What Are Soulbound [SBT] Tokens? How Do They Work?

What Are Soulbound Tokens (SBT)? 


Soulbound tokens are digital identity tokens representing the traits, features, achievements, and attributes that make up a person or entity on the blockchain. These tokens are issued by Souls, which represent blockchain accounts or wallets. They cannot be transferred.

The concept behind Soulbound Tokens seems to come from the game World of Warcraft (WoW), which inspired Vitalik Buterin to derive the name for his beloved Ethereum blockchain from the franchise.

In WoW,’soulbound’ is a property of an object that prevents it from being transferred or mailed to another character, similar to the concept of a token. With this in mind, it’s easy to see how the name and idea came from WoW.

Buterin, Weyl, and Ohlhaver argue that a decentralized society might be built on top of SBTs because they cannot be sold between individuals (DeSoc). Soulbound tokens, which are stored in a blockchain and serve as identifiers, would be the norm for daily transactions in a DeSoc.

Examples of Soulbound Tokens

Tokens that enable web3 have limitations because while fungible tokens are a great way to represent financial assets like stocks and governance rights, non-fungible tokens could strengthen ownership rights by harnessing the power of blockchain technology. Unfortunately, there is currently no institutional framework for digitally representing one’s identity and standing in the community. 

To avoid this problem, SBTs could be used to transfer tokens from minters to a recipient who is unable to transfer the token to another user. The minter retains the authority to destroy the token if they no longer have faith in the recipient.

👉 SBTs have the potential to solve many inefficiencies in our society when it comes to digital identity and reputation on-chain. With so many builders in web3, I am excited to see how we apply SBTs in the short future.

Soulbound tokens are digital achievements that represent your success. Some of them look like real-world achievement badges, while others look like virtual currency. You earn them through hard work, dedication, and practice.

You can earn any number of tokens for accomplishing anything, from becoming a certified yoga instructor to passing a college course. These tokens can be used to unlock special perks in games, purchase items in apps, or redeem rewards at online stores.

👉 For example, you might receive a token for finishing a certain level in a video game. Or you might receive a token after earning a certain number of points in a fitness app.

There are no limits to the types of tokens you can earn. You can earn them by completing degrees, certifications, awards, and more. There are even tokens for being the world’s leading experts on topics ranging from kickball to karate.

Soulbound tokens are a great way to show off your accomplishments and celebrate your successes. You can display them proudly on social media profiles, websites, blogs, and anywhere else where you’d like to let everyone know what you’ve achieved.

But SBTs aren’t just about achievements. They can be tied to a myriad of other traits, features, and personal information. For example, an SBT could be used to verify your name, birthday, political affiliations, charitable giving, criminal record, medical history, nationality, religious upbringing, military history, and more. The possibilities are literally endless.

How Can Soulbound Tokens Be Used?

Soulbound tokens can be used for a variety of purposes. Some examples include:

  • Proof of ownership – You can use your token to prove ownership of an item, like an NFT.
  • Proof of attendance – You can use your tokens to prove that you were present at a certain place or event.
  • Proof of History – You can use your Soulbound tokens to prove that an item existed at a certain point in time.
  • Proof of presence – You can use your Soulsbounded tokens to prove that you attended a specific event.
  • Digital CV – You can use your soulsbonded tokens to build a digital CV. A series of SBTs from several employers can be used to build a resume that attests to the applicant’s employment history with those organizations.
  • Academic Records Management – You can use your soulbound tokens to keep track of your academic record. Colleges and universities might issue SBTs to their students so that if a future employer requests proof of enrollment, they need only to verify the student’s wallet. With this, it may be possible to eliminate fraud from numerous industries.
  • Uncollateralized Defi Lending – You can use your soulfound tokens to lend against unsecured assets.
  • Certification and Documentation – You can use your Soulfound tokens to certify documents and provide evidence of your existence.
  • DAO Governance – You can use your SOUL tokens to vote on proposals within the DAO.

A lot of paperwork is involved in applying for a visa right now. So, the government issues an SBT, and you supply the address of your digital wallet in exchange for a visa to enter the nation.

