The co-founder of Ethereum, Vitalik Buterin co-authored a 37-page paper that was published last week. The paper outlined the future of Ethereum but mainly focused on one thing, Souldbound tokens and their role in creating a “decentralized society”.

First, it is important to understand NFTs and how they can be transferred anywhere/to anyone as long as you have their address. This is how we are able to see crazy NFT prices because one person is able to sell and transfer NFTs to another person (usually sites like OpenSea handle this for you).

Souldbound tokens (SBTs) are tokens that, once transferred to your address, cannot be transferred out.

So once an SBT has been sent to you, you are unable to send it anywhere else or sell it on the open market. An important point to note is that the SBT issuer can make an SBT revocable.

At first, this sounds quite strange as for the most part NFTs currently have limited utility outside of being able to sell them for a higher price than what you paid.

So what if you can’t sell the NFT? what is the point?

SBTs can tell you a lot about the wallet holder (the soul), and here is what Vitalik see’s their utility being:

• Clubs, DAOs, and groups can use SBTs to represent a membership

• Education institutions can issue SBTs to souls to show they have graduated or achieved some form of a certificate

  • For example, if you get an SBT for graduating, you can’t just sell or transfer your proof of graduation to someone else

• Proof of attendance: Events and conferences could issue SBTs to attendees

• Proof of employment history: Employers can issue SBTs to give employees verifiable proof they worked somewhere. Like a public CV.

• SBTs can also be used to represent non-transferable rights that exist in the centralized world. For example, cash-flow rights, property rights, rights to dividends, and rights to access something (like tickets to a show or enter a building).

• Landlords could issue an SBT when renting out their apartment and then prevent subletting (the SBT cannot be transferred to someone else).

But what if I lose my wallet?

Immediately, one thing that stood out to me is wtf happens if you lose access to your wallet/soul?

Vitalik is a pretty smart guy and has thought about this too, that being said there really isn’t a great answer for this at the moment.

Vitalik proposes “community recovery” where people in the communities you belong to “consent” to you having your SBTs re-issued.

The assumption here is that many of these communities will exist off-chain and have records outside of a blockchain that show you belong to that community. For example, your university will have records that you graduated and maybe someone from that conference you attended took a picture with you, clearly showing you were there. In this case, these two groups would get together and re-issue your SBTs.

All in all, Soulbound tokens are quite an interesting idea that has yet to materialize as the token standard does not currently exist on Ethereum.

It is also clear that their use cases spam beyond those that Vitalik talked about in his paper, there are a lot of smart people in crypto and novel ideas for how this technology can be used will eventually emerge. Soulbound tokens have the ability to take Web3.0 more “offline” and into the real world, something we have yet to really see in crypto.

Check out the below for more information on Soulbound tokens:
Decentralized Society: Finding Web3's Soul
This awesome Tweet thread