SoulBound Tokens (SBTs) The Future of NFTs?

The buzzword around the crypto space over the past week has been SBTs or SoulBound Tokens. This is thanks to Ethereum’s co-founder Vitalik Buterin publishing a 37-page paper entitled “Decentralized Society: Finding Web3’s Soul” which is a pretty heavy title in itself. 

But are these SoulBound tokens the next stage in crypto evolution, another branch from NFTs as we understand them today, or just wishful thinking?

Before we dive into SoulBound Tokens themselves, let’s look at the society that Buterin et al is exploring in the paper itself. In the abstract of the paper Buterin states that a “Decentralized Society” (DeSoc)—a co-determined sociality, where Souls and communities come together bottom-up, as emergent properties of each other to co-create plural network goods and intelligences, at a range of scales”

Now if you’ve been in the crypto space over the last year, you will have heard the term DAO or Decentralized Autonomous Organisation. The point of DAOs is to abolish the traditional corporate hierarchy, and in essence avoid the common pitfall satirically referred to as the Peter Principle, where in essence, everyone at every level is incompetent, due to employees being promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another. 

So, someone who is excellent at an entry-level job gets promoted to a supervisory role. But the skill set of a supervisor is different, and therefore the person is incompetent in the role. Being incompetent, the individual will not qualify for promotion again, and so will remain stuck at this final placement or Peter’s plateau.

DAOs avoid this, by creating fully decentralized and transparent structures where everyone within the DAO has a say on every decision which is voted upon. Some operate within meritocratic principles, where those who add the most value (not necessarily financially) to the DAO is rewarded with better voting rights, meaning the overall DAO tends to operate in favour of the majority, and those who have the DAO’s best interest at heart. 

As Web3 will primarily be built around communities within metaverses, Buterin extends the idea of a DAO to these communities, which will become virtual societies in themselves, calling them Decentralized Societies or DeSoc. And one thing Buterin et al, believe will be key to Decentralized Societies, are SoulBound Tokens.

But what is a SoulBound Token or SBT? 

In essence, it’s a non-transferrable NFT that is “bound” to a wallet, and an individual once received or minted. The term comes from one of Buterin’s hobbies, “World of Warcraft” where certain items, usually of great power, or gained through great difficulty are bound to the player to stop them from selling, or transferring them to other players. This ensures a more balanced experience and stops newer players from simply buying or receiving powerful items.

However, this is not necessarily a new idea. VCs or Verifiable Credentials have been around for years. A VC is a digital version of a physical document that is tied to a person and gives that person access to it for a multitude of reasons, whereas an SBT would be wholly digital. Recently though, several companies have started using the blockchain to record VCs, giving it a greater level of security, which Web2 cannot provide. 

There is one clear advantage of VC’s over SBT’s and that’s privacy. VCs are treated as property, rather than an asset, and therefore offer the user more control over who sees it. As it stands, an SBT of your passport would be publicly available to everyone, exposing the owner to scams, or being controlled but those who sought to exploit said information.

This is something Buterin states in the paper:

“For example, some issuers would choose to make SBTs wholly public. Some SBTs, such as a passport or health record, would be private in the self-sovereign sense, with unilateral rights to disclose by Souls who carry the SBT. Others, such as SBTs that reflect membership of a data cooperative, would have multi-signature or more sophisticated community voting permissions, where all or a qualified majority of SBT holders must consent to disclosure.

“While there are current technical questions (can SBTs be programmed in such a way?) and important questions around incentive compatibility—we nonetheless think programmable plural privacy warrants further research and offers key advantages over alternative paradigms.”

So SBTs have this potential but aren’t there yet.

Another problem I foresee utilising blockchain technology for documentation is that the blockchain records everything. Say a person is found guilty of a crime. That crime is recorded on an SBT that is placed in his wallet. Now anyone wanting to do a background check on them can see they have been found guilty of a crime. 

But a few years later, new evidence is found and that person is cleared of the crime. Can the SBT be transferred to a dead wallet, burning it? If this was the case, the idea of it being soulbound to a wallet/individual would be a falsehood. But even if this was the case, previous transactions on the blockchain are never erased. In the case of an error in any transaction, a new transaction must be done to rectify the error. But both sets of information will be stored permanently. Therefore, anyone doing a background check will still know that the person was at one time found guilty of a crime. The criminal record could never be fully expunged, even if it didn’t belong there in the first place.

This is of course one single use case that decidedly goes against SBTs as a concept, when there are numerous positive use cases, as Buterin states, “A person may have an address that stores SBTs representing their credentials, work history, or hash of their writings or artwork.” Meaning it would be harder for bad actors to game systems for their own benefits.

But these SBTs have more interesting applications when specifically explored within the framework of a DeSoc where they are “centered around accounts (or wallets) holding non-transferable (initially public) ‘SoulBound’ (SBT) tokens representing pledges, referrals, and affiliations. These tokens would be like an extended CV, issued by other wallets that attest to these social connections.”

This is where the real value of SBTs is apparent.

Are these the “soul” of Web3? If by that he means the communities, then yes. 

More importantly, should you care? Also yes. Just look at EIP – 1559, or the London Hard Fork. Buterin proposed it back in 2019, and a year later the entire Ethereum Blockchain implemented it, moving the whole ecosystem closer to a proof of stake network. So in that same mindset, SBTs could be a very significant step forward in the crypto space.

This article was originally published on Linkedin, for Ivory Hill: https://www.linkedin.com/posts/ivory-hill-global_future-sbts-soulboundtokens-activity-6939546307778756608-8Gs_?utm_source=linkedin_share&utm_medium=member_desktop_web

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