Soulbound Tokens (SBTs)- The Next Big Thing in Web3.0

— By Sam Zoghbi

Web3 has revolutionized the world as we know it as an approach and as a technology, and it will continue to do so with layer 2 solutions and products built on top of this technology.

In May, the Co-Founder of the Ethereum blockchain, Vitalik Buterin, published a research paper “Decentralized Society: Finding Web3’s Soul.”

The paper addresses the future of Web3.0 in general and the Ethereum blockchain specifically, as he tries to explain the impacts of “The credentials of the future” as he describes it. The paper explains the structural changes and advantages the souls will have on the way we approach them as a society through DAOs and as project owners.
Vitalik describes a non-transferable type of non-fungible token, something he labels as Soulbound tokens (SBTs).
These tokens cannot be transferred, and owners hold them in one wallet called ‘soul’ forever.

Non-Fungible Tokens or NFTs were created to serve as “Proof of Ownership” that offer transparency, security, and decentralization, however, NFTs in their smart contracts are designed to be transferable.
The owner can buy and sell the NFTs, people in fact trade these digital assets over exchanges and from wallet to wallet. This feature has fueled their rise in popularity. Some of the most sought-after NFTs have been bought, sold, and traded for millions of dollars.

What if we had NFTs that were not transferable? What if they were truly yours? After all, there are some things you cannot transfer or sell. Let’s consider a college degree, a marriage or birth certificate, or your driver’s license. What if these things could be represented by an NFT that is tied to a specific wallet for life? These specific SBTs will become part of your identity and will soon serve as credentials in major sectors.

SBTs, what are they?

Usually, in order to prove ownership, Soulbound Tokens (SBTs) are non-transferrable NFTs held by unique crypto wallets called Souls. It was introduced as a new concept that can be useful in multiple ways.
SBTs could be used — as university degrees, education credentials, and as web3 credit scores.

While blockchain inclusion enables us to trace the time a particular work was made, SBTs would enable us to trace the social provenance, giving us rich social context to the “Soul” that issued the work and consider it as their constellation of memberships, credentials, and their social distance to the subject.

“Deep fakes” could be readily identified as those artifacts that originated outside of time and social context, while trusted artifacts like photographs would emerge from the attestation of reputable photographers.

Now let’s talk about “Souls”

Imagine a world where most participants have Souls that store SBTs corresponding to a series of memberships and credentials. For example, a person might have a Soul that stores SBTs representing educational credentials, employment history, or hashes of their writings or works of art.

In their simplest form, these SBTs can be “self-certified,” similar to how we share information about ourselves on our CVs. But the true power of this mechanism emerges when SBTs held by one Soul can be issued — or attested — by other Souls who are counterparties to these relationships. These counterparty Souls could be individuals, companies, or institutions. For example, the Ethereum Foundation could be a Soul that issues SBTs to Souls who attended a developer conference. A university could be a Soul that issues SBTs to graduates.

Not Losing Your Soul

One of the biggest problems in the space is lost wallets or losing access to your wallet.
The assets in said wallets are lost forever while still being present on the blockchain.

We all have heard a story about someone that somehow lost a ledger, a private key, or a seed phrase, but what happens if you lose access to your Soul — is your SBT university degree gone forever?

There are multiple solutions that are mentioned from social recovery to contacting the issuing or minting body from a certificate.
The DAO or the project owners might be a solution.

A user curates a set of “guardians’’ and gives them the power, by a majority, to change the keys of their wallet. Guardians could be a mix of individuals, institutions, or other wallets.
The problem is a user must balance the desire for a reasonably high number of guardians against the precaution that guardians be from discrete social circles to avoid a collision.
Also, guardians can pass away, relationships sour, or people simply fall out of touch, requiring frequent and attention-taxing updates. While social recovery avoids a single point of failure, successful recovery nonetheless depends on curating and maintaining trusted relationships with a majority of guardians.

A more robust solution is to tie Soul recovery to a Soul’s memberships across communities, not curating but instead drawing on a maximally broad set of real-time relationships for security. Recall that SBTs represent memberships to different communities. Some of these communities — like employers, clubs, colleges, or churches — might be more off-chain in nature, while others — like participation in protocol governance or a DAO — might be more on-chain. 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.

Community recovery, as a security mechanism, embodies the theory of identity proposed by turn-of-the-20th-century sociologist Georg Simmel — founder of social network theory — in which individuality emerges from the intersection of social groups, just as social groups emerge as the intersection of individuals. Maintaining and recovering cryptographic possession of a Soul requires the consent of the Soul’s network. By embedding security in sociality, a Soul can always regenerate its keys through community recovery, which deters Soul theft (or sale): because a Seller would need to prove the sold recovery relationships, any attempt to sell a Soul lacks credibility.

Private Souls

Blockchain-based systems are public by default. Any relationship that is recorded on-chain is immediately visible not just to the participants, but also to anyone in the entire world.

Some privacy can be retained by having multiple pseudonyms: a family Soul, a medical Soul, a professional Soul, or a political Soul each carrying different SBTs. But done naively, it could be very easy to correlate these Souls to each other. The consequences of this lack of privacy are serious. Indeed, without explicit measures taken to protect privacy, the “naive” vision of simply putting all SBTs on-chain may well make too much information public for many applications.

To deal with over-publicity, there are a number of solutions with different levels of technical complexity and functionality. The simplest approach is that an SBT could store data off-chain, leaving only the hash of the data on-chain.

Proof of personhood (PoP)

Proof of Personhood protocols (PoP) aims to provide tokens of individual uniqueness, prevent sybil attacks, and allow non-financialized applications. To do so, they rely on approaches such as global analysis of social graphs, biometrics, simultaneous global key parties, or some combination thereof.

However, because PoP protocols seek to represent individual identities — -focused on achieving global uniqueness — rather than social identities mapping relationships and solidarities, PoP protocols are limited to applications that treat all humans the same. Most applications we are interested in — such as staking reputation — are relational and move beyond being a unique human to being a differentiated human.

Moreover, PoP protocols are not immune to sybil attacks. In almost all near-term foreseeable applications, PoP systems are effectively open to Sybil attacks, just at a slightly higher cost. Unless most people on the planet are registered for a PoP service and are participating in a particular validation exercise, an attacker can always recruit disinterested humans who are not yet participating to act as Sybils. While such mercenaries are not quite bots, the difference is superficial other than perhaps a small added expense.