Ever heard of soul-bound tokens (SBTs)? Fear not as it is the new kid on the block, envisaged by Ethereum co-founder Vitalik Buterin and others. He visualizes storing aggregated data of “souls” such as the credentials about memberships, and affiliations in a non-tradable digital wallet. This is akin to an enhanced Web3 resume reflecting their work experiences, skill set, business collaborations, and educational achievements (1). It is a compendium of one's digital activity and history through a verified user identity.

This idea was surely coming as one visualizes the ever-expanding list of blockchain-based systems. The need for a verifiable and authenticated identity was felt in the sometimes dehumanized and un-humanized digital world. “Decentralized Society: Finding Web3’s Soul”, a concept note by E. Glen Weyl, Puja Ohlhaver, and Buterin, attempts to build trust networks and good digital reputations by creating a digital soul of oneself (2).

Why should I care?

Proponents argue that SBT will offer seamless transmission of verifiable and certified information (college degrees for instance), others spell doom for this step as leading to a “social credit system” where a citizen can be ranked and marked.

This draconian misuse of technology was visualized by Buterin, who suggests that an individual remains sovereign over his data and chooses to “burn” her SBT identity. The whole idea of the proposed “decentralized society” is to create shareable and authentic digital identities keeping in tandem with privacy concerns as one can issue their SBT to specified “soul addresses” (3). They cannot be sent to a secondary marketplace.

Some practical examples of soul-bound tokens

Employers and companies can issue certifications and documents as SBTs. Moving over zoom, one can also make their digital presence at any virtual event using SBTs. The pitfalls of autonomy can be balanced with privacy issues by enabling SBT verified users to participate in broader metaverse activities like trading in stocks and land.

By establishing a digital identity, one can cement their virtual selves and claim rewards on online games, for example. NFT owners can also link their SBT profiles to distinguish genuine users from fraudsters. By building trust in the system, users will build their reputations transparently (4).  Thus SBT will go a long way in plugging the loose ends of a true virtual world experience.

Is SBT same as an NFT?

Both SBT and NFT remain non-fungible that there is only one of a kind. Soul-bound tokens are permanent identifiers; once minted you cannot withdraw or transfer them. But there is a major difference, the tradability of NFTs as objects of art, digital collectibles remain central to it as an asset. In contrast, you cannot sell your digital soul. It remains a proof of identity in a digital world where anonymity is very easily donned.

Also, SBT can be retrieved through a community recovery mechanism, but NFT once lost is gone forever. “By requiring that tokens can never move, we both guarantee non-separability and non-mergeability among collections of soulbound tokens bound to a single NFT while simultaneously allowing users to cache results” (5) aggressively. There are also similarities as SBT can double up as proof of social identity for NFTs. The idea of ensuring authenticity is foundational to both.

What is an EIP?

An EIP or Ethereum Improvement Proposal are standards or technical specs that provide blockchain guidelines. Anyone can propose an EIP on GitHub, but the bar is quite high for being communally accepted (6). Since its inception, several milestones have been clocked in the EIP journey, for instance, the ERC-20 template elaborated on transferring tokens and their transfer amongst third parties.

Serving as a guiding tool for the Ethereum community, one can suggest changes in "client APIs, core protocol standards, code changes, and contract standards" (7). The seven EIPs enable the ecosystem to transition from proof-of-work to proof-of-stake. Similar to a research concept note, the proposals are evaluated by a team of editors of Nick Savers, Matt Garnett, Nick Johnson, Micah Zoltu, Hudson James,  Casey Detrio, Alex Beregszaszit, and Greg Colvin access their suitability (8).

Why do EIP5114 matters?

In case you are wondering about how soul-bound tokens and EIP go together- the EIP 5114 is a white paper on the properties of soul-based tokens as a non-separable and non-transferable asset. This means you can only have one token and cannot transfer its ownership but choose to share selected data with another token holder. Though still in its proposal stage with Vitalik announcing experiments, it envisaged soul binding one's digital self into an immutable and only-once-editable token. "This includes converting or deleting any remote content as a means of censoring or manipulating specific users" (9).

In an article Vitalik claims to uphold the principles of non-transferability and privacy by ensuring enabling proof-of-attendance protocols through soul binding the NFTs (10). Enthusiasts claim that "soul-bound tokens are a means to "eschew today’s hyper-financialization" of the web3 ecosystem to move to a decentralized society, "encoding social relationships of trust” (11).

Weighing the scales

The pros are many- these soul-bound tokens will allow DeFi to issue uncollateralized loans which are currently anonymous. They can enhance DAO's voting mechanisms. It can usher in an HR revolution by simplifying hiring and networking. Most critically, it will build the trust factor by proofing one's credentials and identities while balancing free speech and privacy.

With many users proposing concomitant sub proposals like "soul airdrop," it remains at an ideational level. Practical uses and proof-of-work remain in nascent stages. Talks of flushing out hyper capitalization might be all smoke as it will be energy-intensive if it is supported by blockchain technology. Poised as a bottom-up approach focusing on individuals and communities,  it "reward(s) trust and cooperation while protecting networks from capture, extraction, and domination" (12).

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