Decoding Buterin’s concept of Soul-Bound Tokens
Soulbound tokens (SBT) are non-transferable, publicly verifiable digital tokens that may serve as a form of CV for web3 users, displaying a person’s memberships, credentials, and affiliations.
In their whitepaper, Glen Weyl, Puja Ohlhaver, and Vitalik Buterin characterised SBTs as a way to “eschew today’s hyper-financialization” of the web3 ecosystem in order to transition to a Decentralized Society “encoding social relationships of trust.”
Unlike NFTs and other cryptocurrencies, which may be sold on the open market and moved from one wallet to another, soulbound tokens, as the name suggests, are permanently bound to a wallet or account for the duration of their existence. So-called “Souls” are wallets or accounts that house soulbound tokens.
Consider a blockchain account (Soul) that maintains immutable data such as academic credentials, job history, or works that document a person’s experiences. SBTs, like a CV, may aid in the development of a user’s digital reputation across web3 solutions.
However, their entire potential can be seen when one Soul may issue an SBT to another Soul (which can be proved by other Souls), implying that a community might be a Soul that issues SBTs to natives or a corporation that provides SBTs to shareholders.
Furthermore, an individual or corporation may be a Soul that recommends a person after successfully doing business with them. This notion enables a soul to demonstrate integrity, trust, affiliations, and credibility, allowing web3 networks to be formed on provenance and reputation rather than money-oriented structures.
Why and why not?
The tokens have additional functions apart from representing our unique information and making it tough for fraudsters to mimic us. They might be used for event tickets, unique airdrops (also known as “Souldrops”), and other community-specific perks. For example, a company may simply send out reunion tickets to all alumni who graduated within a certain time period.
Of course, the inverse is true as well.
Bad actors might utilise SBTs to identify, target, and damage members of certain groups. The possibility of regulating entities is especially concerning. Holders of a given SBT, for example, may be denied access to facilities, denied medical treatment, rejected travel permits, and have their voting rights taken away, among other things.
In their study, the authors of the whitepaper admit this dystopian possibility, saying that a database of SBTs may be used to “automate redlining of disfavored social groups or even target them for cyber or physical attack, enforce restrictive migration policies, or make predatory loans.”
What’s the point?
Every human connection or commercial transaction is reliant on stakeholder trust, however, web3 is hampered in this area due to the high degree of privacy and anonymity in web3 protocols. As a result, web3 protocols have become increasingly dependent on the centralised architecture of web2, which they are designed to replace. For instance:
DAOs depend on web2 platforms like Discord to avoid Sybil attacks.
OpenSea is used by NFT collectors to demonstrate the provenance of their acquisitions.
Soulbound tokens might be the missing link in web3’s trust bridge. Because of their non-transferability, they may be used to establish social identities that allow protocols and persons to rely on trust while protecting privacy.