Crypto Marketing with Ty Smith
Podcast: What Are Soulbound Tokens? SBTs Explained
About this episode
Ty Smith explains soulbound tokens (SBTs), the non-transferable blockchain tokens introduced in a May 2022 paper co-written by Vitalik Buterin. He covers what makes an SBT different from an NFT, why the inability to buy, sell, or trade an SBT is exactly what makes it useful for proving credentials, affiliations, and commitments.
He walks through practical examples, including academic degrees, non-expiring certifications, and professional references, then digs into a hiring scenario: instead of a hiring manager calling a former employer to verify someone's work history, an SBT issued by that employer could serve as instant, tamper-proof proof of employment.
The episode closes with four reasons SBTs were created, three pulled directly from Buterin's paper and one Ty adds himself: reliance on centralized platforms like OpenSea to prove NFT scarcity, DAOs needing a way to prevent Sybil attacks without leaning on Web2 social verification, custodial wallets creating poor key management experiences for new users, and the broader lack of identity verification in Web3, which matters for things like undercollateralized lending, mortgages, and signing contracts.
Key takeaways
- An SBT is non-transferable: it cannot be bought, sold, or traded, unlike an NFT.
- SBTs were introduced in a May 11, 2022 paper co-written by Vitalik Buterin about encoding social trust in Web3.
- Use SBTs for credentials that need permanent verification, like degrees, certifications, and professional references.
- SBTs can replace manual reference checks; an employer-issued SBT proves employment without phone calls or emails.
- DAOs could use SBTs to prevent Sybil attacks instead of relying on Web2 social media verification.
- Current Web3 infrastructure lacks a reliable way to prove identity tied to a wallet address, which SBTs aim to fix.
- Decentralized identity proof from SBTs could enable undercollateralized lending, mortgages, and contract signing in Web3.
Questions this episode answers
What is a soulbound token (SBT)?
An SBT is a blockchain-enabled token that represents non-transferable commitments, credentials, or affiliations of its holder. Unlike other tokens, it cannot be bought, sold, or traded, which makes it useful for proving that someone actually completed something, like a degree or a job.
How is an SBT different from an NFT?
SBTs and NFTs are both unique and blockchain-enabled, but the key difference is transferability. An NFT can be bought, sold, or traded, while an SBT is locked to the original holder and can never change hands.
Who created the concept of soulbound tokens?
The term was introduced on May 11, 2022, in a paper co-written by Ethereum creator Vitalik Buterin. The paper argued that Web3 had focused mostly on transferable, financialized assets and needed a way to encode social relationships of trust instead.
What are practical use cases for SBTs?
Ty gives examples like academic degrees, non-expiring certifications, and professional references. He walks through a hiring scenario where a candidate holds an SBT proving prior employment, removing the need for a hiring manager to call and verify references manually.
Why were SBTs needed in the first place?
Ty outlines four reasons: NFT creators currently rely on centralized platforms like OpenSea to prove scarcity, DAOs need a way to avoid Sybil attacks without relying on Web2 social verification, most Web3 users depend on custodial wallets with unfriendly key management, and Web3 currently has no reliable way to prove identity tied to a wallet address.
Can SBTs be used for lending or contracts?
Yes. Ty references Vitalik's paper, which points to real-world activities like undercollateralized lending, mortgages, or signing an apartment lease that require proof of identity. SBTs could provide decentralized social proof that someone is who they say they are and accountable for their obligations.
Full transcriptShow
Ty Smith0:03
What's up, guys? Today we are discussing soulbound tokens, also known as SBTs. We are going to cover everything you need to know about what an SBT is, how SBTs are different from NFTs, examples of how SBTs could be used, and then why soulbound tokens were created in the first place.
Ty Smith0:14
But first, a quick shout-out to our sponsor, Zoop. Zoop is an NFT platform that allows users to connect with celebrities and gain access to experiences and look-alike communities through the collection of NFT collectibles and in-app games. They are working on some really cool ways to redefine influencer and celebrity engagement with NFTs, so check them out at zoopcards.com or click the link in the description.
Ty Smith0:26
All right, let's dive right into it. So, what is a soulbound token? An SBT is a new type of blockchain-enabled protocol that represents non-transferable commitments, credentials, or affiliations of its holders.
