Investors Missing Out On This Unique Cryptocurrency

Web3 has amazed the world by creating an alternative financial system that is highly flexible and innovative in under ten years. This open-source system employs economic and cryptographic primitives, such as consensus mechanisms and smart contracts, to authorize and conduct financial transactions.

SoulBound and Its Use

Due to the absence of a native Web3 identity, the decentralized finance (DeFi) ecosystem is unable to support simple contracts such as apartment leases.

In order for blockchains to be at the heart of collaborative and fascinating ecosystems, projects and use cases that focus on social identities and communities, more than just money, are required.

To address this issue, Vitalik Buterin, Ethereum’s co-founder, along with E. Glen Weyl, a political economist and social technologist, and Puja Ohlhaver, strategy counsel at FlashBots, introduced the concept of soulbound tokens in a paper entitled “Decentralized Society: Finding Web3’s Soul.”

Soul Tokens

Soulbound tokens serve as the foundation for a decentralized society (DeSoc), which is a co-determined sociality where communities and souls come together to co-create plural network goods and bits of intelligence at various scales. A soulbound token is a publicly verifiable, non-transferable non-fungible token (NFT) that represents an individual’s credentials, affiliations, and commitments. But what is a non-transferable token?

Non-transferable tokens are NFTs that can help track reputation and are added to addresses but cannot be sold. But what does “Souls” refer to in soulbound NFTs? The wallets or accounts to which SBTs or non-transferable tokens are permanently bound are called Souls. For instance, a Soul can represent an individual’s employment history, which can be self-certified similar to information in one’s curriculum vitae.

When SBTs possessed by one Soul can be issued by other Souls who are counterparties (e.g., individuals or organizations) to these relationships, that is when the mechanism’s true power is revealed. For instance, the Ethereum Foundation may be a Soul that awards SBTs to those who attended an Ethereum conference.

According to the paper, the concept of “plural network groups” refers to interactions and communications within the networks. They are the most critical drivers of economic growth.

Soulbound tokens may assist Web3 networks in using non-transferable tokens as reputation indicators rather than relying upon money-centric frameworks. For instance, the lender currently verifies the borrower’s bank account balances, credit scores, and repayment history to offer an undercollateralized loan. However, with SBTs representing one’s credentials, reputation will act as collateral to get an undercollateralized loan.

Now, if you recall the fundamental concept of NFTs, they represent property or assets with some monetary value. But, how to verify someone’s reputation in a blockchain-based trustless system?

Soulbound tokens can protect DAOs from bad actors. By assigning voting power based on reputation, verified through on-chain activity, DAOs issuing SBTs prioritize integrity over token ownership. In addition to this, SBTs also defend against Sybil attacks.

Summary

Web3 created an innovative financial system in under ten years. DeFi ecosystem lacks a native identity and can’t support simple contracts like apartment leases. Wallets or accounts to which SBTs or non-transferable tokens are bound are called Souls. Souls can represent an individual’s employment history, self-certified like a CV.

With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.