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Despite the NFT buzz, there are some things in life that cannot be transferred. For instance, birth certificates, Aadhaar or PAN numbers, college diplomas, and so on.
But what if these vital papers could be represented by NFTs and kept with you for the rest of your life?
As a result, be ready to enter the crypto space’s next-generation solution: Soulbound tokens. Vitalik Buterin’s whitepaper describes how SBTs symbolize Ethereum’s future by allowing services that aren’t available in Web3.
The non-transferable coins are designed to aid ethical contracts and undercollateralized loans by displaying social identities. We’ll take a close look at Vitalik’s newest study on Soulbound tokens in this post.
So, let’s get started.
So, what is Soulbound token (SBTs)?
Buterin recognizes that today’s Defi ecosystem lacks the required benefits that affect real-world economies, and that tracking social provenance on-chain can salvage the Web3 ecosystem’s reputation. As a result, SBTs work to overcome these restrictions, creating a Web3 environment that represents community ties and reliable documentation.
SBTs are non-fungible tokens (NFTs) that can be earned in part depending on a person’s work and educational background. They are non-transferable, unlike conventional NFTs (though people can revoke them if they choose.)
SBTs would serve as a form of “extended CV” for a person’s reputation and accomplishments.
Soulbound tokens are completely non-transferable, comparable to NFTs but without the ability to purchase, sell, or trade them. Members can send their tokens to other cryptocurrency addresses, much like NFTs. The tokens, however, can only be kept on the “Soul” marketplace.
Furthermore, the tokens can be used to improve reputations. For example, Soul member can advertise their educational credentials, employment histories, and notable accomplishments across DAOs, NFT marketplaces, and protocols.
As a result, SBTs are useful for individuals who wish to learn more about people’s histories in order to better understand their motivations before entering into commercial dealings or partnerships.
Why are Soulbound Tokens (SBTs) required?
Despite the rapid rise of Web 3 and Defi in such a short time, it still has certain flaws. Among these restrictions, the main challenge for Web 3.0 participants is social identification, which adds a trust aspect to the existing financial system.
As humans, we have always been taught to deal or share on the basis of trust. Trust elements are important in every aspect of business, from management to financial transactions. Banks give loans based on credit scores under the old financial system, whereas MNCs employ a well-known individual to serve on their board of directors.
Most Web 3.0 platforms and apps now rely on Web 2.0 platforms to hide their shortcomings, such as:
To preserve scarcity and give greater provenance to their collections, most NFT curators use centralized platforms like OpenSea and Twitter.
DAOs use web 2 social media accounts like Discord server, Twitter, and others to avoid Sybil attacks and avoid coin-voting.
Most Defi players opt to keep their digital assets on centralized platforms like Coinbase or Binance, since decentralized key management is not very user-friendly (not that it isn’t valuable).
Current Defi participants must overcome these difficulties in order to recreate economic value in Web 3 space and construct a “Decentralized Society” (DeSoc).
What role do SBTs play in real-life situations?
To put it simply, this is similar to how we disclose information about ourselves on our resumes. However, in this instance, one Soul can issue or attest to the existence of other Souls.
As an example, a corporation can present an employee with a reference letter as SBT. As a result, when colleges begin awarding degrees as SBTs and companies begin issuing SBTs to employees, fraudsters will find it more difficult to mimic them.
The concept is to strengthen people’s social identities by personalizing them with one-of-a-kind, non-exchangeable badges.
In principle, the tokens might aid in the resolution of some of the issues plaguing decentralized finance, such as fraud and theft, Vitalik Buterin explained.
What’s the difference between SBTs & NFTs?
- It can be used for proof as well as NFTs.
- They are non-transferable tokens that can’t be given to anybody else.
- It includes a community recovery system that specifies the Soul’s membership in several communities for the sake of healing.
- For NFT art, uncollateralized financing, or leasing agreements, SBTs can be employed as a proof-of-concept and social identification.
- Permission Access can be provided by SBTs to any authorized entity for papers, certifications, and other legal agreements.
- NFTs are only interested in digital art.
- They are transferrable digital assets that can be bought and sold on secondary markets like Opensea.io.
- As NFTs are a type of digital asset, it’s very hard for users to reclaim them if they’re misplaced or transferred to the wrong person.
- Aside from digital treasures, NFTs can be used to verify the validity of items, real estate, medical information, and identity, among other things.
- Without identification verification, NFTs can be used as passes or tickets for public and private events.
Soulbound Token Use Cases
Decentralized Autonomous Organization
Sybil attacks might be avoided by using SBTs, or Soulbound Tokens, in DAOs. The attacker gains 51% voting power in the Sybil assault, allowing the harmful proposition to succeed. These assaults are too hazardous for DAOs because they provide attackers immediate access.
SBTs can reduce this danger by calculating across a Soul’s constellation of SBTs to distinguish between unique Souls and likely bots, and by withholding voting power to a Soul that looks to be a Sybil.
Soulbound tokens can be linked to NFT artists’ collections, guaranteeing that NFT collectors know which tokens belong to them. Artists will be able to exclude unscrupulous actors from the NFT space who offer random NFT collections in the name of well-known artists by doing so.
Artists might go a step farther by issuing a connected SBT from their Soul. By attesting to an NFT’s membership in a collection, an SBT can vouch for any scarcity constraints the artist desires.
SBTs, in a nutshell, can aid NFT makers and artists in establishing their reputations within the NFT and digital art communities.
Evidence of Presence
SBTs can be used as evidence of attendance for a variety of activities, including special occasions, events, web conferences, seminars, and more. The event organizer or host can also call a controlled audience for their purpose by issuing SBTs to a restricted number of people.
Documentation and Certifications
SBTs have the potential to be very important in the future of documentation and certifications. Soul has the ability to transform the flow of documentation from paper to paperless by introducing it to the digital network, since it can create a limitless number of Soulbound tokens. SBTs can be used by colleges and universities to offer degree certificates to graduates and students.
Digital Curriculum Vitae
Last but not least, you can design and administer your own SBTs to interact with various Web 3.0 platforms. Once integrated into your Soul, even SBTs can reflect your skillset and talents. As a result, SBTs might become a digital portfolio or CV for Web 3.0 and Defi users in the future.
Due to the anonymity factor, uncollateralized lending in the Defi area is currently not viable. It’s difficult to rely on random borrowers on the virtual network for businesses and protocols like Aave and Compound.
There is currently no system in place to identify a borrower’s past or calculate credit ratings in the same way that traditional financials do.
When will the SBT token be released?
By the end of the year, the SBTs should be available for early usage on the Ethereum network. All of this is part of his bigger goal of establishing a “decentralized society” by 2024.
Overall, we cannot deny that Web 3.0 has the ability to alter every element of human living, including banking, after seeing Defi’s domination over the previous decade.
There are several limitations, such as a lack of “Social Identity,” which can be solved by SBTs or Soulbound Tokens.