All You Need to Know about Soulbound NFTs

All You Need to Know about Soulbound NFTs

Introduction to Soulbound NFTs

Decentralized identity as a concept has been gaining significant traction from past few months and
Vitalik Buterin, co-founder of Ethereum, expressed the concept of Soulbound NFTs while describing his
idea of a completely decentralized society (DeSoc) in a white paper called “Decentralized Society:
Finding Web3’s Soul.” In a culture where Web3 has entered the mainstream, an individual’s wallet
address can provide a trustworthy and comprehensive “digital identity,” in contrast to the unreliable
self-issued credentials that we garnish our LinkedIn pages and job resumes with, which is the big idea
behind Soulbound NFTs.

Soulbound NFTs are identity and reputation tokens that can’t be shared or transferred. Leveraging
blockchain technology, these NFTs make it possible for people to check all of their information, like their
education, work history, credit score, medical history, professional certifications, etc.
The term “Soulbound” was first conceptualized in one of the most popular games, World of Warcraft
(WOW). The game offered unique items to be won by fighting battles and these items only the winner
could keep or use in the game. Building on this, three renowned individuals in the blockchain world,
came up with the concept of Soulbound NFTs.


How do Soulbound NFTs work?

Each Soulbound NFT, just like any other NFT will have its own identification code and metadata, which
means that every Soulbound NFT will be unique and the data it contains can’t be changed. You can sell
or give away regular NFTs for free, but in this case it would be non-transferable and will be attached to
your wallet/identity forever. The wallet is being termed as a Soul, which will be holding these soulbound
NFTs as your identity or a life CV.
In today’s time, anyone can say they went to an MIT or Stanford by simply by updating in their resume
with a physical copy of a degree, which many a times these days, can easily be duplicated or faked.
Hence, the actual degree’s credibility can be questioned. But with Soulbound NFTs, universities will have
to grant/transfer some proof of diploma to your private wallet in order for you to effectively make that
claim. Thus, practically, soulbound NFTs would be issued to members of a group or institution to serve
as a badge of their membership or participation in that group.

Similar to the badges you earn for completing a course of study from a reputed institute, winning a
university creative competition or a sports event, or even just completing tasks and going up levels in a
video game, Soulbound NFTs can serve as virtual representations of each of your accomplishments.
Your corresponding Soulbound NFT would serve as a way of verifying that achievement to others.
But Soulbound NFTs are not only about achievements. They can be linked to a wide variety of additional
characteristics, attributes and information personal to specific individuals. A Soulbound NFT could be
used, for instance, to verify your identity, birthday, political affiliations, charitable giving, criminal record,
medical history, military background, nationality, religious upbringing and a lot more. The opportunities
are, quite literally, limitless. The one important aspect that summarizes this is: Soulbound tokens are all
of your personal information broken down into individual NFTs and saved in your personal blockchain
wallet.


How can they add value to the Web3 ecosystem?

Soulbound NFTs can aid in the resolution of inefficiencies in Web3, like minimizing scams & hacks and
propagating multiple use cases in DeFi and metaverse. Furthermore, the reputation of an NFT artist or
project’s founder in the community plays a crucial role in influencing the level of trust it obtains from its
customers or investors. Consumers can learn about the worthiness of the project and team and
evaluate a project based on the real worth showcased through these NFTs.
Instead of having to go through the hoops set up by centralized organizations to establish our identity,
blockchain technology provides us the chance to do it on our own terms. The most important difference
in the decentralized identity revolution is the fact that providers of online identities are no longer
required for users to own their digital personas. As an alternative, it’s a shared digital connection that
both parties agree to keep going for the foreseeable future, just like the personal relationships we have
in the actual world. These NFTs may also act as valuable pieces of information for VCs and other
investors to gauge the actual strength of the founder and the team based on their NFT proven resume
and add to the monetary and strategic value of protocols, aiding mutual growth. Below are some
examples of how Soulbound NFTs can bring innovation in the following areas:

Some projects that may benefit out of Soulbound NFTs:

  1. Itheum: The NFMe ID avatars launched by Itheum, are in the form of Soulbound NFTs that
    represent the individual in the metaverse. Users can’t trade away their NFMe ID, but can lease
    their personal data assets within the metaverse. Think of it as an authorization key to user data.
  2. Binance: Binance announced the launch of the Binance Account Bound (BAB) token, a
    soul-bound token, to be used as proof of identity for Binance users who have completed KYC
    verification as on 2022-09-08 at 09:00 UTC. Users will also be able to mint BAB tokens on BNB
    Chain as identity credentials and also participate in building multiple projects and earn
    rewards.
  3. DeQuest: Dequest comes up with a relevant use case of Soulbound NFTs in gaming. It is trying to
    disrupt the Gamefi ecosystem by creating a Soulbound token-focused reputation protocol that
    allows users to build out their profile and showcase their achievements & skills.These Soulbound
    NFTs will be used by Web3 games to create tailored experiences based on players’ XP.