Ty Smith0:34
On May 11th of this year, 2022, soulbound tokens were first mentioned in a paper published by Ethereum creator Vitalik Buterin and others. And in the paper, he suggests that until now, Web3 has been focused on transferable and financialized assets rather than encoding social relationships of trust, is how he put it. What that really means is these new SBTs, this new token standard, allows Web3 users to better verify trust in each other with their use.
Ty Smith1:19
So, how are NFTs and SBTs different from each other? Soulbound tokens and NFTs are similar in that they are each unique and blockchain-enabled. The biggest difference between an SBT and an NFT is that an SBT can't be bought, sold, or traded.
Ty Smith1:30
So, because they can't be bought, sold, or traded, they're used for situations where the holder must verify that they have completed some kind of task. Examples of that could be like they got a college degree or they worked for a particular company.
Ty Smith2:04
So, examples of how an SBT could be used. Popular examples, like I said, are in relation to things where you had to complete a certain task and verify that you did something, things like academic degrees, non-expiring certifications, professional references. All those things could be done via an SBT once they become more popular and widespread.
Ty Smith2:20
Let's go through an example of how an SBT could be used and why it's better than an existing system. Let's say John works at Facebook, and John is looking to leave Facebook, he's going to a new company. Mary is the hiring manager, and Mary wants to verify that John did actually work at Facebook. The legacy system would be John has to provide a reference, a phone number, email address of his manager, and then Mary has to go and call or contact that person.
Ty Smith3:02
An SBT, if John was to hold an SBT that was given to him by Facebook that verifies that John did in fact work at Facebook, that entire system goes away. And because the SBT can't be transferred or anything, it is blockchain-enabled proof that John was the original recipient of this and therefore did actually work at Facebook. So, it definitely alleviates a lot of the headache and social identity requirements that Web3 has not been able to build so far yet.
Ty Smith3:22
So, why are SBTs needed and why were they created? There's a number of reasons why SBTs were created. The largest driving factors in the creation were limitations on NFTs. In the paper published by Vitalik Buterin and others, they gave three main reasons, and I'm going to add a fourth.
Ty Smith3:35
The first reason being that most NFT creators currently require relying on centralized platforms like OpenSea, for example, to commit scarcity, meaning if they want to prove that there's only a certain amount of things that exist of an NFT collection, someone has to go to OpenSea to verify that. There's not really a convenient way of doing that. So, that's one reason.
Ty Smith4:13
The second reason is that DAOs, decentralized autonomous organizations, when they move past complex voting mechanisms, they have to rely on Web2 infrastructure to avoid Sybil attacks. And a Sybil attack being like creating tons of anonymous accounts, like it could be blockchain addresses, to vote on something.
Ty Smith4:28
The current system for a lot of DAOs is verifying via social media profiles because it's harder to create tons of fake social media profiles than it is to create tons of fake Web3 addresses. So, this makes it a little bit easier to get past that point.
Ty Smith4:37
Number three, most existing Web3 users rely on custodial wallets managed by centralized entities like exchanges, and existing key management systems are not beginner-friendly. So, they were hoping that SBTs will alleviate that a little bit.
Ty Smith5:10
Point four that I add in, just kind of reading through the paper that they published, is that existing Web3 infrastructure doesn't really have the capability to prove identity. It's very easy to make tons of Ethereum addresses, transfer NFTs, there's no real way of proving that one particular address is a particular person, which was built by design originally because that was a huge part of crypto creation was being anonymous. But there are definitely purposes, as we move into a more Web3 world, where identity is needed.
Ty Smith5:32
And building on that point, built into the paper that Vitalik published, he gives the example of, or the reason that there's a lot of real-world activities that can't be done without some kind of social identity. And in a Web3 world, it has to be decentralized social identity. So, things like undercollateralized lending, things like a mortgage, or signing a simple contract, like signing, let's say, an apartment lease, you can't do unless you can verify that you are the actual person doing it. And SBTs will allow, again, decentralized social proof that you are who you say you are and are accountable for your debts or obligations.
Ty Smith6:22
So, that is really it for today. I think SBTs are going to be huge. I think it's going to be a big part of the next wave of crypto. Definitely an interesting concept to stay focused on. And as always, if you enjoyed this video, be sure to click the like button and subscribe to the channel. It helps us grow, and we will catch you on the next one.
