Soulbound Tokens (SBTs): Everything About the Non-Transferable NFTs

okx learn
OKX Learn
2023.01.16

Non-Fungible Tokens (NFTs) strongly disrupted the crypto industry after they went big in early 2021. They showed crypto users that they could prove ownership of practically anything. Whether digital or physical, you can own it simply by holding a corresponding digital token in a wallet. Since NFTs are unique, no one can replicate them. They can still be bought and sold, however, so they are perfect for proving or transferring ownership without any paperwork.

Last year, Ethereum’s Vitalik Buterin came up with an idea. Inspired by the concept of NFTs and the popular game World of Warcraft, he created the concept of Soulbound tokens. In a blog post from January 2022, he presented the idea, basing it on soulbound items from the game. These are items that have a permanent connection to the character, and as such, the player cannot sell them. Buterin believes that the crypto industry could benefit from having something like that.

What Are Soulbound Tokens (SBTs)?

So, what does that actually look like? Well, in a way, they are similar to NFTs. However, they are also different in several key aspects. First, they are not transferable. Another difference is that they grew from the original concept thanks to Buterin and his colleagues. They published a paper last May, known as “Decentralized Society: Finding Web3’s Soul.”

In the paper, they described Soulbound tokens as tokens that represent one’s social identity in a decentralized society. SBTs are tokens that are permanently tied to a person. More than that, the idea is to have all of the person’s data tied to these tokens in the Web3 world. That would include things like credentials, commitments, affiliations, and more, making these tokens into a long resume of one’s life.

As such, they would not have market value, as they were not made for sale and investment. Instead, the idea is to have them issued as symbols of accomplishments, like medals and degrees

How Do Soulbound Tokens Work?

The way Soulbound tokens work, as imagined and presented by Buterin and his colleagues, is very simple. They can serve as certificates of sorts, allowing users to prove that their achievements are true. One example could be that of confirming one’s education. Let’s say that you went to a highly reputable university. Anyone can say that they studied there, and it is even possible to fake credentials.

However, if you had completed your studies, you would receive the school’s personal soulbound token as a reward. It would have to come from the school’s soul wallet to your soul wallet. Ownership proves that you have completed the course, and blockchain technology shows when you got it and where from. As a result, it is impossible to fake the achievement, and any false claims can easily be disproven.

Buterin also saw this as a way to solve problems of decentralized finance, such as scams and theft. SBTs could have a positive impact on the social credit system too, helping a person build their social identity. 

The concept of Soulbound NFT is still new, and many new features and use cases will likely come over time. For now, let’s focus on the existing ones that make SBTs unique.

Unique Features of Soulbound Tokens

As mentioned, soulbound tokens have similarities with non-fungible tokens. However, instead of being tied to assets of value, they would have ties to some sort of personal information. The idea of tokens that have no market value is not a new one. There are numerous projects that are thriving after being founded on that idea.

However, the thing that makes soulbound tokens truly stand out is how they fit into a decentralized society. The May 2022 paper has recognized that the concept of SBTs is still very new and underdeveloped. However, even as such, it still has great potential. In fact, it stands to become one of the building blocks of the democratic, futuristic Web3 society.

SBTs might also become an alternative to DAO voting. If so, the weight of a vote would be measured by reputation in the community. Today, it is decided based on the number of tokens that a member possesses.

Benefits of Soulbound Tokens

Some of the largest benefits of SBTs come from their potential use cases. There are multiple examples of what they can do, based on their nature and ties to blockchain technology.

For example, they could serve to manage medical records. They could also allow users to certify their achievements, like school diplomas, job histories, and alike. SBTs could also be great for proving membership or even storing one’s digital ID.

Further, you could use them in the social credit system, build a strong social identity and strengthen your credit score. People could use them to build a verifiable digital reputation based on their actions. 

All of these benefits make soulbound tokens sound very futuristic. In truth, all of these things are either already possible with the existing technologies or they will be soon.

How Do SBTs Differ From NFTs?

NFTs and SBTs have plenty of differences that make these two very different tools in the blockchain industry. NFTs are used for the tokenization of physical and digital goods, things that can have value assigned to them. They can be bought, sold, stored, or traded. Holding them means being the owner of the asset they are assigned to.

When it comes to SBTs, however, they will never be sold. The data that SBTs store is non-transferable, and it concerns a specific entity. They are more likely to serve for storing your medical files than a work of art or something else of value.

As such, they focus on the utility of the product, rather than the potential for profit. SBTs are a blockchain products meant specifically to improve quality of life instead of finding a way to earn money.

Can You Buy Soulbound Tokens?

Soulbound tokens, according to the documentation that presented them, should not be available for purchase. Instead, their purpose is to serve as an achievement, not to have value on the market, like NFTs do. They can be issued by individuals, companies, governments, or any other entity to symbolize an accomplishment. As such, they are more like a diploma, which symbolizes education.

Are Soulbound Tokens the Future?

Soulbound tokens could be one of the token types that we might use in the future. Everything about them advances quickly, after all. They were only conceptualized a year ago, but they have existed since April 2021. That was before the very idea of them was named. They were created by an NFT platform Idexo, and they were minted on Binance Smart Chain.

Whether or not the idea will stick still remains to be seen. It might end up dismissed as an unnecessary way to use digital tokens. Cryptocurrencies and blockchain technology threaten to change a lot in the world that we already know. As such, they can be hard to get used to, as all of the changes can be confusing. Still, they offer an upgrade of a system that needs it, and we always welcome such technologies.


FAQs

What Are Soulbound Tokens?

Soulbound tokens are non-transferable tokens. Similar to NFTs, they are not meant for sale or even to have value. The main idea for their usage currently is as a symbol of achievement.

Can You Buy Soulbound Tokens?

Soulbound tokens cannot be bought or sold. They can, however, be issued to individuals in exchange for completing certain actions or goals. They can also, theoretically, serve as storage of personal information.

What Is an SBT Crypto?

SBT crypto is a token. It is a unique token that contains records of data belonging to a unique entity. They do not hold financial value, although they may hold another kind of value, that matters to the owner of an SBT.

Who Created Soulbound Tokens?

The concept was created and explained by Ethereum’s co-founder, Vitalik Buterin, in January 2022. Buterin, alongside colleagues, elaborated on the concept in an additional paper in May 2022. However, before him, the tokens were created in April 2021 by the NFT platform Idexo, before the concept even existed.

Are Soulbound Tokens NFTs?

No, Soulbound tokens differ from NFTs in several aspects. They have no monetary value, and they cannot be transferred and sold. They contain data meant for one individual, rather than data that ties them to an asset of value.