Is my soul attached to the token? How can my soul be attached to a token? I am so afraid. Is it occultic?
Vitalik Buterin, best known as one of the co-founders of Ethereum, has a massive new Web3 project in the works. In a white paper entitled "Decentralized Society: Finding Web3's Soul," Buterin and his fellow authors detail their vision for a fully decentralized society (DeSoc) and how we could make it a reality. Their answer? That we will need to create something called "Soulbound Tokens" (SBTs).
According to the authors, SBTs, which are impossible to transfer or trade between individuals, can create a basis for the creation of a decentralized society (DeSoc).
So, will soulbound tokens, digital identity, and a shift towards DeSoc be the next big thing in crypto? Or are SBTs just a glorified version of the non-fungible token, which has already become popular?
What are Soulbound Tokens?
"Soulbound tokens (SBTs) refer to digital identity tokens that represent the characteristics or reputation of a person or entity"~ Cointelegraph
Soulbound tokens are non-transferable and publicly visible tokens linked to the soul address.
Besides, the concept behind soulbound tokens seemingly comes from the game World of Warcraft (WoW) — which also inspired Buterin, who derived the name for his beloved Ethereum blockchain from the franchise.
In WoW, "soulbound" is a property of an item that prevents it from being traded or mailed to another character. With this in mind, it's easy to see where the name and idea for SBTs come from.
It helps create a social identity through tokens to enable the services currently absent in the Web 3.0 and DeFi ecosystem. Such include undercollateralized lending or simple contracts, like an apartment lease.
The Need for Soulbound Tokens
Web 3.0 platforms and applications depend on the Web 2.0 platforms to mask their limitations, such as:
Sybil Resistance- To prevent Sybil's attack and transcend from coin-voting, DAOs rely on the web2 social media profiles such as Discord server, Twitter, or others.
Provenance- Most NFT curators choose centralized platforms such as OpenSea and Twitter to maintain scarcity and provide wider provenance to their collections.
Key Management- Decentralized key management is not user-friendly. Most DeFi players store digital assets on a centralized exchange like Binance and Coinbase. To replicate the economic value into web3 space and build a "Decentralised Society" (DESOC), it becomes important for current DeFi players to overcome this obstacle.
So, How Do Soulbound Tokens Work?
Soulbound tokens will be like an extended resume issue by other wallets that attest to this social relation. Only SBT creators can issue them to other addresses, known as soul addresses.
With SBTs, the Web3 community can check for themselves if an individual can be trusted. Thus, people can make more informed decisions regarding what projects deserve their support.
However, what happens when a person or organization sends your Soul an SBT that you don't want? SBTs are permanent, so are you stuck with them forever?
Ideally, no. For the system to work effectively, the team stated that it must include features that let individuals hide an SBT from public view or destroy it. However, since the system doesn't exist yet, the actual mechanics of this remains unclear.
Final Thoughts
Web3 has the potential to revolutionize every aspect of human existence, including finance. However, it has some restrictions, such as a lack of social identity, which SBT tokens can remedy.
Currently, the potential applications for SBTs seem unlimited.
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