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What are Soulbound Tokens (SBTs)? 

What are Soulbound Tokens (SBTs)? 

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Soulbound tokens (SBTs) are a very new concept in blockchain. They are unique, just like non-fungible tokens (NFTs). But unlike NFTs, you cannot buy, sell or transfer them.  

Once you receive a Soulbound token, it enters a unique wallet called a ‘Soul’ and belongs to you forever. Only the person or organization who issued it to you can ‘burn’ or destroy it. 

Since it is non-transferable, you can trust an SBT as proof of a person’s academic qualification, work history, attendance at an event or a similar achievement. 

SBTs could also help you learn more about a person or company before entering into a business deal or partnership. 

SBTs are self-certified in the same way we disclose information about ourselves in our resumes. To better understand it, think of it as an extension of your resume. 

For instance, in an interview, the recruiter may ask to see the soulbound token you received from your school or past employer instead of contacting them. 

You can only store SBTs in a digital address or wallet called a ‘Soul’. The purpose of this singularity is to reduce the risk of scams. 

Who Invented Them?

The term ‘Soulbound tokens’ is very recent. It was first mentioned in a paper published by Ethereum founder Vitalik Buterin and two other senior software researchers in May 2022. 

The authors argue that Web3 presently focuses on transferring financial assets rather than building social relationships based on trust. So, they proposed soulbound tokens to allow Web3 users to verify trust among themselves. 

To be clear, this does not mean that SBTs will completely replace NFTs. The two digital assets are supposed to serve different purposes. 

You can trade an NFT and use it as a financial asset. On the other hand, SBTs serve as proof of reputation and achievements rather than as proof of wealth. 

How Can We Use Them? 

In theory, we could use Soulbound tokens in several cases. A great example is giving out university degrees as SBTs. Graduates will not be able to change or trade them. 

Another good example is using SBTs as event tickets. Event planners would be able to verify that a person attended the event since they would have an SBT as evidence. 

Lending companies could also use SBTs as credit reports to store borrowing histories. When borrowers pay their loans back, the lender could burn the SBTs or replace them with proof of payment. 

Artists may also use Souls to stake their reputation on their work. The more SBTs an artist has in his Soul, the easier it would be for buyers to confirm the authenticity of his work. 

Generally speaking, we can use Soulbound tokens in sectors where market factors depend on scarcity, reputation and authenticity. 

How do you recover a soulbound token?

If you own an SBT, some of your most significant achievements in life are stored there. So, what happens if you misplace or forget the key to your Soul wallet? 

Luckily, Buterin and his co-authors outlined some practical strategies to recover it. The first is what they call ‘social recovery. 

Using this model, you create a group of ‘guardians’ and grant them the power to update the keys of your soul wallet. These guardians could be friends and family members, institutions or your other crypto wallets. 

However, while social recovery avoids a single point of failure, it still requires you to keep trusting relationships with your guardians. 

Unfortunately, there is always the risk of unforeseen mishaps – you could have a falling out with your guardians, or they could pass away. 

Buterin says a more secure way would be to link the recovery to a Soul’s memberships across groups. Instead of selected guardians, members in your Soul’s community would need to agree and help you retrieve your wallet keys.

Are there any risks associated with Soulbound tokens? 

As the authors point out in their paper, the creation of Soulbound tokens carries significant risks. 

For one, it is eerily similar to plans by some communist governments to create a social credit system. Such systems often punish people for presumed disloyalty to the state.

Authoritarian governments may use SBTs to isolate and discriminate against some groups of people. These people may become targets for physical or cyber-attacks and even migration restrictions. 

As a result, Buterin and his coauthors believe that people may need to demand the option to “burn” or hide their SBTs from the public and only reveal them when essential.

When will SBTs become available?

Vitalik Buterin predicts that soulbound tokens (SBTs) will be available for early use by the end of this year. If he is correct, we might finally experience the beginnings of a truly “decentralized society”.

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