Soul Bound Tokens or SBTs seem to be the latest buzzword around crypto land. In a paper titled, 'Decentralized Society: Finding Web3’s Soul', Ethereum founder, Vitalik Buterin proposed soulbound tokens.
In this article, we'll dive deep and understand what SBTs are and how they could transform Web 3.0 even further.
Well, if you're imagining something straight from the game, World of Warcraft(a popular online multiplayer role-playing game), we wouldn't blame you. After all, Vitalik grew up playing the game and the concept of SBTs were inspired by the in-game ‘soul’ items from the World of Warcraft.
Put simply, SBTs are just like NFTs but are 'non-transferable' in nature.
According to the paper, the word 'soul' means the account or the wallet, and the token held in the wallet is known as the 'soulbound token'.
That means, that once you receive an SBT, it is for life. It is 'soulbound' to your wallet.
You can neither trade nor transfer it.
Before we get to that, let us first understand how NFTs are being used currently.
A host of people have been buying NFTs to sell them at a higher price.
However, the use-cases of NFTs go beyond speculation and into some groundbreaking ideas such as the 'POAP' protocol.
Introduced during ETHDenver in 2019, Proof-of-Attendance-Protocol or POAP is a project that provides NFTs to users as 'proof' to mark their attendance at a certain event(virtual or physical).
Think of it as a digital badge that you receive for attending an event.
Imagine the crypto clout you'd receive from your friends for having a POAP NFT that you received for attending an Ethereum event. Pretty cool, right?
The problem here is, that ever since POAP launched on Gnosis Chain (xDai) in October 2020, you could sell them in an open market such as OpenSea.
This defeats the entire purpose of POAP NFTs. If anyone can buy the POAP NFT on a marketplace which was supposed to be exclusive to those that attended an event, then what is even the point of these NFTs?
This is where Soulbound Tokens come in.
Since they're 'bound' to one wallet and can't be transferred, it opens up a wide range of use-cases.
Let's take the example of a ticket to an IPL game.
Say the board members of IPL decided to issue match tickets as NFTs and only limited seats are available.
There are two problems here.
With soulbound tokens, people can't trade them and sell them to the highest bidder and the IPL would have no problem identifying the owner of the ticket as they're bound to a single fan, making it unique to that fan and nobody else.
Vitalik has proposed a community recovery process.
If you lose access to your soul(wallet), you can rely on your trusted relationships to regain ownership of lost SBTs.
Users can curate a set of “guardians” and they'd be able to change the keys to your soul. These guardians could be close friends, family members, trusted institutions, etc.
A parallel that could be drawn here can be that of a centralized exchange(CEX) such as Coinbase or Binance holding private keys to your funds/crypto.
When you buy and store crypto on Binance or Coinbase, you're essentially asking them to 'watch over' your fund. And if you lose access to funds, they'd help you restore it.
These guardians are the same. They could authenticate the owner of the soul address and help you recover the lost SBT.
Vitalik Buterin has predicted that Soulbound tokens (SBTs) will be available for early use by the end of this year. He also expects them to be mainstream by 2024.
These are some of the questions that will hopefully be answered as the space expands and adoption increases.
Soulbound Tokens certainly seem exciting and have the potential to elevate the Web 3.0 landscape for sure. Although we're excited, the path isn't completely rosy and the impact of SBTs and how the world embraces them remains to be seen.
What do you think about this? We'd love to hear your thoughts.
Rahul is a former software engineer who is now a writer. After working as a full-stack developer early in his career, he realized that coding was not his forte and began writing blogs, poetry, and articles for sports magazines. He is always torn between Football and Bitcoin as his first love. In his spare time, he enjoys reading books on economics, startups, and business, as well as educating people on personal finance, cryptocurrency, and Web 3.0 on Instagram.