Ethereum co-founder Vitalik Buterin is the originator of Soulbound Token technology protocol or SBTs, a very recent, less than a year-old methodology that represents a new token standard on the Ethereum network and other EVM-compatible blockchains like Celo. It aims to create a decentralised society (DeSoc) for social and community development by bringing your entire web2 history into web3.
Usually part of a collection, SBTs in a wallet have no intrinsic value, are not tradable or transferable (cannot be bought or sold), are not a source of wealth, have no market value, and cannot be modified. A soulbound token refers to an item of a person’s traits, features, commitments, credentials, or affiliations created by binding an entity’s soul, and you tie it to a soul (aka private blockchain wallet) forever. SBTs are attached to souls or soul addresses in the smart contract chain, i.e., your digital wallet or account on the blockchain.
SBTs are non-transferable NFTs, making them NFT 2.0, scoring higher than NFTs. Without relying on centralised third parties to maintain their private wallet accounts, individuals, groups, and even companies can all have souls and do the following types of transactions — mint, issue, transfer, present, or even consume soulbound tokens. The issuer’s and recipient’s souls can transact based on the successful state of private wallets that display the following web3 lingo, or in other words, consensus mechanisms, viz.
> Proof of attendance
> Proof of skill
> Proof of affiliation
> Proof of achievements
> Proof of presence
> Proof of work
> Proof of contribution
> Proof of stake
> Proof of reputation
> Proof of authentication
> Proof of skill
> Proof of history
> Proof of KYC
> Proof of burn
> Proof of transfer
> Proof of humanity
> Proof of personhood, et al
People could have many wallets or souls representing different parts of their lives, and this is a representation of someone’s right, which will not be traded. SBTs can improve economic and social interactions by providing a new and secure method of validating each other’s identity on the blockchain, credentials, and reputation that is earned rather than bought in the decentralised digital environment, i.e., trust a person’s standing in a system designed to be trustless.
Tokens can be withdrawn back to those who issued them. If a person started violating the community rules, and everyone voted to exclude them, the soul would revoke the SBT token from the wallet address.
Smart contracts bind these tokens to the corresponding participants’ souls. Now, let us go through use cases of identification and verification via SBTs in web3, and this list is growing. SBTs can be used by DAOs, the institutions native to web3.
Perhaps even a government-issued ID card could live as an SBT. Imagine an immutable digital passport as a token that immigration authorities can update or automatically update when citizens travel and apply for visas, the proof of which can be verified on-chain. It could eliminate the need for a physical copy of the official passport and make life easier. Well, even automatic expiry renewal, for example. Put simply, we can imagine something like this — a user extracts a signature from a physical passport and sends the proof on the chain, then the contract allows for the minting of an SBT if the evidence is deemed valid by the chain validation process, and the wallet integration occurs and records the address.
Imagine a company which is only employing or engaging people who attended an event. SBTs will aid the company in choosing actual attendees. It will also promote active participation and involvement in events that promise SBTs. Once the recorded attendance is on the blockchain, it is immutable and is there forever.
Governments can issue SBTs with the verified identities of individuals to prevent election manipulation and the involvement of intermediaries. It is one of the reasons why researchers favour the concept of personal tokens (SBT, again). People can vote with their SBTs, making it impossible to vote with a single identity many times, fostering tight integrity of processes.
SBTs can replace traditional credit reports and provide lenders complete access to borrowers’ credit profiles and credit score parameters. SBTs could record a user’s DeFi borrowing, payment history, and other metrics determining their risk profile. All liabilities and obligations will be visible. When you take out a loan from DeFi exchanges or crypto-lending protocols, you will be issued an SBT confirming the loan. When the DeFi loan is cancelled and repaid, you will receive an SBT as proof of payment. It is helpful the next time you apply for a loan because on-time repayment proves your credit score and worthiness. This concept can also extend to uncollateralised lending, like apartment leases. Thus, for people who cannot rely on centralised control as in web2 institutions or parallels in TradFi such as brokerages, exchanges or banks, SBT empowers DeFi.
DAOs are vulnerable to Sybil (51% takeovers) attacks. A single user uses many wallets to accumulate a controlling share of votes to manipulate the process. The person benefits by tilting the vote in a particular direction and ensuring the proposal reaches a quorum. Attackers get voting rights by paying the original token holders to agree or disagree with a proposal. An individual or a group of bad actors can overthrow a DAO by buying the majority of governance tokens.