Apart from these, other interesting project that can best leverage Soulbound NFTs include:

1. Project Galaxy – Project Galaxy is working on building on-chain identity and hence can be best
utilizing soulbound NFTs to develop secure and unique identities in web3. This can help in setting
smooth authenticity on-chain for the issuer and also the user/owner of the NFT.


2. Lens Protocol – Lens Protocol is a decentralized social graph which the user owns & any
application can plug into it. As creators transition from Web2 to Web3 social apps, they fear
building their community & audience from ground up again. Soulbound NFTs for creators to
bring their previous record of million instagram followers or tons of content & engagement with
the community on YouTube, can help in growing their identity and community from where they
left.
A number of other content creation platforms like CoTo, FanTiger, Audius – can all leverage the
scope of Soulboud NFTs to give the creators a platform and a starting point to build and grow
their audience.


3. Established DAOs like BanklessDAO, GCR contributors, Guilds can make use of Soulbound NFTs
by rewarding the contributors at different scales – Platinum, Gold, Silver, based on their past
contribution history and engagement with the DAO.


What are some challenges to Soulbound NFTs?

Every new technological development and innovation faces roadblocks of varied kinds. So does the
whole concept of Soulbound NFTs but the current setup does try to resolve some of the obvious ones for
the users. Due to the non-transferable nature of Soulbound NFTs, there may be cases where you may be
sent a Soulbound NFT that you did not associate with or subscribe to in any way.

This might result in confusion and misrepresentation of identity. Although this is a legitimate concern,
Vitalik offered a privacy or burning mechanism of Soulbound NFTs in which a person can choose to
make certain Soulbound NFTs visible and, if necessary, burn those with which he does not wish to be
linked.This method may work for the aforementioned issue, however it has not yet been implemented
and its technical implementation remains unclear. The recovery process is another key difficulty with
Soulbound NFTs. What happens if the individual misplaces the wallet’s keys? In this instance,
researchers have proposed social recovery strategies, such as sharing your wallet with a select few
guardians and making them responsible for assisting you in recovering your key. This solution may have
its own set of difficulties: what if the group turns against the individual, or what if the people you
associate with no longer share that relationship with you. So a clear solution to this problem remains a
mystery, but we remain confident that the sharpest brains in web3 will uncover a practical solution
soon.


Conclusion

Soulbond NFTs may play a crucial role in growing a sustainable and practical model in Web3.
Soulbound NFTs open multiple avenues for establishing identity and credibility of individuals, entities,
projects, DAOs etc and aiding the ethos of decentralization, security and scalability of the blockchain
trilemma. They help in building a robust ecosystem where a lot of our past records can be converted
into securitized digital identities through non-transferable NFTs. The use cases are humongous and it is
just the beginning to unleash many more opportunities with these NFTs. A number of roadblocks are
there in making these NFTs a full fledged reality but considering the work being done in the web3
ecosystem, this success may not be too far from reality. Will Soulbound NFTs and tokens override the
existing NFT ecosystem or will both coexist? The need for both is different and time will tell how each
progresses in the web3 roadmap.


References:


This article was written by : CuratedX // In collaboration with: Global Coin Research

Leave a Reply

Your email address will not be published. Required fields are marked *

More from GCR

Greg d’Incelli - Scenius and the FTX impact on allocator appetite - Global Coin Research

Featured GCR Announcement GCR Exclusive Podcast

Greg d’Incelli – Scenius and ...

Gregory d’Incelli is the co-founder of Scenius Capital. Scenius is a digital assets and blockchain technology investment firm focused on providing sophisticated investors curated access ...

An Overview of Music NFTs - Global Coin Research

NFT

An Overview of Music NFTs

Introduction NFT or a non-fungible token is a unique digital asset on the blockchain that can be bought or sold. TheNFT movement has spread to ...

Insights

Writing NFTs As The New ...

The more I search for new perspectives on specific topics for my essays, the more I realize the difficulty of finding hidden gems and quality ...