Crypto has a new buzzword, the Soulbound Token, but unlike much of what’s come before this new form of NFT can’t be flipped for a quick profit. SBTs are intended as a non-transferable means of establishing your personal provenance and reputation via the blockchain. With the focus on the worth of the individual, not on the speculative value of a tradable asset, could Soulbound Tokens be the key to turning the hype of web3.0 into a genuine Decentralised Society?
At this point, Soulbound Tokens are just an idea proposed by economist & social technologist E. Glen Weyl, lawyer Puja Ohlhaver, and most notably, Ethereum founder Vitalik Buterin, in a May 2022 paper “Decentralised Society: Finding web3.0’s Soul”.
That title questions what web3.0, the much-vaunted next iteration of the internet, has achieved beyond the limited realm of transferrable digital property. Bear markets are always a time for reflection but even more so in the current circumstances where the receding tide has exposed crypto’s dark underbelly.
Vitalik’s search for crypto’s Soul
Vitalik Buterin illustrated a declared determination to be less neutral by voicing his own misgivings about what the paper calls ‘hyper-financialisation’ in an interview he gave Time magazine in March, long before the Terra/Luna collapse exposed just how concentrated risk had become within the crypto ecosystem.
“Crypto itself has a lot of dystopian potential if implemented wrong….The peril is you have these $3 million monkeys and it becomes a different kind of gambling.” Time Magazine
Buterin’s fear that crypto could be taking a wrong turn and the undoubted role Ethereum has played in spawning a DEFI ecosystem lacking a connection to the real economy and the value of human relationships may in part have motivated him to search for web3.0’s soul.
In any case, what he and his co-authors seem to have found is a blueprint for web3.0 social identity which could unlock tremendous potential around new forms of governance and build a genuinely Decentralised Society that takes crypto in a more progressive direction.
What is a Soulbound Token?
A Soulbound Token is a non-transferable form of NFT, specific to an individual or entity, that could act as proof of achievement, attribute or affiliation. Example use-cases for SBTs could be for when passing a driving test or achieving an educational qualification.
In either of those examples, the achievement would be tokenised as an SBT on a blockchain, such as Ethereum with accompanying standards, and associated with a Soul.
A Soul doesn’t equate to a person’s official identity or a legal entity, but rather an aspect of their web3.0 identity - like decentralised CV - in the form of a wallet that holds or distributes SBTs.
This means that you could have a nested family of Souls (wallets) holding SBTs that each relate just to one specific area of your personal achievements or attributes, such as education, career or medical history.
The key characteristic of SBTs is that they aren’t designed to be transferable, but rather earned and in that sense they build on two recent blockchain-based ideas, namely Proof of Attendance Protocol(POAP) and Proof of Humanity.
SBTs building on existing ideas
Proof of Attendance Protocol is a fairly simple idea that has quickly generated traction. Marketed as ‘the bookmarks of your life’ the most popular use of POAP is proving physical event attendance via an NFT.
Event organisers sign up with the POAP platform for the right to generate codes that are distributed to their attendees as NFTs. Though event attendance is a popular application, the potential use cases for POAPs are much broader with a more applicable description being attestation.
Attestation can extend POAPs to finishing a book, landing at an airport or signaling a specific social achievement; the potential is huge.
Proof of Humanity describes itself as a sybil-proof list of humans. For those of you that aren’t familiar with the term sybil attack, it refers to the use of duplicate identities to gain some advantage over a system.
Given the scale of identity theft IRL, creating a bullet-proof system of identity generation for web3.0 would represent the Holy Grail of components required to create a genuine Decentralised Society.
Proof of Humanity uses a combination of incentive and community policing. Each registered user earns UBI Tokens (Universal Basic Income) but there are significant hoops to jump through to prove your humanity.
You need to submit a video and Ethereum address, provide a deposit and get at least one existing member to vouch for you while existing users can challenge the veracity of your application.
The challenges of finding web3.0’s soul
Vouching for someone’s Proof of Humanity is designed to be altruistic - there is no financial reward - but if the user you vouch for turns out to be fake you will be removed. That honour system should help with abuse but the simple fact that approved users receive a constant stream of UBI tokens and PoH confers value indirectly, for example via credit scoring, will always mean that the incentive for gaming the system is there.
POAP have already generated 2 million NFTs but their very short experience also illustrates that the path to a genuinely Decentralised Society may not be straight or true.
The protocol has been battling incessant farmers; bad actors intent on collecting NFTs for events they didn’t actually attend. The problems forced them to pause their platform and adjust the mechanics of how POAPs are awarded.
Part of the problem might be because POAPs have a secondary market, which mimics the traditional memorabilia markets for proof of attendance - think ticket stubs/VIP passes - for events of significance like a World Cup Final or Nirvana’s epic performance at Reading in 1992.
POAPs also have the potential to confer undefined future value to the owner, an aspect already baked into the wider NFT proposition. Adidas provides a great example of this when they issued a POAP for freethat quickly changed hands on the secondhand markets reflecting the value buyers gave to the priority access to future merchandise.
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So how might Soulbound Tokens avoid the pitfalls of POAPs?
