What are Soulbound Tokens (SBTs) and Souls? Why do they matter?
Vitalik Buterin proposed a non-transferable token dubbed Soulbound Token to enable a web3 user identity system. Web3 has made impressive progress over the past few years, but the absence of a reliable identity system prevents its mass adoption. In a co-authored paper, Vitalik Buterin discussed the “Soul” of web3 and how to build a decentralized society through Soulbound Tokens.
- The paper titled Decentralized Society: Finding Web3’s Soul introduced a non-transferable token that can be utilized to form the social credit system of web3.
- You could see a Soulbound token as a non-transferable, personal NFT.
- The lack of identity in web3 has led to many issues, including heavy dependence on web2 infrastructure and crypto crimes.
- Soulbound tokens can be used to reduce NFT forgery, enable undercollateralized lending, help DAOs mitigate Sybil attacks, etc.
- Ultimately the SBT concept could make your passport, medical data, or diplomas into Soulbound tokens.
Our web3 today
The biggest achievement by far of our current web3 is arguably the realization of true ownership over digital assets and their circulation in decentralized networks. Undoubtedly, this is a huge move forward as it improves administrative and economic efficiency in many ways.
However, since the current web3 life revolves mainly around the financial aspect, it inevitably leaves people with the impression of how money-centric web3 is. This is not how Vitalik Buterin, the creator of the Ethereum blockchain, imagines an ideal decentralized society (DeSoc) should be.
Lately, Vitalik Buterin, together with E. Glen Weyl and Puja Ohlhaver, co-published a paper titled Decentralized Society: Finding Web3’s Soul, introducing how non-transferable “Soulbound” Tokens (SBTs) can represent the commitments, credentials, and credibility, etc., and create a richer, pluralistic ecosystem. These tokens will be stored in people’s “Souls”, utilizing certain mechanics to encode the trust networks of the real economy.
Why is web3 identity important?
Inside today’s web3 world, users are represented by wallet addresses starting with 0x followed by a string of numbers and letters. Wallets are currently the only way to identify users, and the crypto wealth inside has become a status symbol. But can wealth really distinguish us as individuals? The answer, without any question, is no.
Some may argue that those NFTs held in wallets are different and unique, differentiating users from each other. But again, the problem is that it fails to form a comprehensive picture of a souled identity. So whether a user holds a Bored Ape or a CryptoPunk, it is almost impossible to tell if the holder really likes it or just flips it for profit. In other words, in the current decentralized world where everything is tokenized and tradable, there is no identity, only assets.
Moreover, the missing of reliable web3 social identity leaves users to heavily rely on centralized web2 structures for compensation. For example, most NFT artists depend on centralized platforms like OpenSea to distribute artworks and promote them on Twitter. DAOs that try to avoid Sybil attacks sometimes have to give up coin voting and turn to web2 infrastructure instead.
In the paper, the authors explained that SBTs could represent commitments, credentials, and affiliations, aiming to form the primitives of DeSoc. Such tokens would be like an extended resume issued by other wallets that reflect social relations. In addition, SBTs will be publicly visible, non-transferable, but possibly revocable by the issuer.
What are the use-cases of Soulbound Tokens?
Based on the paper, SBT is like the credit system we have been using in real-world finance, but SBT can be used as a multi-dimensional social scoring standard. The accounts that hold SBTs will be the “Souls”. Now let’s dive into some use scenarios and get a handle on how SBT works.
Breath authenticity into the art world
SBTs can help NFT creators and artists build a reputation among target communities and make artists’ reputations verifiable. For example, an artist could issue NFT from their Soul (or account). The more SBTs the artist’s Soul carries, the easier it would be for collectors to identify the Soul’s owner to be that artist. As mentioned before, SBT can work as a social scoring system to verify reputation and credibility.
Empower uncollateralized lending with a credit score system
Currently, the web3 ecosystem hasn’t been able to support credit and uncollateralized lending because there is no mechanism to gauge borrowers’ credibility and their ability to pay. So how do SBTs fill such a gap? SBTs can serve as a persistent record of credit-relevant history, allowing Souls to stake meaningful reputation to secure a loan. Specifically, such tokens can represent education credentials, work history, rental contracts, and other documentation that back a person’s credibility.
Make DAOs Sybil-attack-resistant
Decentralized autonomous organizations (DAOs) proposed a bottom-up, democratic and transparent way for future corporation management and operation. DAOs bring like-minded people together through shared goals and drive community development via voting with smart contracts. However, DAOs are very vulnerable to Sybil attacks where a single user can have multiple wallets and hoard tokens to reach 51% voting power and then manipulate the decision.
Fortunately, SBTs can mitigate such risk by differentiating between unique Souls and probable bots. To do so, SBTs leverage multiple dimensions of information, such as educational credentials, licenses, or certifications, to form a comprehensive image of a web3 user. As a result, bots can be instantly identified due to the lack of richness in their Souls.
A DeSoc where every identity is verifiable but still private
According to the paper, the ultimate goal is to build a DeSoc in which the key primitive is accounts, or wallets, or Souls that hold publicly visible, non-transferable SBTs.
In this DeSoc, most participants have Souls that store SBTs corresponding to a series of affiliations, memberships, credentials, working experience, and a lot of other intangible yet crucial details about us as beings.
Furthermore, Souls can issue or attest SBTs to other Souls, who are counterparties to these relationships. These counterparty Souls could be individuals, companies, organizations, or institutions. For example, the Ethereum Foundation could be a Soul that issues SBTs to Souls who attend a developer conference. Therefore, participants can leverage such experience to enrich their web3 profile.
To put it bluntly, this is much mimicking how the physical world works, reflecting the essence of humans is a sum of all relationships. Most importantly, in a fully decentralized way. We also mentioned before that SBTs could be public. But it is worth noting that there is no requirement for a Soul to be linked to a legal name, or to ensure “one Soul per human”. A Soul could be a persistent pseudonym with a range of SBTs that cannot easily be linked.
A society without identity might become a breeding bed for crime and misconduct, which is already happening in the crypto world. The industry has witnessed a spate of hacks and malicious scams over the past years. Failure to act is tantamount to encouraging such behaviors.
Imagine a world where everyone can abandon their identities whenever they want, and there will be no trust. Apparently, it is against the vision of blockchain. The web3 social identity system that Vitalik proposed can potentially solve the problem by motivating people to act responsibly. Most incredibly, it empowers users, not through crypto wealth, but through reputation, credibility, and other virtues of a meaningful Soul.
DappRadar will continue monitoring the latest developments of DeSoc, SBT, and web3. Follow us on Twitter, Discord, and Youtube to keep up with the dynamic blockchain world.