SoulBound NFTs Explained

Soulbound NFT vitalik web3

With crypto we digitalized the financial system, but with NFTs… the possibilities are pretty much endless. Any aspect of our experiences can be digitized, used as a way to show membership, verify ownership or obtain utility across products, services, and communities. And this technology is just one of the countless products and services which exist in the Web3 economy today – the past few years have shown just how fast innovation moves in the space and it’s still very early.

One of the recent proposals in the space was made by Vitalik Buterin, the legendary co-founder of Ethereum, in his co-written paper, “Decentralized Society: Finding Web3’s Soul”. It took the entire Web3 community by storm, most likely due to Buterin’s participation, but also because of the thought provoking questions it asks – what kind of society do we want to live in? One revolved around hyper financialization or one which is trusted-based

Enter SoulBound NFTs (SBTs): NFTs containing all information related to you. “Imagine a world where most participants have Souls that store SBTs corresponding to a series of affiliations, commitments, and credentials.”, the authors wrote. Spanning across academic records, work credentials, personal achievements, and community membership, SBTs would reflect you as a whole – almost like an extended resume, except it’s non-transferable and permanently recorded on the blockchain. 

In the case of losing your SBT (or strictly speaking, private key), a community recovery process is proposed, where trusted and self-appointed ‘guardians’ collectively agree to unlocking your soul access. These guardians can be anyone – certificate issuers like universities, a DAO you participate in, or even the “last 20 people you took pictures with”. 

There has been very little work done with this recovery model, but further expanding on this idea could help the perceived risk of digital asset ownership. The community recovery process can also have big implications for property rights, for example, allowing verified co-ownership of public or private properties such as homes and cars. 

Building the foundation of a decentralized society

The authors argue that SBTs are the crucial foundation we need to build Web3’s decentralized future, one which “encodes trust networks in the real economy to establish provenance and reputation”. It would be the first step in creating a truly Decentralized Society (or as they say, DeSoc). 

Many have praised the proposal of SBTs, even critics, for its push to achieve a decentralized society which is trust-based rather than overly focused on hyper financialization. This trust-based system could revolutionize so many of our day-to-day ‘trustless’ processes. DeFi lending and borrowing won’t have to be overcollateralized anymore with credit record verification. Employers can accurately and efficiently check employee work history. Like-minded people can be brought together to form tight-knitted communities. By acting as a trusted and verified source of identity proof, it also gives us ownership of our digital identities and personal data. 

This could especially be beneficial for developing countries which still very much need trusted infrastructures to conduct personal identification and verification. By leveraging trusted relationships, people and institutions can be protected from fraudulent activities. SBTs could completely recontextualize legal and political systems, education, and cultural products.

Or is it the monetization of human identity?

But this is all in theory of course. It’s unknown how accepted or functional SBTs would be once integrated into the real economy. Many criticized the proposal for ultimately pitching the monetization of human identity and reputation, which are too complex of variables to simply be quantified and recorded on the blockchain. Fraser Edwards, CEO of Cheqd, made a pretty good point on Twitter – “there is nothing about me I would feel comfortable writing onto an immutable-ledger.” 

Many are intimidated by the idea of having information permanently recorded under their name, with very valid reason of course. On top of that, having it publicly visible by default could further worsen the privacy behavior in the blockchain space, a constant underlying concern in this sector. 

Forrester Research took it as far to say SBTs could potentially create “a dystopian nightmare”, creating loopholes for redlining unfavored social groups, restrictive migration policies or even predatory loans. Plus, most of the use cases proposed by SBTs already exist or are being productionized – so do we really need more technology which can leverage our personal data?

All in all – at this point in time, it’s unknown what kind of impact SBTs will have on society but one thing is for certain: it has the potential to take society on a completely different journey of decentralization. The idea is a true reflection of the way the Web3 economy has been developing and scaling over the years – by constantly pitching, proposing and ideating ways to improve existing infrastructures which are largely functioning under centralized control today. 

It’s scary to think of diving into the unknown. But there’s also great promise in the never-ending innovation which hopes to drive society’s inclusivity and ownership – potentially overtaking the way the entire society functions in the very near future.

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