Soulbound Tokens（SBTs）The non-transferable Web3.0 Token proposed by Vitalik Buterin

2022-06-16, 02:57

Vitalik Buterin presents Non-fungible Tokens bound to a single digital address("soul") as the future digital assets.

Soulbound Tokens or SBTs are non-transferrable NFTs that stick to one address, a “soul” once transferred to it. These tokens are visible to the public and can act as a sort of CV and social identity system on web3 and the Metaverse.

Vitalik Buterin, founder of Ethereum came up with SBTs as a solution to the trust issue on Web3. The transferable nature of NFTs is a weakness that malevolent actors often take advantage of to exploit decentralized ecosystems.

Buterin sees Soulbound Tokens as a sort of social security system to mitigate the anonymity such entities use to perpetuate their activities. At the same time, it would make certain transactions and projects possible that were previously unfeasible in the past.

Some of such use cases could include, as mentioned earlier, a CV. The Soulbound Tokens would include information like the qualifications, work experience, affiliations, and credit score of the “soul” it represents.

Furthermore, Universities, Conferences, and Training could award certificates as SBTs to graduates of their courses. Its non-transferable nature would make it impossible for such certificates to be sold or traded.

SBTs would make simple transfers of ownership like house renting etc. possible. Uncollateralized lending is not left out as well. Finally, Decentralized Autonomous Organizations (DAOs) can take advantage of SBTs in governance token airdrops to protect their ecosystems.

So far, there have been a few problems detected with SBTs, like loss of commercial viability and the dreaded Key loss scenario among others. Read on for more in-depth info on Buterin’s brainchild.

The advent of web3 offers great benefits such as its decentralization, and middlemen elimination. Still, NFTs on the network have a weakness that malicious entities routinely exploit, it is transferable.

So just anyone can come up and say they own or created an NFT and appropriate whatever value or prestige it represents. That might turn out to be a lie if they got it from a third party. However, they may never be found out since there isn't any tangible proof connecting the NFTs to anyone.

This weakness has raised an issue of trust, which could be the undoing of such a viable technology.
Nonetheless, Vitalik Buterin of Ethereum seems to think he has found the solution in the form of Soulbound Tokens(SBTs)

How do Soulbound Tokens Work?

Founder of Ethereum, Vitalik Buterin, co-authored a paper in which he proposes Soulbound Tokens as the future credentials of Web3.

SBTs are Non-Fungible Tokens that when transferred to a digital address stay bound to said address forever.

The idea for this stemmed from a web3 game World of Warcraft, where powerful items in the game are soulbound. In other words, once a player picked them up, he could not transfer them to anyone else.

Soulbound items served as a status symbol in gaming circles because it takes a lot of effort and mastery to win one of these powerful items. Since they were non-transferrable, everyone who had the 'trophies' was sure to have earned them and that was something they could show off.

Vitalik wants to bring that into NFTs in the hopes that it would resolve the issue of trust. He thinks SBTs which represent commitments, credentials, and affiliations of “souls” would build trust and establish provenance and reputation on web3.

Possible Use Cases.

A.Uncollateralized Lending; previously, web3 lending protocols couldn't offer uncollateralized credit because of the element of anonymity. However, if entities have non-transferable soulbound Tokens that carry their credentials and relevant information, this would confer legitimacy and change the face of Web3 lending.

B. Certificates and Proof of Attendance; Universities, Conferences, etc., can transfer SBTs to attendees and graduates as certificates or proof of attendance as the case may be. The non-transferable tokens would then reflect on their “souls” when Web3 managers or anyone who needs to validate them can easily refer to the tokens.

C. For Governance in Decentralized societies; DeSocs governance is vulnerable to capture and domination because of the transferable nature of tokens. Malicious parties could get a hold of enough tokens and hijack the running of these multi-governance ecosystems. However, non-transferrable Soulbound tokens can mitigate that because it makes “souls’ trackable.

D. Soul Bound Tokens Could Serve as a Digital CV; SBTs once connected to a soul will reflect its certifications, capabilities, achievements, and affiliations. Such a soul can then manage this, and it would serve as a résumé in web3 transactions.

E. Digital Artists Can Create Scarcity for Their Products; Artists can connect SBTs to their collections. It will be a sort of signature that collectors can recognize to be sure of whose work they are purchasing. This would protect the artist's works from imitations, preserve their reputation, and help them control the level of scarcity of their work.

Some Anticipated Problems of Non-transferrable Soulbound Tokens.

Non-transferability May Cancel Commercial Viability: since the tokens cannot be transferred, which is one big selling point for NFTs, then they cannot be traded or exchanged. Therefore, it loses its commercial value.
If a wallet holder loses the key to their wallet or wants to transfer to another wallet, would they lose everything connected to their Soulbound Tokens?
SBTs put all a soul’s ‘business’ out there, public. What if the soul has some information they wanted to keep private for personal or even security reasons. It would be a privacy nightmare.

Despite these problems, SBTs might well be the solution web3 has been looking for, just as predicted by Vitalik Buterin. A social identity system for web3 which allows collateralized lending, safer DeSoc governance, Artists Protection, etc. seems like a viable option. However, this invention still has a long way to go before it is fully accepted by the mainstream.

Author: Gate.io Observer: M. Olatunji
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