Stolen or forged identities have posed a problem in human society for a very long time. This is an especially important issue since one’s identity is often directly linked to everything from our gaming platforms and social media handles to our banking accounts and medical records. With incomplete or inaccurate information regarding identity, there may be enormous implications, not just for a single entity but for society as a whole.
Enter: Soulbound tokens. One of the most recent and exciting developments in the Web3 space, soulbound tokens (or SBTs for short) allow you to verify identities in the real world digitally. As the name implies, these SBTs are tied to a “soul” or an individual, making each token unique and intrinsically linked to the person. As you may be able to see, this would have large-scale benefits. But what are soulbound tokens? How do they work? What can you use them for? All great questions! We hope you find the answers to these questions below.
What exactly are Soulbound Tokens?
Soulbound tokens are, essentially, an offshoot of NFTs or non-fungible tokens. These tokens are inextricably linked to the holder and contain all their information. They can be verified and contain all information about a person or a Soul. This could include everything from one’s employment record to their education. SBTs, therefore, allow for a more decentralized society with properties of both an individual and a community. The holder of the token can be an individual, a community, or even a company.
Soulboudn tokens were first introduced in May of 2022 when Ethereum co-founder Vitalik Buterin, lawyer Puja Ohlhaver, and E. Glen Weyl, an economist and social technologist published a white paper on “Decentralized Society: Finding Web3’s Soul.” According to this paper, soulbound tokens could be at the core of a decentralized society.
Like NFTs, these tokens are unique and, well, non-fungible. However, while the two share some similarities, like collectibility and personal value, they are markedly different from each other. For instance, NFTs have monetary value. That is, you can sell and trade NFTs and make money off them. That is not possible with SBTs for obvious reasons. Since these SBTs hold information that is unique and personal to the user, they do not have any financial value. That is, these tokens cannot be traded. But one cannot take the place of the other, and both NFTs and SBTs are expected to drive the future.
Can SBTs be bought?
The simple answer is no; one cannot buy soulbound tokens. The reason for this is that soulbound tokens are, well, bound to one soul. Therefore, they cannot be transferred to anybody. And if they cannot be traded or transferred, these tokens have zero value on the market.
However, it should be noted that an entity may hold several different SBTs. For instance, an identity SBT may hold all the information regarding one’s driving license, government-issued identity cards, passports, and more. A medical SBT, on the other hand, would have an individual’s medical data. With all this information being completely unique to a person, it would make sense why they are non-transferable and, therefore, non-buyable even on the largest NFT marketplaces.
Advantages of SBTs
In general, all the hype surrounding NFTs and the crypto world has been about their use as financial assets. However, the entry of soulbound tokens marks a change in direction from finance to identity. As the key to a decentralized society, SBTs would allow people to build their digital identities with implications in the virtual and real worlds.
And apart from this, SBTs can be used to verify an individual’s identity, credentials, skills, and other things. One cannot craft new skills or falsify credentials. This obviously would be extremely advantageous for employment and healthcare. It would also greatly reduce the prevalence of scams.
Drawbacks of SBTs
The main concern about SBTs is, understandably, privacy. When an individual collects SBTs describing religion, political ideologies, and so on, which would create marked differences with others of opposing ideologies. As a result, trolling and other forms of cyberbullying may increase, with hate speech running rampant. There is also the possibility that companies may target specific groups for their purposes.
And, of course, one should always consider the possibility of hacking. Even SBTs stored in a wallet may be swiped, which would definitely have profound consequences. However, Buterin has proposed a “social recovery model” wherein appointed SBT guardians can work together to recover SBT.
Use Cases of SBTs
As is evident, SBTs have a plethora of use cases. Here are a few of them.
Identification
The most prominent use case of SBTs is in identification. A lot of procedures, like loans, rely on a meticulous review of one’s identity and credit score, among other things. Using SBTs would reduce the hassle involved in the process.
Proof of attendance
Instead of certificates, SBTs could be given to participants of an event, verifying one’s attendance. This may be particularly useful for college students applying for a job or companies seeking to establish a stronghold.
Medical Records
While medical records are crucial to keep track of, it often becomes very tedious. When an individual’s medical data is stored in an SBT, it becomes extremely easy for adequate care and treatment to be given to a patient based on their medical history,
DAO Voting
DAOs, or Decentralized Autonomous Organizations, have a solid governance structure that takes a vote on how the organization should go forward. However, they can always be compromised by Sybil attacks. In the case of DAOs, SBTs could ensure that voting power is according to participation and not the number of tokens held by a person.
Verifying Membership
Several online communities require verification to join. SBTs can help simplify the process. Furthermore, they can also ensure that all the members and their connections are legitimate.
Closing Thoughts
Although SBTs aren’t expected to be in use until 2024, at the very least, there are already several possible applications for them. With SBTs being expected to for the key to a decentralized society, they would ensure that individual data is collated in the most efficient manner.
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