Soulbound Tokens (SBTs)
Soulbound Tokens are in their early days of development and can be quite divisive when looking at the potential use cases and future implications regarding freedom and authoritarianism.
In this article we explore what Soulbound Tokens are, the history of token development on the Ethereum blockchain, and some potential use cases of Soulbound Tokens.
SBTs
Simply put, a Soulbound Token is an NFT that cannot be transferred. In other words, it is bound to a certain wallet address forever.
The point of NFTs is to have unique items stored on the blockchain that can be freely traded and transferred. The point of Soulbound Tokens is to have unique items stored on the blockchain that CANNOT be traded or transferred.
This opens up the possibility of some different potential use cases.
A HISTORY OF THE DIFFERENT TYPES OF TOKENS ON ETHEREUM
ERC20 TOKENS
The ERC20 token standard was proposed by Fabian Vogelsteller in November 2015. It is a standardised method of creating fungible tokens on the Ethereum blockchain. The standard provides functions that include the transfer of tokens from one wallet to another, getting the current token balance of an account, and getting the total supply of the token available on the network.
ERC20 tokens are fungible which means that all the tokens are commoditized and are the same. For example 1UNI token = 1UNI token, there is no distinction between all of the tokens and no need for there to be any distinction to serve their purpose. The ERC20 token standard paved the way for a huge number of different tokens to be launched with a variety of use cases including other cryptocurrencies, stable coins, governance tokens, defi tokens, community tokens and more.
NFTs (ERC721)
NFTs are non-fungible tokens. Early NFT creators such as Larva Labs with Cryptopunks wanted a token that could be held and transferred similar to ERC20 tokens but also enabled all tokens to have unique metadata so that all of the individual tokens were different to one another.
The advantage of having unique metadata is that unique pieces of artwork could be generated and stored on the Ethereum blockchain and ownership could be easily verified and transferred by the Ethereum blockchain.
Because of limitations in coding practices, data limitations and costs of storing information on the Ethereum blockchain, most NFTs were generated off-chain and images stored off-chain using APIs or IPFS storage solutions but there are some developers that can now generate NFTs and store them 100% on-chain such as Anonymice. This does allow for a higher level of trustlessness and ownership over your NFTs.
SBTS
Soulbound Tokens are unique tokens stored on the Ethereum blockchain that cannot be transferred. What are the applications of such tokens? Well the use cases will no doubt be explored to the full over time but here are some examples of how they could be used:
KYC IDENTIFICATION
Nearly all crypto exchanges are burdened with government mandated KYC rules designed to stop money laundering and tax evasion. Although freedom advocates despise KYC mandates, due to the potential for government overreach and data leaks, they are unfortunately a fact of life right now. Could SBTs provide a more streamline way of fulfilling KYC regulations and in the process save a great amount of time for regulated exchanges and users alike? The largest exchange in the world, Binance, seems to think so as they have started to develop SBTs for this very purpose. Here is what CEO of Binanace Changpeng Zhao had to say on the matter:
“Soulbound Tokens will play a significant role in the way web3 credentials will work in a Decentralized Society… We foresee numerous use cases for the BAB token, and we will actively collaborate with the community to develop this revolutionary vision of decentralized society.”
Binance clearly sees SBTs as a way to potentially save a lot of costs and carry out the KYC process in a much more efficient manner.
CREDENTIALS, CERTIFICATES, DIPLOMAS
When you successfully earn a qualification at a university or with a profession you usually get some kind of certificate or diploma which is usually then recorded on a parchment of paper and on a database with the issuing institution. SBTs could potentially perform this function much better than current methods and be much easier to store, share and verify a person’s qualifications with much less bureaucracy for the issuing institution.
There are still many potential issues and ways for credentials to be abused by bad actors that will have to be resolved, but there seem to be some huge potential benefits of using SBTs over how we do things now.
COMMUNITY ACCESS
Many NFTs are used as access to a certain community. A large amount of value can be attached to these access NFTs depending on the network of contacts but founders could also launch the access token using an SBT instead if they wanted to grant life-time non-transferable membership cards for example.
SOME POTENTIAL DRAWBACKS TO SBTS
Whilst SBTs are just a technology that can be used for good or bad, some people that use crypto currency are afraid that SBTs could be used to tag certain wallets for certain behaviour with the aim of putting restrictions on their activities by overreaching governments or to trace and tax activities on the blockchain to a greater extent. This is more of an issue of the governments in question rather than SBTs as a technology
Anonymice are excited to pioneer and experiment with this technology as a way to engage and empower our collectors further.
