NFTs with Spirit: The Future of Soulbound Tokens

In the web3 space, innovation is constantly in motion. One of the most significant new technologies to emerge from the 2021 bull run are NFTs (Non Fungible Tokens), digital tokens that represent unique digital assets and are stored on a blockchain, making them immutable and verifiable. NFTs have become increasingly popular for their ability to represent a variety of digital assets, from art to virtual real estate.

This innovation has inspired entrepreneurs to start businesses that use this technology to transform society in various ways, from real estate to fashion to healthcare. However, while NFTs are performing well as trading assets, they have yet to live up to their potential in areas such as governance, reputation, and decentralized community participation.

In his blog post Soulbound, Ethereum co-founder Vitalik Buterin notes that NFTs in their present state only reveal the wealth of their holder, offering no insight into their other qualities. This means that the NFT space is dominated by individuals who purchase NFTs or governance tokens to gain entry into exclusive communities or to wield more power in a Decentralized Autonomous Organization (DAO), leading to a concentration of power in the hands of those with the largest wallets. However, what about access and power based on reputation, skills, and fair governance that is equally distributed?

Introducing: Soulbound Tokens, or SBTs.

What is a Soulbound Token?

S​​oulbound tokens (SBTs) are a relatively new concept in blockchain and crypto proposed by social technologist E. Glen Weyl, lawyer Puja Ohlhaver, and Ethereum creator Vitalik Buterin in a paper titled Decentralized Society: Finding Web3's Soul. SBTs are a type of NFT that cannot be transferred or sold to another party once acquired. The name "soulbound" is derived from a concept in the popular game World of Warcraft, in which "soulbound items" cannot be traded or sold to other players. They can only be earned through completing the required tasks. This feature was introduced to keep the game challenging and interesting, as players have to put in effort to obtain the best items, stopping them from simply buying their way to higher levels or items.

Why do we need Soulbound Tokens

Soulbound Tokens (SBTs) are needed to address some of the limitations of NFTs. While NFTs are effective trading assets, they don't provide any meaningful information about the holder, other than their financial worth. SBTs, on the other hand, cannot be bought or sold, and can only be earned through specific criteria, such as skill or action-based achievements. This allows them to signal unique traits or accomplishments of the holder, such as their reputation, skillset, or involvement in a particular course or event.

SBTs also offer potential benefits in terms of governance mechanisms. Transferable governance power can result in concentrated interests buying up governance rights from everyone else or being purchased by the determined but incompetent. However, non-transferable SBTs provide a way to distribute governance power widely, ensuring a more democratic approach that avoids undue influence by large holders buying up NFTs in a particular community or organization

How do Soulbound Tokens work?

Soulbound Tokens (SBTs) are tokens that are permanently bound to a specific wallet or account called a "Soul." A Soul can represent an individual's achievements or credentials, such as education or employment history. Souls can also issue or vouch for SBTs owned by other Souls, such as individuals or organizations.

For example, a university could have a designated Soul that issues SBTs in the form of degree certificates to its graduates. Each graduate would then hold their respective SBT degree certificate in their own Soul. This creates a secure and verifiable record of an individual's achievements that cannot be transferred or sold, only earned through specific criteria such as completing a degree program.

Use cases for Soulbound Tokens

Over time, a Soul can accumulate multiple SBTs, which transforms it from a simple wallet or avatar into a powerful tool. Behind the avatar is a person who can display verifiable credentials, a reputation, and a history of achievements that can support them in their life.

Soulbound tokens are already being utilized by various web3 companies in different ways. For example, Binance will be issuing the first SBTs on the Binance Smart Chain (BSC) with their Binance Account Bound (BAB) token. It will be given to all customers who have completed KYC (Know Your Customer). This will allow third-party protocols on BSC to offer incentives, airdrops and voting rights to all accounts with the BAB token.

E-Sports protocol Xborg are incorporating SBTs into their platform for web3 gamers to verify their gaming history and achievements which will then open up opportunities to join esports teams, get sponsorships and access guilds.

On the NFT community side, influencer Zeneca is experimenting with SBTs in his community, Zen Academy, which offers free mints of SBT tokens called Student IDs. This is a way to offer membership access to those who want to genuinely be part of the community whilst simultaneously removing those who are only interested in flipping NFTs for a profit.

Beyond actions and achievements, Soulbound tokens have the power to build a credible digital identity and include documents like passport, drivers license, medical records, credit scores, and other documents tied to an identity.

The future of the Soulbound Tokens

The potential use cases for Soulbound tokens are difficult to predict as they are still in their early stages of development. However, the importance of this concept cannot be underestimated in unlocking the true potential of NFT technology. The integration of NFTs with digitally verifiable reputation, community governance, and democratic and inclusive voting has the potential to unlock the true power of a decentralized society driven by bottom-up, community networks. The future of Soulbound tokens and NFTs is exciting, and it will be interesting to see how they will be utilized in the years to come.

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