Identity management has become an important aspect of blockchain technology, as community members have clamoured for ways to manage their identities without having to worry about completing lengthy Know Your Customer (KYC) processes on every platform they use. Different types of identity management features have been theorized, and one of the latest is the Soulbound Tokens (SBTs).
SBTs are non-transferable NFTs issued to users and can’t be sold or transferred to others. It contains the owner’s accomplishments and can be utilized on multiple platforms. SBTs are still in the theoretical stage, with testing expected to begin soon. This article comprehensively analyzes the concept of SBTs and their numerous use cases.
What Are Soulbound Tokens?
Soulbound Tokens (SBTs) are a token designed to serve as a resume for their holders. Vitalik Buterin, one of Ethereum’s co-founders, created SBTs. He explained this concept in a whitepaper he released called “Decentralized Society: Finding Web3’s Soul”. In the whitepaper, the authors spoke at length about a new society, which they called the Decentralized Society, that worked based on the concept of Soulbound Tokens (SBTs).
SBTs are similar to NFTs, except that the owner can’t sell them to others. This type of NFT contains all the lifetime achievements of its holders, detailing various important aspects of an individual. An SBT will include information from a holder’s resume, such as education, employment history, etc.
With SBTs, users can verify their identities while also disclosing their achievements to others. When an individual is about to apply for a job, they can use their SBT to provide potential employers with information about their work and education history.
Individuals who need to verify their identity before using a platform can utilize their SBT to streamline the process. This is possible because SBTs are immutable like the average NFT, meaning they can’t be altered.
This feature makes it nearly impossible to falsify one’s credentials and achievements, reducing the number of cases of identity fraud.
As a nascent technology in identity management, the development of this type of NFT has yet to be perfected. Buterin’s discussion on the concept piqued the interest of blockchain platforms, and multiple variants are expected to be created soon.
SBTs are essentially NFTs, but they differ from the average NFT because they can’t be transferred or sold to others. Users can’t list their SBTs for sale on NFT marketplaces or transfer them to others. Although, individuals can choose to relinquish ownership of their SBTs.
How Do Soulbound Tokens (SBTs) Work?
SBTs are similar to NFTs, but the main difference is that they can’t be transferred as NFTs can. They are identical to NFTs because they are non-fungible and can’t be exchanged.
Every SBT is stored in an account called a “Soul.” In every Soul, owners can store SBTs that contain records of their achievements of different types. Souls are wallet addresses that store this unique type of NFT.
Souls are intended to “reflect their unique traits and solidarities as they acquire SBTs that reflect their affiliations, memberships, and credentials.”
What Are The Use Cases Of SBTs?
Web3 is intended to be a better version of the current Web2 internet, but some of its features are dependent on the structure of the current internet. This means Web3 platforms may still have to utilize centralized structures while advocating for decentralization.
These examples from the whitepaper help to explain this,
- “DAOs rely on Web2 platforms like Discord to negate the possibility of a Sybil attack and to move from coin voting.
- NFT collectors rely on Twitter and OpenSea to show the provenance of their collections
- DeFi lending platforms are unable to give out uncollateralized loans”.
Web3 platforms must choose between centralization and preserving the privacy that characterizes much of this new version of the internet.
In terms of trust, these platforms must address identity issues without jeopardizing users’ desire for privacy. Soulbound tokens appear to solve this theoretically.
Some SBT use cases are listed below:
• Improving decentralization
Decentralized Autonomous Organizations (DAOs) claim to be highly decentralized, but the structure has flaws. Individuals can control the operation of a DAO by purchasing the organization’s native token in large quantities, giving them an edge over others during voting sessions. For example, a whale may purchase up to 51% of the DAO tokens to become the ecosystem’s sole decision-maker.
SBTs tend to solve this issue, as DAOs can incorporate them into the governance system. Because each user can have an SBT that they can use to vote, the chances of a single individual deciding what happens in the ecosystem are reduced.
It is impossible for a whale to purchase the SBTs required to control voting decisions. A DAO may decide to confer SBTs on those who meet specific qualifications, thereby improving the quality of decision-making in the organization.
• Souldrops
SBT technology has the potential to transform airdrop mechanisms. Airdrops conducted by crypto projects are often hijacked by only a few users. These free tokens are only readily available to a few people rather than the entire community, which defeats the purpose of the airdrop event.
Projects can use SBTs to ensure a more equitable distribution mechanism and attract the specific class of users they want. Crypto platforms use airdrops to attract new community members to their ecosystem and typically target a particular class of users. Most of the time, however, this doesn’t yield the intended results.
With Souldrops, crypto protocols can easily select users they want to airdrop their native tokens to based on their achievements and qualifications.
• Identity Management
SBTs are a means of identity management on the blockchain. Holders can use their SBTs to sign up on different platforms and organizations without having to undergo the usual stressful KYC process.
It makes the process of accessing the functionalities offered by any platform easier.
Secondly, the SBT can be utilized on metaverses for identification. Instead of creating different avatars for each metaverse, users can decide to utilize their unique SBTs in these metaverses, carrying information and details about themselves.
SBTs can also be used as a resume for job applications. It is easy to confirm the authenticity of an individual’s claims on their resume through SBTs since the details of this type of token can be verified on the blockchain.
How SBTs Will Be Recovered In Case Of Thefts
Concerns about SBT theft have spread throughout the community due to previous cases of NFT theft.
The Ethereum co-founder, Buterin, believes that a social recovery model can be integrated into the process, preventing unscrupulous individuals from stealing and using SBTs.
In this case, if the wallet holding the SBT is compromised, the affected person can appoint other community members known as guardians to access and modify the compromised wallet’s private keys. Using a community model will reduce SBT theft.
Because of the value attached to SBTs, community members have expressed concern about how they can be recovered if lost.
According to the Buterin co-authored SBT whitepaper, “social recovery is a good starting point for security, but has several drawbacks in security and usability.”
The owner of an SBT can choose their guardians, allowing them to modify the wallet’s private keys. Users can choose who will be their guardians, whether they are individuals or organizations. With this recovery system, individuals can regenerate their keys when they lose them through community recovery, discouraging the theft of SBTs.
In Conclusion,
- Ethereum co-founder Vitalik Buterin created the concept of SBTs.
- SBT is a non-transferable NFT issued to users and can’t be sold or transferred to others.
- SBTs mimic NFTs, except the owner can’t sell them to others.
- Every SBT is stored in an account called a “Soul.”
- SBTs improve decentralization and act as a means of identity on the chain.
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