What Are Soulbound Tokens Everything You Need to Know

How would you feel if you knew that your valuable crypto collection should never be sold or transferred? ERC-721 non-fungible tokens are designed to be soulbound (or non-transferrable), meaning that they have only one owner during the token’s existence – even if the owner loses that status later in life or upon death. The latter decides to change.

So, what are Soulbound Tokens, and how do they work?

What are soulbound tokens

NFTs are linked to a blockchain with their unique identification code. They cannot be duplicated or falsified but they can be transferred or sold.

Soulbound Tokens, however, take NFTs to the next level. When an NFT is said to be soulbound, it cannot be moved from your soul. In this case, Spirit is your personal wallet.

These tokens are non-transferable and represent your identity. They can be linked to unique or identifying information, including your personal data and history, such as age, education, qualifications, work achievements and health records.

Soulbound tokens were first proposed by Ethereum co-founder Vitalik Buterin in May 2022; Pooja Ohlhower, a lawyer; and E. Glenn Weil, an economist. Together, they published Decentralized Society: Finding Web3’s Soul, a paper discussing the limitations of NFTs and presenting the idea of SBTs becoming the basis of a decentralized society.

How do Soulbound tokens work

The idea of Soulbound Tokens comes from the popular game World of Warcraft, where many items are Soulbound. These items cannot be traded or exchanged between players as they are permanently assigned to a particular player.

Therefore, while regular NFTs represent an individual’s wealth, SBTs show identity and information. SBT can be linked to only one Personal Wallet for the duration of their entirety.

In order for you to receive SBT from an organization that shows you hold a certain position, the organization must allow your wallet (soul) to hold SBT. This adds an additional layer of security and trust to SBT that other NFTs do not have, providing authenticity and improving trust.

4 Applications of SBT

Although not fully incorporated into the NFT world, there are already many applications that would be useful for SBT.

1. Art Certification

In order for NFT owners to prove their ownership of any non-fungible collectible, they require the services of decentralized platforms such as OpenSea. With the creation of SBT, this would not be needed as it would be easy enough to link each token to the soul of its owner.

2. Catch scammers

Another advantage is the potential to catch scammers who copy the names of popular NFT projects and project owners to defraud unsuspecting buyers. With SBT, it will be easy to identify each artist through their unique token and spirit.

3. Digital Documents and Records

When a person completes a program at a university or obtains a driver’s license, the resulting documents can be issued as SBTs, and they cannot be sold, lost, or stolen by a third party. Furthermore, the SBT given by the organization contains an immutable proof of history.

The SBT can also be used as proof of attendance at an event, with each person receiving the SBT as a certificate of participation. Additionally, SBT can help verify the authenticity of employment records or CVs and the qualifications of a job applicant.

4. Loans and Borrowings

There may also be reputation measures for SBT loans and overdrafts. Buterin suggested using SBTs as a link to personal wallets of loan seekers.

Once a person takes a loan, an SBT can be attached to his personal wallet to see that he has not yet fulfilled the loan agreement. This may prevent the person from getting another loan until the previous one has been taken care of.

When this happens, the SBT is automatically destroyed, and a new one may be sent in the mail, indicating loan fulfillment and increasing your chances of qualifying for other loans.

How to recover your soul if it is stolen

SBTs can be great, but there is also a security concern. After using SBTs to protect and verify your identity, what happens in the event of identity theft or if your Spirit/Private Wallet gets hacked or you lose your wallet login details?

Recovering wallets containing such vital information is a priority, and Buterin proposes a social security model. This recovery model involves a group of highly trusted individuals, called guardians, who will have access to your private wallet, enabling recovery when access to your wallet is blocked.

Loopring and Argent Wallet are two of the most popular wallets that have included Social Improvements so far. Furthermore, looping can also make Ethereum gas fees cheaper.

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