TLDR: Soulbound tokens (SBTs) are non-transferable non-fungible tokens (NFTs) that are permanently bound to a blockchain wallet, which means they cannot be sold, sent to another wallet or even taken from that wallet. They may represent commitments, credentials, affiliations, achievements or memberships (among other things), and they were created to build trust and establish provenance and reputation in the Web3 environment.
Whether you’re a gamer or not, you have probably heard about the video game World of Warcraft (WoW). The game features soulbound items: powerful gear that can only be obtained by completing in-game challenges like killing monsters. Such gear can't be transferred or sold to other players, making the game more challenging and interesting. However, there are ways to cheat the system, such as paying someone else to play for you or buying a character on a secondary market.
Vitalik Buterin, one of the co-founders of Ethereum, is a big WoW player, and one day he thought, “What if NFTs could be soulbound too?” In his own blog post, Buterin acknowledged that NFTs currently have similar properties to rare and epic items in games like WoW, but they can be traded and used to signal wealth rather than skill in acquiring them. In May 2022, Buterin, Puja Ohlhaver and E. Glen Weyl published a white paper, "Decentralized Society: Finding Web3’s Soul," proposing the creation of “soulbound” tokens to make a fully decentralized society a reality. These tokens would work similarly to soulbound items in WoW, ensuring that they can only be obtained through specific actions and can't be traded or sold. This would prevent NFTs from being used solely as a way to signal wealth and, instead, promote skill-based acquisition.
On the one hand, you have the token, which is a way to store and verify all types of information about yourself in a secure and permanent way. And on the other hand, you have the “soul”, which is nothing other than your private blockchain wallet. Since the token cannot be transferred, sold or stolen from your “soul”, the token is “soulbound”.
And what happens if you lose access to your “soul” (your wallet), and hence, your SBT? Currently, there are two main ways to recover them: social recovery and community recovery.
The non-transferable feature of soulbound tokens opens up a myriad of possibilities for digital identity. These tokens can serve as digital equivalents of real-life achievement badges, providing verification that a certain task has been completed or a milestone has been reached, while also acting as reputation indicators. “If you gain a particular status, like achievement in a DAO or contribution in a hackathon, it's going to be the characteristic of your digital persona,” said Tatiana Yakushkina, CEO at vSelf, a Web3 identity platform for growth hacking and community engagement that employs soulbound tokens.
You could get an SBT for graduating from college, getting a professional certification or winning an award. But they can also be used to store other types of personal information, such as your name, birthday, political affiliations, charitable giving, criminal record, medical history, nationality or religious upbringing.
From NFT art to DAO provenance,, awards or community engagement, the possibilities are endless.
By linking an NFT to its owner's "soul", it is possible to prove the provenance (origin) of a non-fungible token and increase the value of digital collectibles.
In decentralized autonomous organizations (DAOs), SBTs can be used to distinguish between real "Souls" and fake ones, greatly improving their social coordination mechanisms and preventing spam attacks. Additionally, Souls with multiple SBTs can be given more voting power, as their record of trust would be higher.
By recording certifications and academic records on a blockchain, it is possible to create a "proof of history" that cannot be falsified. “In the past year, we've seen different use cases that could benefit from having soulbound tokens,” said Roxana Balan, CMO of vSelf. “For example, we're having a partnership with a coding academy in South Africa that is offering this type of token for every module that people graduate from their school,” says Balan.
SBTs can also be used to create proof of attendance records for real-life or digital events. Academic attendance could be recorded with a soulbound token, linking it to a student's academic record and later, to their record of employment. Entertainment or professional events could also be recorded with SBTs. POAPs are already working in a similar way, but using transferable NFTs instead of SBTs.
Learn More: WTF Is... A POAP?
Soulbound tokens also open the possibility to reward and maximize community engagement, particularly for those who want "OG" or "original gangster" status showing they are an early supporter of a project.
“By rewarding our OG users with a soulbound token, we not only make them feel part of the project, but also gives us the opportunity to identify and compensate them in the future for their continuous support,” said Jordi Esturdi, CMO of Synergy Land, a multiplayer game with a blockchain layer that is working on rewarding their users with SBT tokens after migrating the game from Solana to Polygon.
Even though SBTs are a great tool to create unique digital identities and can help fix trust and representation problems in Web3, there are some potential risks too. One concern is that they could enable a future of increased surveillance. By tying an individual's record of employment or health to a token, those with access to the information would hold significant power over that person.
There is also the potential for abuse by bad actors and governing bodies. They could disfavor social groups or even “target them for cyber or physical attack, enforce restrictive migration policies, or make predatory loans,” as noted by Buterin and his co-authors in their white paper. For this reason, they also stress the importance of allowing users to discard or hide their SBTs if necessary.
Overall, while SBTs offer many benefits, it's important to consider the possible negative consequences and ensure that there are measures in place to prevent abuse.
Want to learn more? Additional resources about soulbound tokens:
Soulbound by Vitalik Buterin
Decentralized Society: Finding Web3’s Soul white paper by Vitalik Buterin, Puja Ohlhaver and E. Glen Weyl
How Soulbound Tokens Could Change Society as We Know It by Jex Exmundo
This is not financial advice. If you don't want to spend money investing in crypto or Web3 — you don’t have to. The intent of this article is to help others educate themselves and learn.
Sabrina Bonini is the Founder of Cripto Es Cultura, a community and creative agency that helps brands and creators adapt to the Web3 and NFT space. She pays special attention to the education and empowerment of Spanish-speaking artists, women and underrepresented groups and is fully committed to helping make the blockchain ecosystem more diverse and inclusive. Connect with her on Twitter @criptoescultura
