What Are Soulbound Tokens?

Soulbound Tokens

Soulbound Token (SBT) is a digital identity token that represents the characteristics, features, and achievements that make up a person or entity. SBTs are issued by “Souls,” which represent blockchain accounts or wallets, and are non-transferable.

What Are Soulbound Tokens?

Soulbound Token is non-transferable, once picked up, items with souls will forever be “bound” to the player’s “soul”. A Soulbound Token is a token that represents a person’s identity using blockchain technology. The wallet holds or releases records (including medical records, work history, and any type of information) called “Soul”.

People can have multiple Souls representing different parts of their lives. For example, someone might have a “Credential Soul” for their employment history and a “Medical Soul” for their health records. SBT token will enable anyone to build a digital reputation on Web3, validated against their past experiences.

It may provide Soulbound Tokens on behalf of an individual belonging to a certain organization. For example, companies can issue SBT tokens to each employee, or the Digital Nation club membership can be verified through the issued Soulbound tokens.

How Do Soulbound Tokens Work?

How Soulbound Tokens Work

The functions and operations of Soulbound Token are quite similar to NFTs, except for the ability to trade. SBTs are also unique, indivisible, non-exchangeable tokens, and can also carry a variety of attribute information.

The SBT token captures all the important information about individuals and entities, including their characteristics, features, achievements, and work history. The Soulbound Token was created with the goal of establishing a decentralized society. SBT tokens are issued and stored in wallets called “Soul”, which also help to determine the origin and authenticity of the SBT tokens. Therefore, a Soul is essentially a wallet that holds SBT.

You can possess many Souls at once. But note that the life cycle of a Soulbound Token can be easily searched by anyone because all information is publicly stored on the Blockchain.

Why Is Soulbound Token Necessary?

As CoinMinutes shared above, the Soulbound Token is a form of token that cannot be transferred or bought. Web3 is a world that emphasizes security and allows users to be completely anonymous when interacting with protocols, which is one of the biggest constraints to building trust between users. The non-transferability and personal nature of the SBT token helps it serve as a medium that allows protocols to operate on trust while maintaining privacy.

In addition to the things SBT Token can do above, the more special thing that SBT brings here is its role in forming a decentralized society – a very necessary society in the future. There, SBTs are considered the building blocks to build fully decentralized, democratic networks and create different Web3 societies.

Benefits and Risks of Soulbound Tokens

Benefits of Soulbound Token

In addition to creating trusting relationships in a decentralized environment, Soulbound Token also allows Defi lending platforms to issue uncollateralized loans. Soulbound Token can improve the voting mechanism in DAO. More specifically, SBT Token can be used to provide certificates and titles to participants.

Risks of Soulbound Token

Soulbound Token may compromise user privacy as all user information is stored publicly on the blockchain. Soulbound Tokens may be criticized for consuming a lot of energy if they are launched on proof-of-work blockchains. In some cases secretly use another major Soul wallet for their personal benefit based on the SBT they acquired nominally for the benefit of the community.

How Can SBTs Be Used?

Soulbound Tokens

NFT

Currently, NFT collections depend heavily on centralized systems to operate, so errors may occur at some point. However, with Soulbound Token, creators can mint NFTs directly from their Soul wallet, helping users easily find the origin, and avoiding cases of being scammed by fake artists. On the other hand, the more SBT from that Soul, the easier it is to prove the legitimacy of the NFT. They allow creators and artists to build reputations on the scarcity of an item, and NFTs also become even more decentralized.

DAO

The fact that an individual or group owning a large number of tokens coordinates to vote on proposals that benefit them is the biggest threat the DAO is facing. Thanks to Soulbound Tokens, DAOs can mitigate that risk in a number of ways such as checking the identities of Souls holding SBT.

Defi Lending

Unsecured loans are a widely used form of loan and have been supported by banks in the traditional financial market. However, because of problems in decentralized environments that focus on high privacy, DeFi Lending platforms, including the biggest names such as Aave and Compound, have not been able to provide this loan service so far. With the SBT token, DeFi protocols can provide users with collateral-free loans by leveraging soul to determine financial background and evaluate social credit scores.

Digital CV

SBTs solve the challenge of candidates lying about their background, certifications, and skills because they can serve as a digital CV that can be publicly verified. Employment decisions may be made based on SBTs that a Soul has received from other institutions such as universities and related organizations.

Souldrops

Cryptocurrency projects often form new communities by launching airdrops or conducting token sales, but these forms can be attacked by Sybil, leading to failure to attract the right community.

Soulbound token brings a new form of governance token allocation to projects. Projects can attract suitable communities by conducting airdrops based on calculations from SBT or other tokens in Soul.

SBTs vs. NFTs

NFTs as a symbol of status and wealth. Soulbound Tokens (SBTs) turn Non-Fungible Tokens (NFTs) into something beyond money that humans can brag about into a unique and non-transferable token. While NFTs represent assets and real estate, SBTs represent the reputation of an individual or organization. And unlike NFTs, SBTs have no monetary value and cannot be traded once issued to someone’s wallet. Here are some other differences between SBTs and NFTs:

SBTs vs NFTs

Conclusion

In summary, Soulbound Tokens represent an intriguing development in the realm of digital asset management, offering potential benefits for the future. This article by CoinMinutes aims to provide you with valuable insights into their significance. Stay tuned for further updates on this evolving technology.

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