Since Vitalik Buterin tweeted about Soulbound Token, this new form of NFT shook the Web3 industry to its core. No more NFT, the people want SBTs, but what exactly are they and why do we need them?
What Are SBTs?
A Soulbound token (SBT) is a type of non-fungible token (NFT) used in various areas of the blockchain industry to ensure that a virtual object, such as an item or a certain preference, is tied to a specific crypto address. SBTs can’t be sold or transferred to other users.
What’s the Point of SBTs?
Ordinary NFT users have the right to buy, sell, burn, exchange, or airdrop them. In short, you can do whatever you want with them. It’s very useful if you want to trade, make a profit out of an NFT, or simply exchange them with your friends. However, if the NFT is a special symbol that stands for something more personal, then passing such a token to another user can cause certain problems.
For example, if the founders of a new Web3 project know their first 100 subscribers and want to offer them exclusive content in the future, it’s not enough just to send them NFT certificates to be sold or exchanged. SBTs are used for these purposes. They can be attached to the wallet of the first 100 subscribers of a particular project. The project creators will have an easy way to contact them and offer them special promotions, discounts, etc. Fully decentralized and safe!
An SBT is a new tool to create links between projects and communities, but its use cases are still developing.
On December 13, Cobo, the biggest digital asset custodian in Asia-Pacific, announced a collaboration with MetaMask Institutional and Gnosis DAO to develop a project called “Evolution.” The project will create Soulbound tokens giving holders access to exclusive data, content, and features.
“Soulbound NFTs are a great way to prove identities and certifications. It has countless possibilities as compared to a tradeable NFT at the moment,” Jorge Selva, Growth Lead at Gnosis Safe, said in a presentation.
The Inner Danger of SBTs
The current form of SBT has an existential problem. If a wallet is hacked, the whole credibility of the holder is in danger. Once a seed phrase is known by certain “unwanted people”, the wallet is doomed and even if there is only SBT on it, therefore the hackers can’t steal anything, they can use the advantages of the SBT. In our first example, it may not seem so important to lose access to some discounts and perks from a project, but if we take the example of Bored Ape Yacht Club, which airdropped millions of Ape Coins to NFT holders, we see that losing access to an SBT in a wallet could create big problems.
Moreover, if SBTs are something like a university degree issued on a blockchain and tied to a certain wallet, can you imagine what it would mean to lose access to that wallet? This problem would most likely have to be fixed with off-chain solutions. Therefore, SBTs can’t be fully trusted as there’s always a risk of having the wallet hacked or losing access to it. To prevent this, a certain wallet with KYC authentication might be needed. Nevertheless, the Web3 industry isn’t fully ready or aligned with these ideas.
Full transparency of information on the blockchain network is also an issue in some areas, such as healthcare or traditional finance. Hence, the current use of SBTs is limited to Web3 projects and publicly available information.
How Big Are SBTs Right Now?
A lot of Web3 technologies are still theoretical and not widely used in reality, but some major blockchain projects are already incorporating SBTs into their services. For example, Binance was the first platform to launch its own SBT. It’s called the Binance Account Bound (BAB). This is the first SBT launched on the BNB channel. This token is used for digital identification on Web3. For example, users who have passed KYC can then use SBTs to verify other Binance services in an easier way.
Recently, Digital Dubai made history by issuing the world’s first Secured Digital Certificates as SBTs, which is a revolutionary step towards a more secure and tamper-proof certification system. The certificates cannot be transferred, sold, or disposed of but can be verified by any party if required, eliminating the need for any third-party attestation.
The Dubai Cyber Innovation Park (DCIPark), an affiliate of the Dubai Electronic Security Centre, granted the first Secure Digital Certificate to the first cohort of graduates from the CISO Executive program. The program had the participation of 17 government and semi-governmental entities. This certificate marks the first-ever use case of Soulbound Technology, which was adopted by Digital Dubai. This technology is a significant step toward a more secure and efficient future for digital certifications and will help Dubai to maintain its leadership position in the digital transformation space.
So, in 2023, SBTs are still a technology that hasn’t found widespread use but could potentially become important to the Web3 sphere in the future. The existing features of cryptocurrency wallets prevent SBTs from becoming mainstream. Like Bitcoin, SBTs require users to have full control over their wallets and the security of their personal data, which creates difficulties for the mass adoption of the technology.
