In the rapidly evolving landscape of blockchain technology, Soulbound tokens (SBTs) have emerged as a groundbreaking concept that redefines digital identity and credentialing. Introduced by Vitalik Buterin, co-founder of Ethereum, and collaborators, SBTs are non-transferable tokens that represent an individual’s achievements, affiliation, and characteristics on the blockchain.
This innovative approach offers a secure method for verifying identities and credentials across various sectors, including education, healthcare, and professional fields.
SB tokens are primarily developers to encapsulate the essence of ownership, making them indivisible and irreversible, thereby building a digital representation of ownership rights. As we delve deeper into the mechanics and applications of SBTs, it becomes clear that they hold significant potential for shaping the future of decentralized identity management. In this article, SBTs are explained further including their workings and use cases.
What are Soulbound Tokens (SBTs)?
Soulound tokens also referred to as SBTs, are certain digital identity tokens that represent an individual or entity’s characteristics, features, traits, and achievements. They are a unique kind of NFT in the crypto realm, issued on a decentralized blockchain by a digital wallet.
Soulbound tokens are indivisible and non-transferable. Once a person acquires an SB token, it will kept in their wallet and cannot be sold or given to another individual. They cannot be sold, burned, or transferred. Since it is built on blockchain technology, it takes NFT applications to another level.
NFTs are connected to a blockchain through their unique identification code, and they cannot be duplicated but can be sold or transferred. However, if a Non-Fungible Token (NFT) is minted to work as a Soulbound token, it can never be transferred from your soul. The main objective of SBTs is to change the idea of NFTs into something beyond money and bragging rights to a one-of-a-kind and non-transferable token.
How do Soulbound Tokens Work?
Instead of utilizing money-centric frameworks to determine reputation, Web3 networks may be able to use Soulbound tokens to help them use non-transferable tokens. For example, the lender currently offers an undercollateralized loan after confirming the borrower’s bank account balances, credit scores, and repayment history.
However, since SBTs serve as a representation of one’s qualifications, one’s reputation will serve as collateral for an undercollateralized loan. The basic idea behind NFTs is that they represent assets of property that have a monetary value. To get an in-depth understanding of SBTs in the Wen3 space, let’s look at a decentralized autonomous organization’s voting system.
The DAO governance model assigns an individual’s voting power based on the number of tokens held by the individual. Alternatively, SBTs issued by Decentralized Autonomous Organizations (DAOs) prioritize reputation instead of tokens owned by the individual. The reputation is evaluated and verified by user interaction with the community.
Use Cases of Soulbound Tokens?
Soulbound tokens have numerous use cases, let’s explore them in detail:
Education History
Soulboud tokens can be used to issue a person’s educational history. A certificate attesting to the completion of a course is given by educational institutions to students upon graduation in a traditional learning system. Students themselves would be Souls on the receiving end of the SBTs, which the educational institution may issue to them in the context of decentralized identification.
The SBT would include a student’s credentials, validating their relevant education and demonstrating their university enrollment. Thus, SBTs can serve as evidence of attendance. If they replace conventional degree-issuing procedures and proof of attendance in the years to come, SBTs can guarantee that no one falsifies their educational records and credentials.
Job Applications
SBTs can be used to store work history and professional certificates. Organizations can issue their employee’s work experience and information regarding their achievements in the form of SBTs, which the employees can later submit while applying for a job.
Health Records
SBTs can store an individual’s medical records. It helps to accelerate the process of switching doctors or healthcare providers.
NFT trading
Trustworthy NFT artists can integrate SBT into their NFT collection and their Soul. NFT collectors will be able to compare the SBT of the NFT collection with that of the Soul of the artist. The buyer can purchase the NFT if the SBT matches. It helps them to identify whether the NFT is original or counterfeit.
What are the Benefits of Soulbound Tokens?
One benefit of employing Soulbound tokens for credential verification is that no one can fabricate information because it is forever copied on the blockchain. Furthermore, SBTs can be used to publicly verify any honors and certifications that a person has obtained. Additionally, it promotes trust among stakeholders and the public at large because authenticity cannot be bought with Soulbound tokens.
Thanks to Soulbound NFTs, protocols will also be able to examine borrowers’ credit ratings to calculate how much they can borrow. Furthermore, by rendering digital representation non-tradable, SBTs prevent Web3 projects from turning into cash logs.
Conclusion
Soulbound tokens (SBTs) represent a transformative shift in how we perceive and manage digital identities and credentials. By leveraging blockchain technology, SBTs provide a secure, verifiable, and non-transferable means of representing personal achievements, affiliations, and characteristics.
Their unique properties make them particularly well-suited for applications in education, healthcare, and professional certification where authenticity and integrity are paramount. As the world increasingly moves towards decentralized systems, the adoption of SBTs could play a crucial role in establishing trust and accountability in digital interactions.