soulbound tokens, are digital identity tokens that represent a person's or an entity's attributes, features, and accomplishments. It advances NFTs applications by utilising blockchain technology.

NFTs can be sold or transferred but cannot be faked or copied since they are connected to a blockchain by a special identification code. An NFT that is created to serve as a Soulbound token, however, cannot ever be removed from your Soul. The Soul in this case is your own pocketbook. The goal of SBTs is to transform the idea of NFTs into something that goes beyond cash and bragging rights to a unique and non-transferable token.

Soulbound tokens, which stand in for your identity, are hence non-transferable NFTs. They are connected to a blockchain network that stores a person's or an entity's unique identifying information, including personal data and history like age, qualification, education, health records, and professional accomplishments.

How can individuals and entities utilize SBTs?

People are capable of having numerous souls, each of which represents a particular facet, characteristic, or life achievement. For example, a person may have a "credential Soul" for their past employment history, a "medical Soul" for their medical history, or a "education Soul" for their educational background. People can build a verifiable, digital web3 reputation based on their prior experiences and activities thanks to souls and SBTs, which increases their trustworthiness. In a nutshell, SBTs are like our self-certified curriculum vitae.

Souls can stand in for entities that distribute SBTs in the case of entities. In this case, other Souls that serve as counterparties to this connection can vouch for or issue SBTs that one Soul holds. These counterpart Souls may be corporations, people, or other entities. Companies, for instance, may be Souls that grant SBTs to workers who have their own Souls in the form of work experience. The SBT for your work experience can be added to your "Credential Soul," which also houses prior SBTs for your school background and other credentials. Similar to offline clubs, online clubs can use SBTs to confirm their membership status.

Benefits of using Soulbound tokens

• SBTs are very useful for digital documentation and verification. SBTs are bonded to their Souls, making them impossible to fake and ensuring the legitimacy of the document.
• They may be useful in the selection process for the best candidate for a job.
• SBTs make it possible to build links in decentralised power structures that are more dependable.
• To gain access to particular metaverse projects, SBTs can be used to verify one's identity.
• Voting processes in DAOs can be considerably enhanced by the use of SBTs.
• Decentralized lending systems can offer unsecured loans thanks to SBTs.

How do Soulbound tokens work?

Despite the fact that there are currently no formal Soulbound token specifications, it is possible to summarise the fundamental operation of SBT from the whitepaper created by Vitalik and his collaborators.

The non-transferability of SBTs is one of their primary distinguishing characteristics. Soulbound tokens are not designed to have a market value and as such cannot be sold or moved to another wallet, in contrast to current NFTs and token standards like the fungible ERC-20 or the non-fungible ERC-721. This is due to the fact that they are connected to the Souls. What precisely are "Souls" then?

SBTs are produced by and kept in accounts known as Souls. SBTs are used to establish provenance and reputation because Souls own them. As was already mentioned, souls can stand in for people, groups, businesses, or other types of entities. Notably, Souls are not assumed to be a 1:1 depiction of individuals, which means that in a decentralised society, a single person may have numerous Souls (DeSoc).

For instance, a person may have multiple Souls that represent their identity (such as a driver's licence or passport), credentials (which preserve their educational and professional histories), health information, and so forth.

Do any Soulbound tokens exists so far?

SBTs are still at the conceptual stage as of August 2022. Glen Weyl, a co-author of the original SBT whitepaper, predicts that by the end of 2022, there will already be some early SBT use cases.

The first SBT to be released on the BNB Chain, Binance Account Bound (BAB), was launched by Binance on September 8, 2022, making it the industry leader in SBT deployment. By acting as a digital verification tool for Binance customers who have finished KYC, BAB aims to alleviate identity verification difficulties in web3. It has no monetary value and cannot be transferred.

Conclusion

According to Vitalik Buterin, Soulbound tokens are a necessary component of a decentralised society. SBTs are assisting in the development of a DeSoc by establishing digital identity and provenance. Even though the idea of a decentralised society might appear abstract, there are still useful applications to be thought about. With its numerous applications in web3, DeFi, and even everyday life, SBTs are a new phenomena that have the potential to transform the web3 ecosystem and advance the idea of NFTs beyond the possession of works of art and bragging rights.