Getting Up to Speed with Soulbound Tokens 👻
Tags: beginners, web3, blockchain, tutorial
Published: 2023-02-10 18:07:05

## Introduction 🚀

Welcome to the exciting world of Soulbound Tokens! Whether you're new to the world of decentralized finance or have a bit of experience under your belt, this article is for you. Let's mark a journey through Soulbound Tokens and help you understand what makes them special.

It's worth mentioning that Soulbound Tokens are the brainchild of none other than Vitalik Buterin, the creator of Ethereum. This exciting project is set to shake up the world of decentralized finance and has already caught the attention of the crypto community.

No need to stress about technical jargon or complex financial lingo. The main goal is to make this journey as easy and approachable as possible.

We'll explore Soulbound Tokens, from their origin story to the many ways they're changing the game in decentralized finance. We'll also share the juicy details on how they work, why they're so beneficial, and what real-world applications they have.

So, sit back, relax, and let's explore the soulful side of Web3.

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## What are Soulbound Tokens 👻

Soulbound Tokens, also known as SBTs, are unique, non-transferable and non-financialized tokens in the Web3 ecosystem that represent an individual's online identity, commitments, and affiliations.

Just like a resume or medical records in the non-Web3 world, SBTs are used to showcase a person's credentials and affiliations on the decentralized Web3 networks. These tokens cannot be sold or traded and serve as a permanent record of a person's digital identity.

![Soulbound Tokens](https://public.bnbstatic.com/static/academy/uploads/f46be85e6de94c0897ddac34b7576c11.png)

Image Source - [Binance Academy](https://academy.binance.com/en/articles/what-are-soulbound-tokens-sbt)

Think of Soulbound Tokens as the rebellious cousins of NFTs (Non-Fungible Tokens). While NFTs are all about what you own and what you can show off, Soulbound Tokens are all about who you are.
 That's right, we're talking about a new level of personal expression and identity.

Ahh! Talking on the topic of reputation the China Social Credit System - it's been a hot topic in the world of decentralized networks and web3 enthusiasts. But while the concept of a government-run credit score system might send shivers down the spine of privacy advocates, the difference between that and Soulbound Tokens (SBTs) is like night and day.

SBTs are all about you being in control of your own identity and reputation, while still allowing for the formation of trustworthy communities and collaborations. On the other hand, the China Social Credit System is a top-down approach where the government holds all the power and decides your worth.

Vitalik, the big brain behind this whole thing, says it best:

> "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."

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## Where did Soulbound tokens come from? 🫠

So, let's dive into the history of Soulbound Tokens and see how they've come a long way. It all started back in May 2022 when the brains behind this idea, economist & social technologist E. Glen Weyl, lawyer Puja Ohlhaver, and the one and only Ethereum creator Vitalik Buterin, came together to propose the concept of Soulbound Tokens.

{% embed https://twitter.com/VitalikButerin/status/1486375000793776131 %}

![Soulbound Tokens](https://cointelegraph.com/magazine/wp-content/uploads/2022/06/magazine-Soulbound-Tokens.jpg)

Image Source - [Cointelegraph Magazine](https://cointelegraph.com/magazine/soulbound-cryptocurrency-tokens-social-credit-system-spark-next-bull-run/)

They envisioned SBTs as a primitive, or foundational building block, in an emerging Web3 trend known as the Decentralized Society.

Ok, wait now what is a _Decentralized society_?

`DeSoc`, or the Decentralized Society, is a bottom-up community that aims to augment Web3's trajectory toward hyper-financialization(excessive growth of financial sector, leading to economic domination) and create something more inclusive, democratic, and decentralized.

{% embed https://twitter.com/pujaohlhaver/status/1524392972044972033 %}

So why are SBTs gaining popularity in the Web3 space? It all comes down to their unique capabilities and the potential they hold for a more inclusive, democratic, and decentralized future. With SBTs, individuals and entities can build their own digital identities, represent their commitments and affiliations, and gain access to new opportunities and networks.

