What is Soulbound Token (SBT)? Learn the Future of Identification Technology in Web3

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7 Jan 2024

Fake identities or falsifying information are often a problem on social media and in the professional world. The absence of accreditation verification and employment records can lead to difficulties in ensuring the authenticity of one's information. However, the presence of Soulbound Token (SBT) offers an innovative solution to overcome this identity problem. So what is Soulbound Token (SBT) and how can it overcome these problems? Let's understand more in the following article.

Article Summary

🪙 Soulbound Token (SBT) is a non-transferable digital identity token stored on the blockchain . It represents the reputation and achievements of an individual or entity, including work history, medical records, accreditations, and achievements.
🖼️ SBT is designed so that it cannot be transferred or traded once issued to someone's wallet , so it remains associated with its original owner forever. This differs from conventional NFTs in that ownership can be transferred.
📄 The SBT concept was introduced by Vitalik Buterin and his colleagues through their whitepaper entitled "Decentralized Society: Finding Web3 's Soul."
📟 SBT can function as a “digital passport” that proves identity without directly disclosing personal information.

What is Soulbound Token (SBT)?

Source: Andreluque.eth

What is Soulbound Token? Soulbound Token is a non-transferable digital identity token and is stored on the blockchain . This identity can represent a person's work history, medical records, accreditations and achievements.

Because SBT cannot be transferred from one wallet to another , SBT is permanently bound to a unique wallet . The wallet is compared to a soul or ' Soul ', so it is called ' Soulbound '.

You can have several Souls or wallets that contain Soulbound Tokens (SBT), such as Educational Soul, Medical Soul, or Work Experience Soul. For example, in Educational Soul, you can collect SBT that reflects the places where you studied, as well as other Souls.

The SBT concept was introduced by the founder of Ethereum, Vitalik Buterin, along with his colleagues who are lawyers and economists, Puja Ohlhaver and Erin Glen Weyl. In May 2022, they launched an SBT whitepaper entitled Decentralized Society: Finding Web3's Soul .

The whitepaper explains about a decentralized society ( SocDec ) and how this can be realized, one of which is with SBT.

SBT can act as a “digital passport” that users can use across various platforms and applications without needing to provide personal information directly. Users can prove their identity via SBT.

What is the Difference Between NFT and SBT?

In contrast to conventional NFTs which allow for buying, selling and transferring ownership, SBTs are intentionally created to remain in the hands of the creator or initial recipient forever.

For example, a university issues Educational Soul which contains SBT to its students. The SBT will continue to be in the student's wallet to provide identity and cannot be transferred or transferred.

Thus, unlike NFTs which have a value based on supply and demand, SBTs have no monetary value and cannot be traded once issued to the user's wallet.

Apart from that, there are striking differences between the two. Conventional NFTs represent ownership of valuable digital assets and properties, while SBTs represent the reputation and achievements of an individual or entity.

Can I buy SBT? SBT cannot be traded and has no monetary value. Rather, SBTs may be issued by individuals or entities as a representation of accomplishments and accomplishments.

How Soulbound Token (SBT) Works

Source: ApacDAO

The way Soulbound Token (SBT) works is based on a special design that ensures the token is permanently tied to its owner. Here's how SBT works:

Token Creation : SBT is first created or minted by an authorized entity, such as a community, institution, or platform. This creation process involves smart contracts running on the blockchain .
Gift to Initial Owner : After the SBT is created, it is given to the initial owner. The initial owner can be the token creator himself or another individual entitled to receive it.
Non-Transferable Property : Here there is a fundamental difference between SBT and conventional NFT. SBT is designed so that it cannot be transferred or traded once issued to someone's wallet . This means that once SBT is given to its original owner, the token will remain in the same wallet and cannot be transferred to another wallet .
Permanent Ownership : Ownership of SBT is permanent and cannot be changed. SBT remains in contact with its original owner throughout the validity of the token. This creates a strong emotional and personal connection between the owner and the token.

Uses of Soulbound Token (SBT)

Source: ApacDAO

In the Web3 ecosystem, reputation and digital identity are becoming increasingly important. Certain SBTs can also prove an individual or organization's ability to repay loans in DeFi from financial institutions, for example Masa Finance.

By having an SBT that reflects credit records and the ability to repay loans on time, individuals or organizations can increase their credibility to obtain loan funds to interact with DeFi platforms.

Apart from that, Soulbound Token also has the potential to be the safest and easiest way to create a valid CV or resume for someone based on past work and records.

With SBT, resumes can be more trusted because every qualification and achievement listed in them is supported by tokens verified on the blockchain.

Then, SBT can also be an alternative for voting in a decentralized autonomous organization ( DAO ). In contrast to the current governance model which is based on the number of tokens held by members, SBT can assign voting power based on user interactions and reputation with the community. The model can help prevent malicious attacks, such as Sybil attacks.

Sybil attacks are a tactic in which an entity or individual attempts to purchase a large portion of a governance token to gain control and control the direction of a project.

Example of Current Use of Soulbound Token

Although Soulbound Token (SBT) has not been fully adopted by the general public or the NFT ecosystem, several parties have tried to apply it in the real world.

For example, MoonPay has launched Web3 Passport in the form of SBT, a loyalty and rewards program that provides exclusive access to products and experiences from MoonPay partners.

Apart from MoonPay, several parties have also shown interest in SBT, such as blockchain project Ternoa , VC LongHash , and a collaboration between MetaMask, Cobo, and Gnosis Safe.

Later, SBT also started to be implemented with diploma tokenization by the National University of Mongolia . Not only that, Sumitomo Mitsui Banking Corporation (SMBC) also conducted SBT trials which proved the potential value and benefits of SBT in providing innovative solutions in the blockchain world.

The Future of Soulbound Token (SBT)

Based on its whitepaper , SBT is expected to become one of the foundations for a decentralized society (SocDec) in the Web3 era. Soulbound Token can help solve trust issues by establishing provenance and reputation, as well as reducing the risk of manipulation and fraud in the Web3 ecosystem.

Although privacy and decentralization challenges remain, SBT has the potential to be a solution to various issues of digital reputation and trust between parties in the new internet environment.