The Basics of Soulbound Tokens (SBTs)
While blockchain technology and cryptocurrencies have become more familiar to the mainstream audience, many innovative use cases for blockchain technology have also been under development by developers.?
These new blockchain or Web3 application concepts were created by thinking outside the box and are equally as important to the advancement of the overall industry.
One such example is a Soulbound token or SBT, in the field of NFTs.
In this blog, SBTs are explained further including their potential use cases and their core differences with other NFT types.
What are Soulbound tokens (SBTs)?
Soulbound tokens (SBTs) are a unique type of NFT in the crypto space, issued on a decentralized blockchain by a digital or crypto wallet.
An SBT cannot be moved from that specific wallet. It must stay within that particular wallet.
The wallet’s owner or the party that holds the private key to that particular crypto wallet holding the SBT will never be able to sell, burn, or transfer it.?
The concept of SBTs was first proposed in a paper titled “Decentralized Society: Finding Web3’s Soul.” They were proposed to create a decentralized identity for blockchain application users in a potential future where all types of user services were administered via applications leveraging decentralized blockchains.
In this context, it could make sense that these SBTs cannot be moved since many users also increasingly prefer not to send their personal identity information to another party by mistake.
It would also allow users of SBTs to configure access regarding which other services can see their personal information and to what degree.?
How SBTs differ from other decentralized identity solutions
Other decentralized identity solutions typically require additional complementary technologies. In many cases, these solutions have an external system that records and stores information such as a decentralized storage service or something similar.?
On the other hand, a SBT is a native crypto asset that does not utilize other additional technologies to function on-chain. Also, as a native token, it interfaces directly with smart contracts, something decentralized identity solutions cannot do without some sort of smart contract interface.?
A type of NFT
Fungible tokens could not work as an SBT as the advantages they provide (being homogenous among the supply and also divisible) don’t present any advantages for a soulbound asset.?
The ideal digital token type remains whole and can point to more information – a non-fungible token or NFT.?
In most implementations of a soulbound asset, the token design follows the architecture of an NFT. The?token metadata?represents essential information from the real world that is valuable in some way.?
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In the case of decentralized identity, it would be the individual’s personal information. The SBT could become a pointer to the metadata which is stored in a secured medium (e.g. decentralized storage network).
While the SBT is a kind of NFT, there remains a key difference between the two.
As mentioned, an SBT cannot be moved from the original issuing wallet while an NFT can be transferred from the original issuing wallet. At any point, an NFT can be moved or sold, meaning the information in the NFT no longer ties the identity of the person with the holder of the NFT.
In some cases, this could make it potentially more difficult to use regular NFTs to represent assets that would require stricter usage of KYC for transactions.
SBT use cases
Why would a token that cannot be transferred be useful since digital tokens usually gain or depreciate via a market where they can be transacted between buyers and sellers?
Thus, tokens that cannot be moved appear to not have any monetary value.
That’s the unintuitive part of these assets.?
Let’s explore some potential use cases for soulbound tokens.
Many assets in the world are considered securities.?
Due to the lack of aligned regulatory clarity around the world, most of these assets still do not exist as digital tokens eligible for transactions in the blockchain world.?
SBTs can potentially provide a solution since they can contain the identity of an individual. This means that a user could be required to possess an SBT in their wallet if they want to transact a certain tokenized asset in the future.
This type of system in the future could enhance compliance as a lack of an SBT in a user’s wallet would prevent the transfer of a tokenized asset to that wallet.
Another potential use case for SBTs is intellectual property.?
A creator’s content could be added to and updated in the NFT metadata. Additions, once verified, could become part of the user’s expanding intellectual property.?
This could mean there is a clear repository for a creator and those looking to use their IP.?
For example, in a digitized streaming world, if a particular IP is a song, those adding that song to a video or other type of media would have to automatically pay the IP holder.?
This logic can be extended to many other industries such as research papers, patents, video, sound effects, visual effects, etc.?
The potential implications of having a shared and global repository for digitized intellectual property backed by NFTs or SBTs are transformative on many levels for a future digital world.?
Another powerful use case for SBTs is personal certifications.?
For example, many professionals today engage in further education and upskilling to gain career skills.?
Many of these courses are online or e-learning, and issue a simple PDF upon completion. These can be hard to verify for authenticity by third parties.?
A certificate represented as an SBT could potentially contain essential course and user information in its metadata, enabling third parties to trust this data as it would be immutable and unmovable from a user’s digital wallet.?
Once there is a more established system of education platforms, digital wallets, tokenization platforms, and users and institutions with greater awareness of blockchain usage that is in sync with one another, SBTs could have a much greater effect.
Cardano SBTs
In the Cardano ecosystem, SBT types have been under development for some time. The main way would be to create a Cardano-issued NFT that contains user KYC information with it locked in that person’s wallet. The NFT would act as a gateway that prevents certain actions if not present in the wallet as an asset.
NMKR is an NFT and tokenization platform service leveraging the Cardano blockchain. A recent funded?proposal?on Cardano’s decentralized funding program?Project Catalyst?Fund 11 has come up with a plausible architecture for SBTs on Cardano.?
Now, these SBTs can be combined with?NMKR Studio?to mint these NFTs on Cardano. The metadata edit capabilities found in NMKR Studio can be configured with the information needed for the user.???
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Asset tokenization through the usage of NFTs provides an interesting use case for blockchain technology.
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8 个月The immutable nature of SBTs makes them ideal for managing intellectual property (IP). Creators can have a secure and verifiable record of their works, simplifying licensing and usage tracking. This can lead to a more efficient and fair system for managing digital content across various industries, from music to research.