{% embed https://twitter.com/straderlabs/status/1534485341406916608 %}

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## How do they Work? 🤔

The inner workings of SBTs have yet to be formally specified, but their functioning can be understood through the whitepaper co-authored by Vitalik Buterin and his partners.

A defining feature of SBTs is their non-transferable nature. Unlike the current NFTs or other token standards like ERC-20 and ERC-721, SBTs are not meant to have monetary value and therefore cannot be bought, sold, or transferred to another wallet. This is because they are linked to "`Souls`."

So, what are Souls? Souls are the accounts in which SBTs are stored and issued. They play a role in determining provenance and reputation. Souls can represent individuals, organizations, companies, or any other entity. It's important to note that a single person may have multiple Souls in a decentralized society (DeSoc)

Let's take a closer look at how Soulbound Tokens (SBTs) operate within the Web3 ecosystem using a decentralized autonomous organization's (DAO) voting system as an example. Conventionally, a DAO's governance model assigns voting power based on the number of tokens a member holds. However, DAOs utilizing SBTs might place a greater emphasis on a member's reputation, which can be verified through their interactions within the community, over the number of tokens they own.

![SBTs in Governance](https://lh5.googleusercontent.com/Czw-5eqDgKBomOOVEPUcLS_jtKnnGXCjpmE0XA7C4zUfVxoC_te_JIr3m-PHfWBy9g0Z7PEzI6GYuTgUbuEIMlSt7pqeaZmixz0mOrb9HoJbnJgsNBXny4kBg-YR5Ugg34fQk1AwfMe40kBVN-o2ritFMsN50VgmOHYdXqX155d_LaG6-BGwezKZEw)

Image Source - [Moralis Blog](https://academy.moralis.io/blog/soulbound-tokens-sbts-explained)

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## Why we need Soulbound Tokens

Have you ever stopped to think about why the Web3 ecosystem is mostly focused on financial objects like tokens and currencies? It's like we've only got a bunch of wallets full of assets that can be transferred and sold, but there's no actual person behind them. Just a financial holding account.

Well, it's time to move beyond just financial objects in the decentralized world. And, believe it or not, even that will help the financial aspects work better and open up a world of possibilities.

That's where Soulbound Tokens (SBTs) come in. They're not just a financial object, they're a universal aggregation system that represents you and your relationships. But, unlike the top-down China social credit system, SBTs are built from the bottom up by the community and governed by network users. And the best part? You can have multiple Souls, representing different aspects of your life.

Imagine having a Soul for your health profile, only accessible to doctors. Another for your professional life, like your CV, and another for personal relationships. You get the idea!

![](https://pbs.twimg.com/media/FTOi1JwVIAAW-wX.jpg)

Image Source - [@Leo_Glisic](https://mobile.twitter.com/Leo_Glisic/status/1527743746288168961)

Soulbound Tokens bring the values of decentralization to real human relationships and communities. And here's the good news, decentralized verifiable credentials already exist. So, we're not talking about choosing between Soulbound NFTs and off-chain identifiers. SBTs are simply a subset of verifiable credentials that are part of an NFT on the blockchain.

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## Benefits of Soulbound Tokens ✨

Let's dive into some of the benefits they offer:

1. 🎯 **Reduce dependence on centralized services**: Soulbound Tokens can empower individuals and organizations to take control of their online identity and reputation. With SBTs, there's no need to rely on centralized services that could potentially be compromised, censored or hacked. By decentralizing this important aspect of our online lives, Soulbound Tokens offer a new level of security and privacy.
    
2. 🎭 **Authenticity**: SBTs allow for verifiable and tamper-proof records of information, such as credentials and achievements. This can help to eliminate the need for trust in central authorities and reduce fraud. Plus, with decentralized authentication, individuals and organizations will be able to access and share their records instantly and without barriers.
    