In a blog post, Buterin comments on how NFTs are mostly about signalling financial wealth and traces the genesis of the idea to use tokens to express personal achievement or merit to his experiences within gaming.
Soulbound items exist in the MMORP game World of Warcraft which once earned, cannot be transferred or sold to another player. SB items are designed to make it harder to simply buy merit or achievement within the game, which might come from killing a particularly powerful Monster.
As Vitalik goes on to say in his blog piece about the use of Soulbound items “it makes for a much better game than every item always having a price.” Extrapolating that thought process to blockchains the hope is that Soulbound Tokens might make web3.0 a better experience because they represent items that are valuable but don’t have a price and cannot be exchanged. Well, that’s the theory.
Unfortunately, the users of WoW quickly found a way around the non-transferable nature of the Soulbound items and moved their focus further up the chain to trading the user accounts that held them. In 2007 one account changed hands for £5,000 forcing the game publisher, Blizzard, to quickly ban it.
SBTs, cheating & privacy
The intention to make Soulbound Tokens non-transferrable should immediately solve the farming problems experienced by POAP but there would still be significant value in SBTs and where this is value there will inevitably be opportunists.
Just like killing a massive Monster in WoW advertises a level of skill bringing with it kudos, the achievements and affiliations indicated by SBTs will assign great value to the wallet that holds them.
SBTs will also provide significant utility. The Covid Panic has brought into sharp focus the importance of proving an attribute specific to you e.g proof of vaccination. That proof can get you into a nightclub, onto a plane or entry into a different country. Proof of vaccination isn’t transferable but has tremendous utility.
The college admissions bribery scandal also highlighted the lengths people will go to attend America’s top universities while there are huge underground markets for fake documentation like age verification which quickly pivoted to creating Covid passes.
Acknowledging this problem, the Decentralised Society paper outlines how SBTs might address the potential for cheating:
Bootstrapping from existing community channels that convey social merit
Making SBTs conditional on certain contextual criteria e.g the ability to vote in an election being conditional on possessing a SBT that shows residency
Seeking out collusive signals, self-policing & whistleblowing some of which are used in Proof of Humanity
Using Zero Knowledge technology to make bribery ineffective as there would be no way to prove to a briber that what they'd requested had been actioned
Making people vouch for each other rather than collectively to reduce the potential for wide scale collusion
The other main challenge addressed in the paper is that of privacy which has been one of the biggest criticism of centralised systems of accreditation or provenance.
SBTs would need to ensure that if they are used to store sensitive information, particularly about your health or financial history, wallets containing this information cannot be publicly traced back to you or connected to other Souls.
The paper suggests a number of approaches to protecting the privacy of SBTs:
Store data off-chain, leaving only the hash of the data on-chain. The choice off-chain storage would be down the individual.
Use zero knowledge proofs to partially reveal data cryptographically
Use designated-verifier proofs to set sophisticated access permissions
The wider vision for Soulbound Tokens
The problems within centralised systems of accreditation illustrate the challenges Soulbound Tokens will face from bad actors but they equally justify the desperate need for an incorruptible system for proving achievement and attestation.
This aspect of signalling merit or achievement is a significant step towards digitising social rather than commercial infrastructure in web3.0. The plurality of the proposed Soulbound world could address one of the main weaknesses of Proof of Stake and DAOs where it is possible to essentially buy influence over a decentralised community.
The potential is enormous but the vision for Soulbound Tokens can be summarised in four broad use cases:
A means of establishing provenance outside of centralised systems like LinkedIn or Twitter
Providing sybil-resistance where central identities can be spoofed
Providing a better measure of system decentralisation through the plurality of Souls
An alternative to key management through community recovery & guardians
How SBTs might improve self-custody
That last bullet point suggests that SBTs might provide a direct solution to one of the trickiest aspects of self-custody - Seed management. NGRAVE’s blog and academy talk at length about the importance as well as the challenges of Seed storage but the tl;dr is that Seed security is zero-sum. You either have it or you don’t.
The SBT approach to Seed storage is Social Recovery where your Soul might be connected to a number of Guardians who collectively could grant access to the backup for your Seed rather than a physical solution like NGRAVE’s GRAPHENE.
“In a community recovery model, recovering a Soul’s private keys would require a member from a qualified majority of a (random subset of) Soul’s communities to consent.”
Though the Guardian approach already exists in a much simpler form as a recovery for mobile wallets like Argent, you might understandably be concerned at the thought that a random subset has control over your Seed allowing all the funds in your crypto wallet to be spent.
To be fair the paper is clear that ‘How guardians are chosen and how many guardians’ consent’ are yet to be ironed out.
Buterin, Weyl and Ohlhaver are clear that they don’t have all the answers figured out. Their paper is positioned as an initial consultation but their ambition and vision cannot be faulted.
Soulbound Tokens go way beyond getting a glorified badge for attending a conference they offer potential solutions to some of the biggest challenges currently facing the crypto ecosystem, a lack of plurality in governance models and the unhealthy focus on explicit transferable value.
The details are yet to be hammered out, and some challenges might yet prove insurmountable by Soulbound Tokens offering a vision toward a decentralised ecosystem that is more about who you are and what you have achieved than what you own.