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Soulbound Tokens in Decentralized Society

2023-03-10 06:47:42

  • Soulbound tokens (SBTs) are a concept introduced by Ethereum founder, Vitalik Buterin, and his co-authors to further develop a decentralized society and retake ownership of our own identities through digitalization.
  • SBTs could mean increased security in DAOs by offering a transparent and non-exploitable way of tracking and verifying real voters.
  • Soul wallets would allow instant access to verified information, meaning there is no need to go through a trusted intermediary

Web3 remains an exciting prospect for the future, with VR games blending with the decentralized metaverse, and digital art and currency laying down the path to a decentralized economy. However, until now, these decentralized structures have relied on centralized platforms, such as crypto exchanges and NFT marketplaces to bring trust and ease of access.

Soulbound tokens represent the next stage of building a decentralized society (DeSoc) with legitimacy and trust.

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What Are Soulbound Tokens?

Soulbound tokens (SBTs) are unique digital tokens, like non-fungible tokens (NFTs), that are given as a representation of an individual, their characteristics, their achievements, and more. For example, a Soulbound token could be a digital certificate of the completion of a diploma issued directly from an academic institution on the blockchain. In this example, the “Soul” would be the academic institution (as the issuer) and the “Soulbound token” would be the digital certificate (the token).

The name “Soulbound” comes from the fact that the token is “bound” to the “soul” by way of issue from that institution. This bind creates a level of authority, as the issuing body will have a level of trust among society.

Despite a connection to an authority that may not be decentralized, the Soulbound token belongs to the individual and will stay in their corresponding DeSoc wallet — also called a “Soul.” This means that full control remains in the hands of the individual, taking away any reliance on the centralized body and thereby creating a foundation for a strong decentralized community.

Lights showing the connection of the world community, or decentralized society.

What Role Will Soulbound Tokens Play in a Decentralized Society?

Digital certificates already exist, but often they are not accepted alone and require some kind of proof that they come from the issuing authority for recognition. Additionally, digital certificates are generally issued separately by many different centralized platforms and must be requested or paid for. This means delays, the need to contact many different issuers, and a lack of individual autonomy and control over one’s own certificates.

In a decentralized society, Soulbound token holders can regain this autonomy, accessing their soul tokens quickly and easily, while ensuring transparency and trustworthiness through the immutable blockchain.

Soulbound tokens give autonomy and authority to the individual. Some use cases for SBTs include:

  • Medical Records: A medical soul (a decentralized wallet dedicated to the user’s medical information) would hold a user’s medical records as trustworthy digital SBTs that can be quickly accessed when needed. Since these tokenized assets are issued directly from the medical center with full transparency on the blockchain, there would be no need for an audit and it would be considered trustworthy. This would remove the need to prove your identity each time you needed to show your medical records (for insurance purposes as an example).
  • Educational certificates: As with medical records, an education soul would contain the SBTs that have been issued to a user directly from the academic institution. This could be college degrees, score transcripts, skill certificates, diplomas, and more.
  • Work experience: A work experience soul would be a great way to have an easily accessible, verifiable CV. The work experience soul would contain such things as verified experience from past employers, pay slips, references, and more — all in the form of asset tokenization NFTs.
  • Identification: An identity soul would contain digital versions of passports, driving licenses, and other important identification documents in the form of non-transferrable and protected Soulbound tokens.
  • Undercollateralized on-chain lending: A financial soul that contained a token holder’s credit score and proof of reliability could help access undercollateralized on-chain lending without going through a centralized body.
  • Protection from DAO sybil attacks: Decentralized Autonomous Organizations (DAOs) often face the issue of one individual or a group of individuals manipulating votes by creating fake identities to amass a majority of the governance tokens. Until now, DAOs have tried to mitigate this by using social media profiles, but this is ineffective. With asset tokenization and identity souls, DAOs would have better protection from these attacks. This is an aspect of SBTs that could positively impact other voting scenarios too, such as government elections.

Professional medical records on a digital screen.

Who Is Behind Soulbound Tokens?

Soulbound tokens were initially put forward in a May 2022 white paper by Ethereum founder, Vitalik Buterin; the economist and researcher at Microsoft, E. Glen Weyl; and the lawyer and strategy counsel at Flashbots, Puja Ohlhaver.

Founder of Ethereum, Vitalik Buterin

What Concerns Exist for Soulbound Tokens?

There are some roadblocks ahead, including the concerns over loss of keys and privacy.

Buterin and his co-authors have suggested token holders could create a social guardian system, whereby token holders entrust their keys to a group of trusted friends and family members who could then vote by majority to change the keys. However, individuals drift apart and this leaves the possibility of losing the keys forever.

In terms of privacy, the white paper suggests programming the SBTs at time of issue. The tokens could be programmed as publicly visible, private in the self-sovereign sense, or with multi-signature community voting permissions for co-operative data groups, whereby a majority would be needed to select the disclosure type.

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Are Soulbound Tokens Trustworthy?

There is a lot of speculation around the trustworthiness of decentralized finance (DeFi), and this naturally affects the concept of a decentralized society. Soulbound tokens are not yet in circulation, but the concept has been explored with security at its forefront.

  • Immutable: As with NFTs, SBTs are unchangeable once issued. This means that what can be seen on the SBT is exactly what was issued by the issuing body and has not been changed by the token holder or any other entity.
  • Non-transferable: Soulbound tokens are issued by souls directly to the user’s soul wallet. They are non-transferable, meaning that if a token holder has those SBTs, they have been issued to that user only from that institution. Most SBTs would also contain some information on the user, such as their name, thereby adding a layer of proof of ownership.
  • Decentralization: Although an SBT may have been issued by a centralized body, once it is on the blockchain it becomes a decentralized digital asset. This means no centralized authority can amend or take ownership of the token.
  • Secure: Soulbound tokens would most likely be issued on the Ethereum blockchain, which runs on a newly developed, secure proof-of-stake (PoS) protocol. This is one of the most secure to date, developed over many years in what is known as the Ethereum Merge, or Ethereum 2.0. If they were to be issued on other blockchains, SBTs would still count with multiple layers of security, including the necessity of a 50% + majority consensus from all verifying nodes before any block is added to the chain, the transparency of blockchain technology allowing for audits, and blockchain immutability makes changing info post-block creation impossible.

A representation of a trustless blockchain.

What Is the Future of Soulbound Tokens?

The future of Soulbound tokens can only be positive if the institutions that would need to issue them adopt the system. These institutions would need to establish compatible infrastructure, with trained IT specialists that are competent in decentralized blockchain technology and then actively send SBTs to token holders’ souls on the blockchain.

Should this occur, however, Soulbound tokens could be a great way to increase individual ownership of such things as credit scores, identity, education, and work experience, as well as improve the overall security and structure of a decentralized society.

Soulbound tokens could mean faster, more direct access to our own personal information, without the need to prove each document’s authenticity, pay fees, or wait long processing times. In the move to a decentralized society, digitizing our own personal information to regain ownership is the next step.

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