A popular example is the story from 2020 when DeFi lending platform BProtocol borrowed 13,000 MKR tokens worth about $7 million to enforce votes for its project on MakerDAO. This blockchain protocol runs on Ethereum and is designed to incentivize a distributed network of computers to maintain DAI, a cryptocurrency designed to replicate the exchange rate of the U.S. dollar.
To create Sybil resistance, we must ensure a protected list of people (or humans) through a system that combines social verification with video submission. Users are limited to one account per person, and each can only be verified with an already verified identity to create a more trustworthy and transparent online environment. It is implementing proof-of-humanity or proof-of-personhood using SBTs issued by DAOs and distributing voting rights based on a user’s interactions with the community to improve integrity. With SBTs, voting rights remain in the hands of local community members with high reputations who have a stake in DAO’s governance model, progress and growth.
In the field of education, after students’ graduation, academic institutions can act as souls, issuing and crediting SBTs to alums. By looking at your soul, web3 institutions and the community can see your graduating status, educational degrees and certifications without you having to call your alma mater to confirm them or to approach the institution to send transcripts, for instance.
In a landscape that can quickly become a reality, job applicants could present their work and academic history with official SBTs issued by previous companies and institutions. For example, instead of a recruiter contacting a previous employer or school to verify your enrolment, they could request the SBT you received after you graduated or left the company. Many HR steps will be redundant and made effective with a single token (SBT) that can automate and create a transparent hiring process, thus fitting the correct person to a role.
The SBT, which contains a person’s medical history since birth, could replace the often lengthy process of filling out paperwork to verify health records. Even changing doctors or health care providers could be seamless. Even a person’s medical insurance history can be linked to getting every detail in the holistic picture.
SBTs can be linked to NFT collections, so collectors know which tokens belong to them, building a reputation for their projects and community. It can prevent malicious NFT actors and infringements from forging and faking the originator’s identity. Artists can put a stop to unscrupulous art dealers and individuals selling NFT collections under the guise of famous artists by linking SBTs to their artistic profiles and allowing them to trace a particular work’s date of creation and social origins. An artist could issue a tradable NFT of their soul so that buyers could recognise an artist’s work by the number of SBTs it contains, establishing the legitimacy of the token, which cannot be counterfeited. Souls would develop a verified on-chain method for staking and a reputation for the provenance and rarity of an item.
On the gaming front, gamers are tired of centralised control. SBTs can create in-game reputation by collating a user’s web3 activity and converting it into non-transferable reputation and experience tokens using creative game avatars that can present oneself without using personal photography. Such avatars set oneself apart with fun text prompts, emojis, funky hairstyles, clothing, facial expressions, 3D, eye shape, and regenerate as many times as one needs.
We can imagine scenarios in business/sales development reps and sales reps where they are rewarded with a unique SBT based on their performance, i.e., for every successful deal, customer and lead (inward and outward) that is served, the ‘success’ SBT could be issued with the award, accolade and affiliation stamped by the employer soul. The SBT collection could function as the individual’s trusted and verified testimonial book for life, allowing current and future employers and HR to review and rely on it. The incentive for employers to participate would be to view testimonial SBTs as another unique employee benefit that promotes proof of work and employee ownership.
SBTs can also be used in DAOs, where decentralised, autonomous organisations exclusively airdrop SBTs to targeted individuals connected wallets to build a specific community and as proof of affiliation to something. Web3 relies on token sales or airdrops to attract new communities, but both methods might yield better results. Or, souldrops can be issued to developers who use SBTs, e.g. as an attendance record, a special NFT to show that they have attended a live or recorded event.
Where privacy, ethics, implementations and standards are involved, there are two problem areas with SBTs: spam and loss of access. Firstly, for spam, we may be unable to detect, delete and block source IPs every time. Hence, although the concept of SBTs started as visible keys, hiding SBT keys from public view can stop the problem of users being able to sneak spam content into your token, Vitalik says. Secondly, if you look at crypto wallets, the flipside is that your money is almost gone if you lose your private keys and/or security passphrases. However, SBTs have a solution to that situation using the permission of the SBT community. Members of your soul community, i.e., individually selected guardians or community-based guardians) must agree for you to recover your keys using a social recovery or an SBT community recovery consensus algorithm deployed in the blockchain protocol to confirm your ownership of the soul. You can recover SBTs via this community recovery approach, which retrieves a user’s private keys and requires the consent of a subset of the user’s communities or SBT issuers.