3. 🤞 **Enhanced Trust**: The decentralized nature of Soulbound Tokens allows individuals and organizations to interact and transact with one another without having to worry about trust. SBTs help to establish provenance and reputation in a way that's transparent and tamper-proof, leading to a more trustworthy and secure decentralized society.
    
4. ⚖️ **Improved Accountability and Transparency**: The public and immutable nature of SBTs allows for increased accountability and transparency in online transactions and interactions. This can have a positive impact on the reputation and image of individuals, organizations and companies alike, helping to build trust and credibility with stakeholders.
    
5. 🪪 **Personalized Identity Management**: Soulbound Tokens can provide individuals with a new level of control over their online identity and reputation. By allowing for the creation of multiple Souls, individuals can have distinct digital identities for different aspects of their lives, such as their personal life, professional life, and health profile.
    

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## Use Cases of Soulbound Tokens

When it comes to the practical applications of SBTs, the possibilities are endless. Let's dive into a few use cases that showcase the potential of these unique tokens:

### Verifying Exclusive Membership

![Membership SBTs](https://rarible.com/blog/content/images/size/w2000/2022/05/0-strings-2.png)

Image Source - [Rarible](https://rarible.com/blog/9-membership-nfts/)

Want to join a decentralized community that only allows the cream of the crop? Soulbound tokens could be used to verify exclusive membership, ensuring that only the most deserving individuals get in. For example, a high-end digital country club could use SBTs to grant access to members with a certain reputation or skill set. This would allow the club to maintain its exclusivity while also taking advantage of the benefits of a decentralized network.

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### Decentralized Loans and Digital Country Clubs

![Decentralized Loans](https://builtin.com/cdn-cgi/image/f=auto,quality=80,width=752,height=435/https://builtin.com/sites/www.builtin.com/files/styles/byline_image/public/2022-06/cryptocurrency-trading-decentralized-finance.jpg)

Image Source - [builtin](https://builtin.com/finance/defi-decentralized-finance)

Imagine being able to take out a loan from a decentralized platform, without the need for a middleman like a bank. Soulbound tokens could be used to secure loans based on an individual's reputation, rather than just their credit score. This opens up new opportunities for those who might have been denied traditional loans due to a lack of credit history. And, on the flip side, investors could use SBTs to identify trustworthy borrowers and provide loans with peace of mind.

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### Storing Verifiable Credentials in Web3

![Verifiable Credentials](https://i.ibb.co/qWHMtFW/illu-ss-overview.png)

Image Source - [ebsi - European Blockchain](https://ec.europa.eu/digital-building-blocks/wikis/display/EBSI/Verifiable+Credentials+Success+Stories)

Want to keep your professional credentials in a secure and decentralized location? Soulbound tokens could be used to store and verify professional skills, such as certifications, licenses, and degrees. This would allow individuals to control their personal data while also making it easy to prove their skills and qualifications to potential employers or customers.

### Proof of Skills

![Proof of Skills](https://pbs.twimg.com/media/FgEi1FSXkAEsks3?format=jpg)

Image Source - [@kleoverse](https://twitter.com/kleoverse/status/1585586908880666624)

In a world where remote work is becoming the norm, it's more important than ever to be able to prove your skills and experience to potential employers. Soulbound tokens could be used to provide proof of professional skills, allowing individuals to showcase their expertise and set themselves apart from the competition. For example, a freelancer might use SBTs to demonstrate their portfolio of work, making it easier to land new clients.

These are just a few examples of how SBTs could be used in the real world, but the possibilities are limited only by our imagination. As we continue to push the boundaries of the Web3 ecosystem, it's exciting to think about all the innovative ways that Soulbound tokens might be used in the future.

