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Need help understanding Bitcoin DeFi?
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What Are Soulbound Tokens, and Why Are They Better on Bitcoin?

Imagine being able to store personal information in a way where you don’t have to dig through thousands of files looking for one specific document. Imagine that no one can tamper with or edit that data, saving you time, money, and most importantly, peace of mind. Soulbound Tokens can do just that, and that’s just scratching the surface.

Deep dive
November 15, 2022
Lead Content Manager
Soulbound Tokens on Bitcoin

What Are Soulbound Tokens?

Soulbound Tokens (SBTs) are still a very new concept, first introduced in a blog post by Ethereum founder Vitalik Buterin in January 2022. Through SBTs, individuals can verify their identity, store their memberships and subscriptions, or even track their DeFi history to help them get loans. No more struggling to dig up your records—all your history is verified at your fingertips, already on chain. But what exactly is an SBT?

A soulbound token (SBT) is a non-transferable token that is tied to a certain individual through a “soul,” a particular type of blockchain address or wallet. Critically, an SBT cannot be sold or transferred to another address, and that is what makes these assets unique when compared to fungible and nonfungible tokens.

Stepping back to the big picture, blockchains have enabled users to verify what assets a specific address owns and in what quantity, and that has unlocked a ton of value. The technology created digital scarcity and enabled digital currencies to flourish alongside more complex use cases, such as digital art. For example, a piece of digital art can trade for hundreds of thousands of dollars because it is possible to verify who owns the original, real digital copy. That’s a really valuable thing, and NFTs and blockchain more broadly brought significant liquidity to these new asset classes. Not only are they tradeable, but they can be sold at any hour of the day to anyone all around the world.

However, many things in our society today can’t be transferred from one person to the next, and that’s a valuable thing in certain circumstances too. SBTs are a way to bring those use cases onto the blockchain through the creation of non-transferable assets. 

Revolutionizing NFTs

SBTs extend the world of possibilities created by NFTs by not only offering something that can be unique but that can be uniquely tied to an address. This could revolutionize the world of NFTs, if done correctly. SBTs can be used to represent a variety of information unique to a certain person. 

For example, you can envision a world in which one type of “soul” holds SBTs that correspond to an individual’s educational history. Another type of “soul” address may hold an individual’s credit score based on their on-chain behavior. This is important information that could benefit from being interoperably accessible on a blockchain, but importantly it’s not information users can transfer between themselves. If they could, you enter the realm of identity fraud.

These ‘soul’ wallets are permanently tied to the owner, hence the terms soul and soulbound, and could be a way to securely store important personal information. No more scrounging up your diploma, or hospitals scrambling to find your records in an emergency. SBTs can help herald in a new era NFT innovation.

As an aside, a key thing to note here is that SBTs are intended for important public information you would want on a blockchain or ledger. You likely wouldn’t want to put your social security number or credit card information on an SBT, but in Vitalik’s post, he does talk about ways in which you could still maintain user privacy even if SBTs become wildly popular. Because while there may be benefits to having your medical history exist immutably on a blockchain and easy for hospitals and medical practitioners to access, that doesn’t necessarily mean you want your whole medical history public either.

Why SBTs Are Better on Bitcoin

SBTs are intended to be around forever, so it’s important that they’re put on a blockchain that is trusted and has proven longevity. No one wants to have their personal information stored on a blockchain only for the blockchain itself to fail after a couple of years, or a decade from now. That defeats the point. The intention behind SBTs is that they are permanent, so even 40 years from now, someone can pull up their information from decades prior.

With Ethereum’s recent Merge, there are new concerns around increased centralization of the blockchain. It’s still unclear how The Merge will play out in the long term. Most other layer-1 blockchains are new and haven’t been battle tested. SBTs need to be on a blockchain that is reliable, frequently used, and most importantly, timeless. There’s only one blockchain that has been around since the birth of crypto, is widely adopted by institutions, and has a perfect track record. You guessed it—that’s Bitcoin. 

As long as Bitcoin is still being mined, the network will be up and running. Bitcoin is a vast ecosystem, expanding across every corner of the globe, and growing in adoption every year. It has the track record to prove its security, and has staying power thanks to its widespread use. And with Hiro tools, you can build and launch SBTs on Stacks, taking advantage of the Bitcoin network’s many advantages over other Layer 1s. 

As crypto technology moves forward, people will begin to see that SBTs, along with NFTs, provide a wide variety of use cases that can foster innovation across multiple industries. Looking for a home to launch your SBT project? Discover how Bitcoin compares to other Web3 ecosystems in our free guide:

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