Soulbound Token (SBT)

What is a Soulbound Token (SBT)?

A soulbound token (SBT) is a type of non-fungible token (NFT) that can’t be sold, traded, or transferred. Because SBT smart contracts are permanently tied to one wallet address, they can be used to create and verify social provenance in Web3 environments.

Note: Soulbound tokens have no intrinsic monetary value and should not be confused with Soulband SBX tokens. SBX tokens are the native utility tokens for a GameFi platform called Soulbound.

Table of Contents Table of Contents

1. What is a Soulbound Token (SBT)?
2. Key Takeaways
3. History of Soulbound Token
4. How Soulbound Token Works
5. Soulbound Tokens vs. Non-Fungible Tokens
6. Soulbound Token Use Cases
7. Soulbound Token Benefits & Limitations
8. Future of Soulbound Tokens
9. The Bottom Line
10. FAQs
11. References

Show Full Guide

Table of Contents

1. What is a Soulbound Token (SBT)?
2. Key Takeaways
3. History of Soulbound Token
Show Full Guide
4. How Soulbound Token Works
5. Soulbound Tokens vs. Non-Fungible Tokens
6. Soulbound Token Use Cases
7. Soulbound Token Benefits & Limitations
8. Future of Soulbound Tokens
9. The Bottom Line
10. FAQs
11. References

History of Soulbound Token

Vitalik Buterin, the co-founder of Ethereum, is credited with promoting the idea of non-transferrable NFTs. In a 2022 blog post, Buterin explained how soulbound items in the game World of Warcraft inspired him to think about new uses for NFT smart contracts.

 “Making more items in the crypto space “soulbound” can be one path toward an alternative where NFTs can represent much more of who you are, and not just what you can afford.”

Buterin expanded upon this idea in a white paper he contributed to entitled “Decentralized Society: Finding Web3’s Soul.”

The authors of the white paper proposed that non-transferable NFTs called Souls could be used to establish and trace social provenance and reputation in Web3. This would not only help prevent Sybil attacks from targeting distributed autonomous organizations (DAOs), but it would also limit the influence of bots on social media platforms and prevent crypto whales from buying governance rights.

How Soulbound Token Works

SBTs can be self-certified or issued by a third party. Once this type of non-transferable NFT is assigned a wallet address, any attempt to transfer the SBT from one wallet to another will fail, and the token will remain in the original wallet.

The choice between self-certified and third-party issued SBTs depends on the specific use case and the desired level of trust and verification. For example, a self-certified SBT might be sufficient for a resume, while a third-party issued SBT would be more appropriate for an official certification.

There are ongoing discussions about the need to standardize SBTs. Currently, the specific way an NFT is prevented from being transferred depends on the way the SBT’s creator sets up the token’s smart contract.

One way is to override the standard transfer or transferFrom functions in the ERC-721 (or similar) standard with a function that always reverts the transaction. This effectively prevents any transfer attempt.

Another approach is to program the smart contract to burn the NFT if a transfer is initiated. This destroys the token and makes it permanently unavailable for future use.

Soulbound Tokens vs. Non-Fungible Tokens

SBTs and NFTs are both unique digital assets on a blockchain, but they have different purposes.

NFTs can be used to prove ownership for assets that can be bought, sold, or traded in a marketplace. In contrast, SBTs can be used to provide social provenance, but they are bound to a specific individual and cannot be sold, traded, or transferred to another party.

Soulbound Token Use Cases

SBTs are expected to play an important role in self-sovereign identity management on the blockchain.

It’s likely that if/when Souldbound tokens become standardized and their use becomes more widespread, people will have multiple SBT wallets. For example, the same person might have a Soulbound Credential Wallet for social identity and a Soulbound Medical Wallet for health records.

Soulbound Token Benefits & Limitations

Soulbound tokens offer exciting possibilities, but their use today also comes with challenges.

Benefits 

• Immutable identity: SBTs provide a consistent and unchangeable record of a person’s achievements and reputation. Blockchain ensures the records are protected from tampering or fraud.
• Enhanced security: The non-transferability of SBTs minimizes the risk of identity fraud in Web3 environments.
• Decentralized reputation system: SBTs can potentially replace traditional, centralized reputation systems like eBay ratings.
• Data privacy: SBTs allow individuals to control which aspects of their identity they wish to share for specific use cases.
• Efficiency: SBTs will potentially reduce the need for hiring managers to manually verify candidate credentials.

Limitations

• Recovery issues: There currently isn’t a reliable way to recover an SBT if the user loses access to the digital wallet it was minted with.
• Interoperability: For SBTs to be effective on a large scale, the way they are created, stored, and recovered needs to be standardized. This will prevent various blockchain communities and developers from creating and promoting their own version of non-transferrable NFTs, so standardization won’t be an easy task.

Future of Soulbound Tokens

While there isn’t a single, universally accepted standard specifically for SBTs yet, there are a few emerging standards and initiatives that are gaining traction:

The Bottom Line

Soulbound tokens, by definition, are permanently bound to an individual. Just as soulbound items in World of Warfare cannot be transferred or sold to another player once picked up, SBTs can’t be sold or transferred once they are minted and assigned a wallet address.

FAQs