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## Real word Implementation for Soulbound tokens

![Soulbound Tokens in Metaverse](https://metaversezeus.com/wp-content/uploads/2022/05/blog-pic-7-1024x577.png)

Image Source - [Metaverse Zeus](https://metaversezeus.com/soulbound-tokens-sbts-explain-it-like-im-ten/)

The evolution of Soulbound tokens is well underway, with some of the biggest names in the crypto industry jumping on board. _MetaMask_, _Cobo_, and _Gnosis DAO_ have teamed up for a Soulbound token implementation called “Evolution,” where users can create a digital identity for themselves. In a digital-first world, the 'identity' can't afford to be 'physical first,' and Soulbound Tokens provide all the credentials necessary to authenticate a person in the digital realm or the metaverse.

Binance, one of the world's largest crypto exchanges, has launched _Binance Account Bound_ (`BAB`) token, which is their take on the Soulbound concept, and functions as a unique identifier for Binance customers who want to use decentralized wallets but still trade using their unique KYC-ed identity on Binance.

Even communities such as _Alchemy_, _Buildspace_, _LearnWeb3DAO_ and _Moralis_ have embraced Soulbound tokens, launching Proofs of Knowledge (PoKs) that identify a skill a person has acquired through completing a project or course. This can be an important aspect to include in resumes and CVs, demonstrating one's expertise and skillset in a verifiable and trustworthy manner.

These are just a few of the ways Soulbound Tokens are being implemented in the real world, and it's exciting to see how they'll continue to shape and change the landscape of the decentralized society.

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## Challenges and Concerns with Soulbound Tokens

### Recovery of Lost Souls

When it comes to Soulbound tokens, one of the biggest worries is how to recover a lost Soul. The famous trio of Vitalik Buterin, Glen Weyl, and Puja Ohlhaver came up with some possible solutions, but they still need to be put to the test.

One solution is the community recovery model, where a member of Soul's community needs to give the green light to recover their private keys. But let's be real, life can be unpredictable and relationships can change. Entrusting your Soul to a group of people who may not be able to follow through, even unintentionally, is a risky game.

Another idea is to choose a group of guardians to hold the keys to your Soul. But what if you lose touch with one of them or if things go sour between you two? The idea of entrusting your Soul to a group of people who may not be able to come through for you, even with the best intentions, is a scary thought.

It's important to remember that these solutions are just suggestions, and the future of Soulbound token recovery is still uncertain. But, we're optimistic that the right solution will come along and make it easier for us to keep our Souls safe and secure.

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### Reputation System

Another potential hiccup on the road to Soulbound token success is the risk of reputation-based communities turning into a social credit system. Picture this: those with higher ratings get all the perks while those with lower ratings get banned, and no second chances are allowed. This raises some serious ethical questions and doesn't give people a fighting chance to improve. It's like being stuck with a permanent grade of 'C' on your report card, no matter how much you try to improve.

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### Technical Complexities

And finally, there's always the chance that the technology simply isn't ready for prime time yet. Just like how we all laughed at the idea of a phone you can carry in your pocket (come on, who needs one of those?!), there's always the possibility that Soulbound tokens may still be a bit too ahead of their time. But hey, if history has taught us anything, it's that we love to prove naysayers wrong and embrace the latest and greatest technology. So bring on the Soulbound tokens!

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## Conclusion

And there you have it folks! A journey into the fascinating world of 👻 Soulbound tokens, the latest and greatest addition to the web3 ecosystem. We've explored its features, implementation, benefits, some real-world use cases, and a few of the challenges it faces. It was a deep dive and we couldn't cover every single detail, but if you have any questions or want to add something, feel free to drop a comment and I'll be sure to include it in my next update.

More potential use cases for Soulbound Tokens can be found in the “Decentralized Society: Finding Web3’s Soul” [paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763).

So if you're interested in learning about new technologies and concepts in the web3 and blockchain space, make sure to follow me on my socials (Twitter, blog, etc.) 🙌 I'll be sure to keep you in the loop on all the latest and greatest.

Until next time, farewell friends! 🤠

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