Earlier this year, Ethereum co-founder Vitalik Buterin, in cooperation with economist Glen Meyl and researcher Puja Ohlhaver, published a research paper on soul-bound tokens (SBT). SBTs are publicly visible, non-transferable (but optionally revocable by the issuer) digital assets representing “pledges, credentials, and affiliations.” Buterin et al. said such tokens would be like an “extended CV,” while others said SBTs would allow protocols like Ethereum to “encode trusted social relationships.” The ultimate use of SBTs would be to enable Ethereum to create a decentralized society (DeSoc), a concept the authors define in their article through exploring use cases and how these would enable a digital social ecosystem. At the highest level, the DeSoc described in this article is bottom-up coordination among participants to build, participate in, and govern plural network goods. (An example of a plural network good is access to property that would otherwise be private.)
Most mainstream news stories about blockchain technology recently have focused primarily on the financial applications of digital coins and tokens, including the use of these digital assets as currency, security, and a highly speculative way to gain instant wealth. However, this focus on financial applications largely ignores the interesting societal impacts these digital assets can have, including how tokens can serve as building blocks for social interactions, communities, and networks.
In their article, Buterin et al. offer several use cases for SBT that move away from this hyper-financialization and into other digital assets that focus on building DeSoc. SBTs are an emerging type of digital asset that can be used by individuals and businesses hoping to become part of and interact with others in DeSoc, including the virtual worlds collectively referred to as the Metaverse. Applications discussed include SBTs representing memberships, loyalty programs, identification standards, specific resume items such as credentials and certifications, event attendance, and more. SBTs also allow our digital identities to be protected from impersonators such as identity thieves and wrong wrong.
Reduced risk in digital assets
In order to directly address the problem of hyper-financialization, one of the main attributes of SBTs is that they are not transferable. The non-transferability of SBTs disables participants’ ability to sell these tokens, eliminating the ability for participants to speculate on them.
Non-transferability also eliminates opportunities for speculative lending of high-risk digital assets, such as when crypto lending firms borrow crypto assets from clients and then lend those same assets to crypto hedge funds where the lender does not has little or no equity in the loans.
General uses of SBTs: identification, inclusion and intent
Buterin et al., among others, have suggested a variety of uses for SBTs primarily focused on creating DeSoc, while others have admittedly focused more on using SBTs as a store or reflection of value.
The most obvious and fundamental use of SBTs in the creation of DeSoc is as a form of identification. Take a “traditional” meeting, for example, where you might verify the person’s identity by seeing or hearing them. Of course, in some meetings, confirming the identity of those involved may have implications, including confidentiality considerations. Conversely, in a “modern” meeting that uses avatars or other digital representation of participants, verifying the identity of meeting participants has similar implications to a “traditional” meeting, but creates additional challenges. which could potentially be solved by identifying SBTs. . The utility beyond meetings of a non-fungible ID SBT to verify a person’s ID, whether DeSoc in the physical or virtual world, is not hard to imagine. Additionally, in virtual worlds, these identifying SBTs can help hold individuals accountable for their behavior by serving as references and a means of associating behavior with an identity—accountability of course being required for a functioning society. in general.
Additionally, SBTs can also be used, as mentioned above, to validate a person’s membership in a certain club, group, or the like. So far, many digital asset-focused clubs have welcomed members and offered them benefits, such as the ability to attend exclusive events, based on their ownership of the relevant NFT club. However, most of those who hold such an NFT are often those who can afford it, which can cost hundreds of thousands or even millions of dollars at their peak. This dynamic results in exclusive rather than inclusive environments, which seems contrary to one of the main tenants of the digital asset sector: democratization. The concept of plural ownership enabled by SBTs and discussed by Buterin et al. is another interesting application of SBTs.
SBTs can also be used to allow companies to confirm the intentions and true skills of job applicants based on conference attendance, certifications and credentials, usually in the form of an NFT. For example, if a web3 entrepreneur hires software developers, they can ask them what web3 events they have attended to gauge their interest in the space. With fungible badges, a candidate could simply purchase a conference badge from someone who attended a qualifying conference (e.g. Bitcoin 2022) rather than actually attending, making it difficult to validate the real experience. However, conference badge NFTs that are SBTs are non-transferable, so if the candidate provided you with an SBT, you can be assured that they attended that conference.
As another use case example, Buterin et al. discuss how an artist might issue NFTs from their “soul” (at its most basic level, a collection of SBTs) to validate a work of their art, much like an artist’s signature on a physical painting. Such validation can also help maintain or one day increase the value of NFT art, as it allows the transferable NFT to be tied to a non-transferable SBT that cannot be separated and sold separately from the NFT.
Another exclusive application of SBTs and an example of non-transferable but revocable SBTs is unsecured loan SBT, in which an SBT representing a line of credit or a loan is posted on someone’s soul, which includes all SBTs of an individual and where emission depends on an individual’s “constellation of SBT” […] this may be enough for a Soul to take out a loan.
SBT Challenges: Confidentiality and Fair Play
Buterin et al. focus on two major challenges with using SBTs to build DeSoc: a potential lack of privacy and the possibility of cheating.
First, if each soul’s SBTs are publicly linked, one or more SBTs may disqualify or otherwise tarnish the reputation of other SBTs within a soul. For example, if SBTs related to someone’s politics were related to SBTs related to someone’s profession, you could imagine a scenario where someone wouldn’t want their political affiliations, beliefs, or even their voting decisions are known to their colleagues. Buterin et al. propose that everyone can have individual, separate souls tied to their family, healthcare, profession, and politics, to name a few, or store certain SBTs off-chain where they are not accessible to the public nor visible to all.
Second, much like how traditional organizational structures (centralized and usually hierarchical) and Decentralized Autonomous Organizations (DAOs) are susceptible to bribes from individuals or other entities attempting to undermine decisions of these organizations for personal gain, SBTs can also be obtained through bribes and used to cheat the system (e.g., using the conference badge example, it would still be possible for someone to obtain an SBT by bribing an unscrupulous conference organizer). In other words, the process of acquiring an SBT is always vulnerable to cheating and fraud.
Overall, SBTs are one step away from the hyper-financialization of digital assets of recent years and are shifting the vision of what a digital asset can be towards fulfilling the promises of democratizing product access. , services and benefits resulting from the creativity or skills of the individual. Currently, it seems that the most likely initial adoption of SBTs will be as forms of identification or other stable, non-transferable representations of individuals in both the physical and virtual world for the purpose of building organizations , communities or increasingly decentralized societies. However, SBT applications are not limited to these uses – they can also provide less risky proprietary alternatives to services such as crypto lending and trading. While technical implementation and adaptation challenges remain, it will be interesting to see which company or government finds a compelling application for this emerging digital asset.[View source.]