Identity on Web3
Back in January 2022, Ethereum creator Vitalik Buterin wrote an interesting post called “Soulbound”. You can read the full article here. The concept originated in the video game world, where certain weapons or items were tied to a specific person’s game identity. These items were soulbound and could not be lost or transferred to another person within the game. Often in games like World of Warcraft, these very special gaming items could only be earned by winning increasingly complex quests. They couldn’t be purchased or given to you by someone, you had to prove yourself worthy.
Vitalik expanded on this concept from gaming to the NFT world. He asked, “what if we want to create NFTs that are not just about who has the most money, and that actually try to signal something else?” He referred initially to something called Proof of Attendance Protocol (POAP). POAP describes itself as “a new way of keeping a reliable record of life experiences. Each time they take part on an event, POAP collectors get a unique badge that is supported by a cryptographic record.” It is basically a digital NFT ticket that memorializes your participation in an event to the blockchain. The company building this raised $10MM back in January from an impressive mix of sports, media, and web3 investors.
Vitalik went further on the concept of soulbound rights and discussed how this could be applied to governance of a DAO or Crypto protocol. He posited that these governance rights could be tied to a specific individual elected by a DAO or other group. The concern with some DAOs is that a wealthy participant or one with malintent could buy up the tokens of a DAO and then takeover. Vitalik talked in this earlier article about how making rights soulbound to an individual could stop this. We saw something like this happen with the $182MM hack of Beanstalk in April. Bad actors acquired temporary control of the entity by purchasing their governance token. They then approved a loan of the company’s treasury to themselves and ran away with the money.
Vitalik talked a bit more in his original article about how to stop the transfer of assets on a blockchain. Just a few weeks ago, he partnered with two researchers on a much more comprehensive report entitled “Decentralized Society: Finding Web3’s Soul”, which you can read in full here. In this report, the authors discuss non-transferable “soulbound” tokens (SBTs). Let’s state the obvious, this is yet another terrible name for an important Crypto concept. Will these people ever learn to make the names of important ideas more approachable?!?!? I digress.
The idea of Soulbound Tokens is that each person would have a single NFT to which different groups would be able to post important information about you. They discuss how this will move us closer to a “Decentralized Society” (DeSoc). This could take us from a government and large entity (credit agencies, banks, etc) controlled world to one better control by the people. This idealistic version might not resonate with everyone, but I really like the thought that you would own your own identity in web3. Everything from educational credentials to employment history to proofs of your writings or works of art or creation would be stored to your individual identity.
I touched on this concept in my article “Breakthrough Ideas in Crypto”. I wrote previously that maybe we will see a new type of ID card on the blockchain that evolves over time. Or some form of digital resume where all the items are validated and verified onchain. Maybe you’ll be able to submit your personal info and get it independently checked. Then you’ll be able to attach your wallet somewhere and everything will be easily ready to go. The DeSoc authors covered these ideas in their paper.
They went a step further than me, when they theorized that DeSoc could allow for uncollateralized lending in web3. Currently, you are able to borrow money for a credit card or a term loan by allowing a lender to search your name and access your credit report. Lenders use a variety of government sources, institutional data from the credit bureaus, and your own attestations to decide if they want to extend you credit. This article discusses how DeSoc could “unlock a censorship-resistant, bottom-up alternative to top-down commercial and “social” credit systems.” Really cool concept. It’ll probably take several years before enough verified information is on your Soulbound NFT for someone to extend you any meaningful credit, but I could see how this could emerge in the future.
The article meanders a bit further into how you’ll protect your Soulbound NFT from being stolen and how you’ll recover access if you lose your keys. It gets lost a bit in the details of identity theft and related areas. Important, but not very exciting. They also spend a bunch of time around how info will get written to your Soulbound NFT and whether everything will be public or not. This one is easy for me. For this concept to work, you’ll need complete control over this data. It’s yours, and you’ll decide how and when you disclose the info to someone else. The paper drones on for another 20 pages around security, pseudonymity, and various other topics. You can stop reading somewhere around page 12 and be good on this topic. This article from the Defiant summarizes all the main points if you want more.
I’m going to bring this post to an end, so I don’t lose anyone here. This is a really cool topic, and I am certain I’ll have more on this for you later as we see cool applications of this tech soon.
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