Explained: How are Soulbound Tokens different from NFTs?

TL;DR Breakdown
  • Soulbound Tokens is among the latest innovations in Web3
  • SBTs do not actually have a monetary value.
  • Soulbound Tokens are unique and non-transferable.

The Web3 ecosystem continues to expand in 2022 with more innovative ideas introduced to the space. The Soulbound Tokens, also known as SBTs, are among the latest innovations in the space, aiming to stretch blockchain use cases. Blockchain developers continue to overcome challenges faced by the first blockchain networks to grow the industry, to improve scalability, and interoperability across the industry. 

As a result, Ethereum co-founder Vitalik Buterin, alongside his counterparts, lawyer Puja Ohlhaver and economist E. Glen Weyl proposed the Soulbound Tokens. A concept that builds on NFT use cases and provides a unique proposition that could increase blockchain technology’s utility. 

What are Soulbound Tokens (SBT)

Soulbound Tokens are a unique concept to the Web 3 platform as it provides no monetary value to holders. Therefore, the tokens are not held as digital assets that could grow in value over time. According to its Whitepaper, the project aims to find Web3’s soul. A concept that may prove to be extremely important in the growth of Web3. 

Soulbound tokens, therefore, are Web 3 tokens that represent a person or a unique entity’s personal data or identity. The tokens are issued and could represent different aspects of the entity’s identity. Everyday use cases of SBTs are to track a person’s medical, employment, or even financial records to provide reliable data within a blockchain ecosystem. 

Typically, people can have several SBTs representing different aspects of their identity. For instinct, one can have an SBT that records medical information and another that records financial data about their expenditure and credit history, among other essential details.

The SBTs are held in wallets within the Web 3 ecosystem known as Souls. On a larger scale, Souls could also be used to represent entities. 

Let’s look at it this way.

An organization owns a Soul – equivalent to a wallet within the Decentralized Society(DeSoc). The organization then assigns SBTs to its employees as means to ease data management. In this case, the company can easily access every employee’s SBT and all the relevant data about them. 

How do Soulbound Tokens Differ from NFTs

There is minimal difference between Non-Fungible Tokens (NFTs) and Soulbound Tokens (SBTs). The differences, however minimal, create a significant difference in use cases. 

NTFs are transferable, while SBTs aren’t. While NFTs are digital certificates demonstrating ownership, SBTs are digital tokens storing non-transferable data about a specific entity.

NFTs possess monetary value since ownership can be sold and transferred to another person within the ecosystem. On the other hand, SBTs possess no monetary value. Instead, they are instruments that ease data management across the ecosystem and allow people to build verifiable reputations with Web 3. 

As a result, SBTs focus on the product’s utility as opposed to the perceived capital gains that have preoccupied many crypto projects and enthusiasts. 

A typical use case of Soulbound tokens could be in a gym membership program, where a gym company issues SBTs to its client base and monitors individual data about aspects they are interested in, such as payments, routines, and schedules. 

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.
Collins J. Okoth

Collins J. Okoth

Collins is a skilled Crypto, Blockchain, and Finance Analyst with years of experience writing about blockchain technology, cryptocurrencies, and finance. His background in Actuarial Science and Finance gives his articles authority, in-depth, and real value to readers.

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