Summary
Soulbound Token (SBT) is a digital identity token that represents the characteristics, features, and achievements that make up a person or entity. SBT is issued by a “Soul” representing a blockchain account or wallet, and cannot be transferred.
Introduction
Soulbound Token (SBT) is a concept proposed in May 2022 by Ethereum co-founder Vitalik Buterin, lawyer Puja Ohlhaver, and economist and social technologist E. Glen Weyl.
Its whitepaper entitled “Decentralized Society: Finding Web3’s Soul” lays out the basis of a fully decentralized society (DeSoc) managed by its users and how the Soulbound token (SBT) works as a credential that we use every day.
What is SBT?
Soulbound Token (SBT) is a non-transferable token that represents a person's identity using blockchain technology. Such identification can include medical records, work history, and any type of information that establishes a person or entity. The wallet that stores or publishes these notes is called “Soul”.
A person can have several wallets (or Souls) that represent different parts of their life. For example, a person may have “Credentials Soul” for work history and “Medical Soul” for medical records. Soul and SBT will allow people to build verifiable digital Web3 reputations based on past actions and experiences.
On the other hand, Soul can represent the entity that allocates SBT. For example, a company can be a Soul that issues SBT to every employee. A digital private club can issue an SBT to verify membership status.
The logic behind Soulbound comes from the popular online game, World of Warcraft.
Players cannot sell or transfer soulbound items. Once taken, a soulbound item will be "bound" forever with the player's "soul".
This concept is applied to non-fungible tokens (NFT). Today, most NFTs are certificates of ownership for digital art or collectibles, such as the Bored Ape Yacht Club. People will buy, trade, or show off NFTs as a symbol of status and wealth.
SBT aims to change the concept of NFTs into something beyond money and status, namely unique, non-transferable tokens. NFT represents assets and property, while SBT represents the reputation of a person or entity. Unlike NFTs, SBTs have no monetary value and cannot be traded once issued to one's wallet.
How is SBT used?
SBT has a variety of potential uses. Here are some examples that can potentially be used in everyday life.
1. Educational history – When a person graduates from university, he or she will receive a certificate proving completion of required courses. The university can be a Soul that issues SBT, while students can be a Soul from the recipient side. SBT will retain students' credentials to prove that they have the relevant qualifications and are members of the university. Simply put, SBT will serve as proof of attendance.
2. Job applications – Theoretically, job applicants can send all their work history and professional certificates using official SBTs issued by previous employers and institutions. SBT will serve as proof of skills certificate.
3. Health records – The process of changing doctors or health services can be accelerated using SBT which stores the person's medical records. Hypothetically, SBT would replace time-consuming processes, such as filling out paperwork, verifying medical history, and calling someone multiple times.
How does SBT work in Web3?
Trust is one of the main challenges affecting the Web3 industry. How can you trust someone's reputation in a system designed to be trustless? Let's use lending money as an example. Just like traditional bank credit scores, SBT can track a user's DeFi loan taking history along with other metrics that determine risk profile.
SBT is also proposed as an alternative to decentralized autonomous organization (DAO) voting. Instead of using the current governance model that is based on the number of tokens held by a member, DAOs could issue SBTs that assign voting power based on user interactions with the community. This model will prioritize voting power for the most dedicated users with a strong reputation.
In addition to creating a reputation-based voting system, SBT can potentially improve DAO voting integrity by countering Sybil attacks, one of the biggest threats to the current DAO governance model.
In a Sybil attack, a person or group of malicious actors will overthrow the DAO by purchasing a majority of the governance tokens. Users with majority voting power can manipulate voting proposals and control the direction of the project as they see fit. Public and verifiable SBT can help detect and prevent criminals from entering the DAO, thereby preventing corruption and Sybil attacks.
What are some examples of SBT implementation?
As of August 2022, SBT is still a concept. Glen Weyl, one of the co-authors who contributed to the original SBT whitepaper, believes there will be initial use of SBT by the end of 2022.
Binance also recently announced ownership of SBT called Binance Account Bound (BAB). BAB tokens are non-transferable, have no monetary value, and are the first SBT issued on the BNB Chain. BAB aims to identify identity verification issues within Web3 by serving as a digital verification tool for Binance users who have completed KYC.
In addition to the Binance ecosystem, third-party protocols will be able to use BAB tokens for a variety of uses, including distributing NFTs, preventing bot activity, and facilitating DAO governance voting.
Closing
SBT has become a hot topic in Web3. Theoretically, SBT could allow people to establish their own digital reputation and assess the digital reputation of others on the blockchain. However, time will tell whether the SBT can function as a Web3 version of an “identity card.”