Soulbound Token Explained: Here's Everything You Need to Know

Crypto exchange Binance has launched BAB, a Soulbound Token on the BNB Chain, as a decentralised solution to the KYC requirements for the exchange. Soulbound tokens are non-fungible tokens (NFTs) that are non-transferrable between wallets. The inability to trade the NFT allows it to be used to identify the wallet holder on the blockchain. Data linked to the NFT can be utilised to pinpoint recorded actions by the wallet, such as interacting with a decentralised app (dApp) or smart contract.

What are Soulbound Tokens or SBTs?

In May, Ethereum co-founder Vitalik Buterin released a whitepaper with a wide description of Decentralised Society (DeSoc) and Soulbound tokens (SBTs). The term "Soulbound" derived from the World of Warcraft game, was already discussed in his blog back in January.

Soulbound tokens are a particular type of NFT, but they differ in one major way — they are designed never to be transferred. A soulbound token is linked to a particular Soul, a special type of blockchain address.

Soulbound tokens' non-transferability enables them to track information that is unique to a person or entity and cannot be effectively tracked via NFTs. For example, a user credential encoded within a soulbound token should be linked to a particular user, not transferable to any account on the blockchain.

What are Soulbound Tokens for?

Soulbound tokens are intended to serve as a major building block of Digital Society. One of the fundamental features of many blockchain platforms is that they provide a level of pseudonymity. Anyone can create an account on the blockchain, and this blockchain account is difficult to link back to a user's real-world identity.

While this is good for anonymity and privacy, it creates issues for use cases where strong identity verification would be useful. Soulbound tokens are designed to fill this gap by providing attestations that a particular entity has certain attributes.

With the wide variety of data that can be encoded in soulbound tokens, it makes sense that a user may have multiple Souls intended for various purposes. For example, one Soul may contain professional information (credentials, certifications, etc.), while another may be used for medical records, and a third for storing identity documents.

Additionally, ownership of Souls is not restricted to individuals. Organisations, software, computers, and other entities may have their own Souls and the ability to use soulbound tokens to track and validate certain information.