Last week, Ethereum founder Vitalik Buterin introduced a new type of token: the soulbound token (SBT). It is a type of NFT that cannot be traded. Why not? Because this token is inextricably linked someone's identity, or 'soul'.

In a whitepaper, Vitalik and his co-authors explain the use for this class of tokens, which exists only on the drawing board. Consider the following items, which it would be nonsensical and even illegal to trade:

• Your university degree
• Your driver's license
• Your credit rating

After all, not everything in the world is tradable. But to get Web3 off the ground, there must be on-chain counterparts to those non-tradable things.

What is a soul?

What is the soul? It's a wallet to which SBTs can be transferred that represents such unique properties. For example, a degree, or the fact that you attended a conference. A soul does not correspond directly with a person. A person can hold multiple souls, just like you can now have multiple crypto wallets. The difference is that you can't trade what's in a soul wallet.

Why is this important for Ethereum?

It is important for the long-term success of Ethereum (and other layer 1 chains) that they expand their scope to the real world. So far, Decentralized Finance is mostly 'playing with itself in the sandbox'. But swapping tokens back and forth that are not linked to the real world is only a limited use case. As crypto enthusiasts, we hope for more. Consider things like lending without collateral. That's hard to do without something like a credit score linked to a borrower.

Sure, NFTs can be used to represent property rights. But SBTs can be used to better break down property rights into the right to use, consume, benefit, and sublet. For example: I send you an SBT that gives you the right to sublet my apartment. But you can't sublet it again yourself, because the SBT is inextricably linked to your soul wallet.