How Do SoulBound Tokens Work

SBTs are a new form of digital currency that allows users to lend and borrow money in a trustless environment. Trust is one of the main issues facing the Web 3.0 industry. How can you ever really trust a person’s reputation when the entire system was designed to be trustless, and there is no central authority?

Let’s look at lending money as an example of how SBTs work. A user deposits ETH into his wallet and creates a loan contract. He then sends the loan contract to another user. Both parties agree on the terms of the loan, including interest rates and repayment dates. Once the loan is paid off, the lender receives his funds back plus any accrued interest.

A user’s reputation is measured using several factors, including his past transactions, lending history, and other relevant data points. These factors are used to calculate a user’s risk score. Users with high-risk profiles receive lower interest rates and shorter repayment periods.

To protect against Sybil attacks, SBTs are issued in fixed quantities. Each token represents 1/100th of a vote. As long as a user maintains a certain level of activity within the network, he will continue receiving votes. However, if a user stops interacting with the network, his votes will expire, and he will lose access to his SBT balance.

SoulBound tokens are a new form of cryptocurrency that allows users to lend or borrow money in a trustful environment. By allowing users to earn rewards for lending out their SBTs, the system incentivizes users to participate in the network.

NFTs vs SBTs

The use of NFTs is rapidly expanding in the realms of cryptogaming, collectibles, DeFi, and the metaverse. However, some potential drawbacks of NFTs may impede their widespread implementation in practical settings. NFTs, for instance, are tradable, which means they can be used with any wallet and exploited if their private keys fall into the wrong hands.

However, SBTs are permanently associated with the recipient’s “Soul” or wallet address. This means they cannot be sold or traded for another set. There are a lot of parallels between SBTs and NFTs. Although SBTs lack the liquidity of NFTs, they do have some advantages, such as the issuer’s option to cancel the SBT. SBTs also prevent the transfer of credentials because they are tied to a specific crypto wallet address.

The issuer and the beneficiary of an SBT deal directly with one another. In contrast, when NFTs are sold on an NFT marketplace, several middlemen are frequently involved.

Furthermore, SBTs offer many of the same benefits as NFTs but without allowing users to trade them because they are more difficult to reallocate than NFTs. Furthermore, SBTs enable accountability and transparency across the Web3 ecosystem, which may have far-reaching social benefits.

Are Soulbound Tokens (SBTs) more expensive than NFTs

SBTs are non-monetary tokens and have no price, so they are neither more expensive nor cheaper than NFTs.

Who issues Soulbound Tokens?

Any institution, company, or even individual can issue a soulbound token for its ecosystem. It can be a university, a DAO, or a crypto exchange (like Binance did with their BAB token). 

What happens if you lose your ‘soul’ – can you recover Soulbound Tokens?

Yes, you can recover your SBT, but it is a difficult task to accomplish.

Thefts and scams are commonplace in the NFT community. One of the worst fears you can have is having your Soul stolen or losing your Soul address. Because of this, there must be reasonable backup procedures in place to reduce the risk of theft.

Buterin then proposed implementing the “social recovery model” as a community-wide strategy. Thanks to this idea, users will be able to designate a group of “guardians,” be they individuals or organizations.

If a user’s wallet is lost or stolen, these entities can change the user’s private information. The authors claim that in order to retrieve a Soul’s private keys, they would need the approval of a majority of a randomly selected subset of Soul communities.

Alas, that doesn’t seem to be resolving the problem. It would be tough for a user to get back their stolen wallet if, for example, their connection with their designated guardians had broken down or if their guardian had passed away. Furthermore, if a Guardian faction decides to attack an individual with whom they have been feuding, the effects could be disastrous.

Buterin thinks a larger group of people can aid in finding missing wallets. According to him, this could make SBTs more amenable to recovery than other NFTs.

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CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com

Petar Jovanović

Petar Jovanović

I am Petar and I come from a small country in South-Eastern Europe called Serbia. I am a big-time crypto enthusiast and I am proud to be a part of the project. My job with Captainaltcoin is the content editor and content writer position. Feel free to shoot me a message on Facebook if you would like to get in touch and talk about the emerging crypto world. Stay safe!

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