When Satoshi Nakamoto first proposed the idea of Bitcoin, one of his core principles was decentralization via a distributed ledger. He foresaw the need for a transparent, open-source currency that was not beholden to any central bank or authority. Over a decade later, a trillion-dollar industry has emerged around his creation and new developments are being conceptualized that build upon his initial ideas.
Decentralized Finance (DeFi) took the cryptosphere by storm when it unlocked new use cases for all cryptocurrencies. Now Vitalik Buterin, the founder of Ethereum, is expanding on these innovations to urge the emergence of a wholly Decentralized Society (DeSoc). This decentralized society wouldn’t only be for finance but to recreate the social construct of human civilization and put it on-chain.
What is DeSoc: An Autonomous, Open-source, Decentralized World
The current iteration of Web 3.0 is heavily financialized, as participants are primarily concerned with making transactions and gaining assets. While this isn’t a bad thing, many economic actions we take in our offline world rely on social relationships that have been cultivated over time. As a solution, Vitalik introduces the notion of soulbound tokens which are similar to non-fungible tokens (NFTs) on the blockchain except they cannot be transferred. These soulbound tokens (SBTs) will become evidence or “proof” of their holder’s credentials, affiliations, and actions in the decentralized society.
In a fully realized DeSoc, people will be able to show others what kind of individual they are through SBTs in their wallet, without divulging their name or personal information. This type of “digital profile” is extremely transparent and reliable, because SBTs have fraud-resistant features being verifiable on-chain.
Benefits of Decentralized Society through Soulbound Tokens
By acting as authentic pieces of one’s Web 3 identity, soulbound tokens facilitate the development of bona fide trust systems on the blockchain. Consequently, a myriad of possibilities open up for the decentralized society:
- Art Authentication – NFTs have accumulated immense value as digital artwork. However, fraud can occur when a NFT is claimed to have been created by a famous artist but actually isn’t. SBTs resolve the problem because the crypto wallet of these famous artists would collect relevant SBT credentials, so as long as the NFTs they issue trace back to their credentialed account, then the artwork is verified as genuine.
- Community Recovery – Since inception, cryptocurrencies have faced a double-edged sword in private key management. While private keys enable secure self-custody, they are also a single point of failure if the owner forgets or loses them. If such a situation occurs in DeSoc, a backup method is available via community recovery. Those with proximity to the wallet owner, as proven through SBT affiliations, can be trusted to verify the wallet owner’s identity and recover the private key.
- Lending – Soulbound tokens empower the rise of a decentralized social credit system within DeSoc, so people can put up their reputation as collateral. Doing so would unlock undercollateralized loans, a key feature of economic efficiency that DeFi currently lacks.
- Flexible Property – In our offline world, ownership is sometimes quite nuanced. If you were to lease an apartment, the landlord is the actual legal owner yet you would be the one actually using it. The right to use, profit from, or destroy an asset are separate aspects of ownership that a decentralized society would be able to discern and implement through SBTs.
Phemex and Crypto Exchanges in the Decentralized Society
A fully fledged decentralized society consists of many parts. While a centralized crypto exchange might not seem like it would easily fit into DeSoc, Phemex recognizes that opportunities are indeed present. As an exchange renowned for transparency and trustability, Phemex is investigating the use of soulbound tokens to construct a miniature version of a decentralized society, first consisting of platform users then expanding to the wider crypto community. As a transparent crypto exchange, it’s our duty to adapt and carry on the authentic mission of Web 3 because that’s what blockchain users want. Stay tuned for further developments on the Phemex decentralized society and future plans.