Introduction

In recent years, there has been a growing interest in the use of blockchain technology for identity verification and reputation management. 

One proposed solution to this problem is using "Soulbound Tokens" (SBTs), which are non-transferable digital tokens representing an individual's credentials, affiliations, and commitments in a decentralized society. 

In this article, we will explore the concept of SBTs in more detail, including their potential benefits and drawbacks, and some possible use cases for the technology.

Article Outline

• What are SoulboundTokens?

• Benefits

• Disadvantages

• Real-World Examples and Future Landscape

• Closing Remarks (TL;DR)

What are Soulbound Tokens?

Non-fungible tokens (NFTs) are digital assets that represent ownership of a unique item or asset, such as a piece of art or a collectible. They are stored on a blockchain and are unique (aka non-fungible), making them distinct from other types of digital assets like cryptocurrencies which are interchangeable (aka fungible). NFTs have gained popularity in recent years as a way to sell and trade unique digital items, such as digital art or virtual real estate.

SBTs are publicly verifiable, non-transferable non-fungible tokens (NFTs) issued by "Souls," representing blockchain accounts or wallets. These tokens are intended to represent an individual's identity and reputation in a decentralized digital world. It can be used to verify a wide range of personal information and achievements, such as education, work history, professional certifications, and more.

One of the key features of SBTs is that they are non-transferable, which means that they cannot be bought or sold and do not have any market value. Instead, they are permanently bound to a person's private blockchain wallet and cannot be given away or transferred to another individual. This is intended to discourage the use of SBTs as status symbols or as a means of accumulating wealth, and to encourage their use as a means of building and maintaining a verifiable reputation based on an individual's past actions and experiences.

Benefits

There are several potential benefits to the use of SBTs as a means of identity verification and reputation management in decentralized networks.

Some of the most notable benefits include:

1) Verifiable Reputation

By using SBTs to represent an individual's credentials, affiliations, and commitments, it is possible to create a verifiable, digital reputation that is based on the individual's past actions and experiences. 

This could be used to facilitate lending, voting in decentralized autonomous organizations (DAOs), and other activities that require reputation verification.

2) Trust and Transparency

By using SBTs to verify personal information and achievements, it may be possible to increase trust and transparency in decentralized networks. 

This could be particularly useful in contexts where traditional methods of identity verification and reputation management may be lacking, such as in decentralized finance (DeFi) or in the trade of non-fungible tokens (NFTs).

3) Decentralization

SBTs have the potential to decentralize Web3 by reducing reliance on centralized structures and by discouraging the use of NFTs as status symbols. 

This could help to create more open and equitable decentralized networks that are not controlled by a small number of powerful actors.

Disadvantages

Despite the potential benefits of SBTs, some potential drawbacks to the technology should be considered. Some of the most significant disadvantages include:

1) Complexity

SBTs are a relatively new and complex technology, which may make them difficult to understand and use for some individuals. 

This could limit their adoption and uptake in the short term.

2) Controversial

The concept of SBTs has been compared to China's social credit system, which has been criticized for its potential to be used as a tool of social control. 

This has led some to question the ethics and potential consequences of using SBTs in decentralized networks.

3) Security

As with any digital technology, there is a risk that SBTs could be hacked or stolen, which could compromise an individual's digital identity and reputation. 

This could be particularly problematic if the individual has been appointed.

A solution is binding an NFT to an ENS name. One could assume the name would be transferred to a new wallet, then all SBTs could move with this. The name may also be obscure, reducing the risk of third-party hacking immediately allowing the owner time to transfer. Although, this becomes problematic with the rarer ENS names.

Real-World Examples and Future Landscape

There are numerous use cases, many of which are yet to be discovered. This diagram provides some flavor for current use:

Let’s highlight some of these uses and some other existing web3 integrations.

1) Credential Validation (CV)

SBTs can be used by education bodies/future employers to verify the credentials of students and the qualifications/employment history of applicants.

Having the token soulbound to an individual's wallet makes it more difficult to fraudulently alter credentials.

Governments are considering NFTs as a viable use case for identity verification. SBTs will further enhance the security around this.

2) DeFi Lending

Similarly to CV, SBTs can be used to facilitate lending and borrowing by allowing borrowers to establish a verifiable reputation based on their past actions and experiences.

3) Decentralized Governance (DeGov)

SBTs can be used in decentralized voting systems, where reputation is valued above token holdings.

The transfer of voting rights for a price can be problematic, so preventing this could be invaluable to upholding a reliable voting mechanism.

4) Web3 Gaming

Cyberkongz introduced SBTs (Multi-lock registry) into their game to reduce the risk of loss from sending valuable assets to third-party contracts.

The purpose of the Multi-Lock Registry is to offer the benefits of staking, without the need to send your valuable assets to a smart contract that could eventually be compromised or cause a huge loss. 

Similarly, EtherOrcs have implemented an ERC-1155 SBT called farming points. These points will be used as additional benefits from playing the game. The SBT element prevents players from trading these and incentivizes gameplay.

Closing Remarks

TL;DR

SBTs are non-transferable digital tokens capable of representing an individual’s identity, reputation, and credentials.

The potential use case for SBTs includes creating a verifiable digital reputation for an individual's actions and experiences in decentralized networks, which could facilitate lending, voting in DAOs, and other activities requiring reputation verification.

We’re yet to see their full potential. They will certainly play an integral part in the decentralized landscape going forward.

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