Even Vitalik Buterin likes this tech! It is time we get appropriate blockchain identities. And Soulbound tokens can do that!
“NFT project worth $XYZ thousand rug-pulled.”
“NFT creator admits guilt, says art is stolen.”
“Random NFT with no utility sold for $100,000.”
Honestly, no wonder the mainstream NFT narrative is terrible. You would associate something with negativity when everything you hear about it is negative.
Additionally, every new technological advancement is met with scorn and suspicion in its early days. And NFTs happen to be relatively young. We should give them some time to flourish.
So, how do you change this perception?
The easiest method is to establish a counter-narrative. The current narrative states that NFTs are terrible and useless. However, turning that around can be easy if there are practically useful NFTs.
The tech behind NFTs:
A refresher of NFT tech before we dive deeper into the topic:
An NFT is a blockchain-based token that doesn’t share its characteristics with other tokens of the same ‘kind.’ An NFT may come in a collection of multiple tokens, each of which can have different values based on market relevancy. This property separates NFTs from regular cryptocurrency tokens.
A fungible token (like Ethereum) shares its value with similar assets. 1 ETH = 1 ETH. An NFT, however, doesn’t necessarily equal another NFT of the same collection.
This non-fungible property of an NFT is the basic building block of soulbound tokens.
Now imagine an NFT in your digital wallet that you cannot burn, transfer or transact. What would such a token accomplish?
So what are soulbound tokens?
If you cannot get rid of a token, then it is stuck in your crypto wallet by definition. As such, that token becomes a part of your wallet’s proof of identity. And in turn, it becomes proof of your on-chain identity.
As more technology comes into the blockchain world, your blockchain wallet will serve the function of your digital email. And this ‘email address’ will be managed by these soulbound tokens. This newly established digital identity will allow you to engage with more tangible Dapps.
Due to blockchain’s decentralized and pseudonymous nature, many real-world practical applications are difficult. Suppose the government created a tax filing portal on the Polygon blockchain. You could connect your Metamask for it, but is it enough? What about the documentation and proof of income?
The current tax filing procedure has a lot of confidentiality behind it. You don’t want everyone to track every dollar you make. And government documentation and identity proofs do the identity safety bit.
If you play video games, a user tag/code comes with your profile.
You can change everything in your account (cosmetics, characters, weapons, etc.), but you cannot eliminate that code.
That code is your IDENTITY in the game’s databases.
The use case for soulbound tokens in the real world!
So, how do you establish this on-chain identification?
You use soulbound tokens. Souldound tokens are immutable and un-transferable tokens that are identity-proof for a crypto wallet. If your digital identity is in your wallet, then that wallet belongs to you! Any transactions signed via that wallet are done so by your legal blockchain representation.
The government provides digital copies of one’s identity in most of the world. And these digital certificates can then be used for further stuff. Here in India, you can use a program called DigiLocker. Users can submit their digital certificates and identity proofs on this app, and the validity of these digital copies is the same as physical documents.
Similarly, crypto wallets can be set up for documentation. Once you have set up all your documentation, you can easily access all governmental services.
Ethereum’s co-founder Vitalik Buterin and DiscoXYZ’s CEO Evin McMullen were on the Bankless podcast and discussed the topic. Vitalik believes in the credibility of this tech. Worth a listen!
But why do soulbound tokens have to be NFTs?
NFTs of the same collection/category can have wildly different information. Sure, you could use standard ERC-20-based tokens. But that would require setting up new smart contracts for EVERY SINGLE DOCUMENT AND IDENTITY. And that is just wildly inefficient.
Therefore, you set up an NFT factory. Take in the user’s raw data, churn out a document in the NFT format, and stick it to the user’s crypto wallet!
Back to the taxing matters…
Coming back to our tax example, the new filing method can look like this:
- You collect all your required data as NFTs in your wallet.
- You sign in to the dapp with your crypto wallet.
- You authenticate your transaction with whatever Soulbound NFT is the requirement.
- Your work is complete. Congrats!
As more companies enter the blockchain world, transactions will only become more complex. Gone are the days when your only mark on the blockchain was exchanging Ethereum for USDT. Web3 will require digital identification like we have emails now. And soulbound tokens will fulfill that need.
Want to learn more use cases of soulbound tokens in web3-based e-commerce? Recently, I wrote a thread on the topic! You gotta check it out for more cool stuff!
satvik.eth Ξ on Twitter: "The mainstream NFT narrative is pretty bad these days.Go to any regular person and say you kinda support NFTs. Chances are, you won’t be given much positive attention.And much of this criticism is valid with all the scams… pic.twitter.com/iB5UnCGEIT / Twitter"
The mainstream NFT narrative is pretty bad these days.Go to any regular person and say you kinda support NFTs. Chances are, you won’t be given much positive attention.And much of this criticism is valid with all the scams… pic.twitter.com/iB5UnCGEIT
(Follow me there)
If you want more such articles going deep into the various building blocks of the blockchain ecosystem, then follow me for the ride!
Check out our new platform 👉 https://thecapital.io/
Soulbound tokens are the key to your digital identity. Learn more about them: was originally published in The Capital Platform on Medium, where people are continuing the conversation by highlighting and responding to this story.