Vitalik Buterin has published a white paper on the future of decentralized society using Soulbound tokens, or SBTs. The article discusses the issues with Web2 centralization, Web3’s reliance on Web2 infrastructure, and the complexity connected with striking a balance between Web3 identity and privacy.

It is worth noting that #Web3 is now widely acknowledged as a catch-all name for #digital and #cryptographic advancements enabled by #blockchain #technology.

The Web3 movement is based on the concepts of #decentralization and data #ownership.

Web2, on the other hand, is a term generally used in #business to characterize the internet in its current state.

What are SBTs?

#Soulbound Tokens are non-transferable #token that attempts to reflect social identity through various memberships and intersections with other “#Souls.” SBTs can represent commitments, affiliations, qualifications, memberships, or even beliefs, which all work together to build an authentic depiction of an individual’s identity in Web3.

The #tokens in a Soul’s #wallet, or SBTs, should reveal its personal views and social group. These SBTs can be issued or attested by other Souls, giving a Soul’s wallet credibility based on the number of attestors or the credentials of the issuers of their SBTs.

A critical component of SBTs is that there can only be one Soul per human to prevent the system from being exploited by people issuing themselves SBTs or through other means. Deploying the Soul and SBT systems to transition to a “Decentralized Society,” minimizing reliance on #Web2’s centralized infrastructure.

Why do we need SBTs?

Web2 is overly #centralized.

Vitalik discusses various difficulties with our current systems and how SBTs might help overcome them in his explanation of the need for SBTs. Vitalik criticizes Web2 and underlines society’s dependency on a more authoritarian system, defining Web2 as an “infrastructure for opaque surveillance and social control.”

This critique derives from the enormous control held by a few major centralized companies like #Google and #Facebook in Web2, as well as the over-reliance on these firms to construct any type of online identity.

Data ownership is king in Web2. It is the primary source of business strength and #profit extraction. As a result, the centralized means for producing an identity hold the data created by your identity. The entire system is founded on selling and owning users’ data, which they can use as they want, according to their terms and conditions and the law.

This reduces long-term value generation by creating a bottleneck in which only a few large firms can access and profit from data. SBTs solve this problem by making all data publicly visible and privately owned by the individual.

Web3 is dependent on Web2 and has governance difficulties.

Web3 was created as a “#decentralized #online #ecosystem” to address the centralization and personal data collection issues that afflicted Web2. Unfortunately, Web3 has relied significantly on Web2 infrastructure and has encountered new challenges that restrict its efficacy, all of which SBTs could address.

The need on Web2 infrastructure stems from Web2’s inability to convey social identity. As a result, any DAO that wishes to abandon the intrinsically defective currency voting scheme must revert to Web2 architecture, which brings us back to the previously described difficulties.

This is because, for the time being, token voting is the only option for #DAOs to stay on-chain. SBTs are a Web3 substitute.

Token voting systems are fundamentally faulty for one critical reason: they injected centralization into an otherwise decentralized system by concentrating the bulk of voting power in the hands of the rich.

Token voting has also enabled one individual to seize control of a voting process simply because their spending power is greater, implying that many DAOs are governed by #whales (large token-holders).

As a result, these whales can ensure that the DAO and all other #stakeholders serve their own self-interests simply because they wield the most power. The issue is not that people behave in their self-interest but that the current system permits them to rule an entire organization and sabotage any form of democracy.

Web3 is still lagging behind the real-world banking system.

Web3 has been chastised for encouraging speculation and short-term profit over long-term value creation, resulting in “#hyper-financialization.” This is a logical result of the emphasis on the transferability of Web3 assets, which SBTs will naturally combat by holding value despite being #non-transferable.

SBTs provide a chance to create a new side of Web3: a more social and non-financial side that allows Web3 to integrate more successfully and meaningfully into society.

Financial transactions that rely on reputation #staking, such as low-collateral loans or rent, are hard to conduct on the blockchain due to Web3’s lack of identity validation. Because Web3 is unable to provide many reputation-based services, centralized Web2 entities such as banks, which allow you to stake your credit, remain necessary.

SBTs address these issues by allowing for decentralized on-chain identities.

DAOs can compensate people who do not move liquidity during vampire attacks, with SBTs recording this.

Finally, SBTs allow Web3 users to stake their reputation on uncollateralized loans and #peer-to-peer contracts in the same way that credit does.

Existing solutions to Web3’s identity issues are insufficient.

How do SBTs deal with these issues?

SBTs have the potential to improve Web3 in several ways:

• Better governance and inclusive voting systems

This implementation of SBTs can potentially deliver a range of long-term benefits to both Web3 and if widely adopted, societal structures.

• A quick solution to the token voting system on which many Web3 entities and DAOs rely.

SBTs grant governance rights to every individual member of a community and can demonstrate how involved they are in the community. More involved persons are given more weighted votes by issuing SBTs for participation, attendance, and regular voting.

This solves the issue of vote manipulation by whales, whose financial status does not grant them instant authority. It also decreases the effectiveness of bot assaults by preventing phony accounts from earning donations or participation SBTs.

• Voting arises from their ability to map out social networks, communities, and shared prejudices.

Identifying prejudices before voting will allow for the discounting of specific votes or groups, ensuring that minority groups are always represented. This can be done in Web3 organizations such as DAOs at first so that “whales” do not dominate and then integrated into real-world voting systems.

Dismantling Web2 data monopolies

SBTs can provide a complete answer to Web2’s data centralization challenge. They provide a means to implement #economic incentives for data collection while giving individuals control over their data. Data available to the general public alleviates the bottleneck imposed by the oligopoly of data owners in Web2.

This is due to Web3 platforms’ complete independence from Web2. Although making data public raises some privacy concerns, they can be resolved, as will be shown later. As data with SBTs becomes more of a public good, this enables significantly higher value creation.

Enabling a financial system based on reputation in Web3

SBTs’ ability to establish Web3 reputations allows them to engage in previously unimaginable financial activities. Because non-transferable tokens are permanently attached to a Soul, a “credit” style history is formed, enabling lower-collateral or #non-collateralized loans on Web3.

This is not the only approach for SBTs to improve Web3’s financial capabilities. Unlike in the physical world, property rights are frequently inseparable in Web3. As a result, real-world contracts, such as rent contracts, are impossible.

A rent contract permits the use of a property but not its destruction or profit (subletting). A rent contract divides property rights, which Web3 does not allow. The introduction of non-transferable and revocable tokens will address this constraint of Web3, assisting in mainstreaming blockchain technology.

Resolving accuracy difficulties in prediction markets

SBTs will also enable us to innovate our market prediction models beyond the two alternatives of #AI or prediction markets run by individuals. This would be accomplished by permitting large-scale quadratic polling.

Quadratic polling assesses the magnitude and direction of people’s thoughts about future occurrences.

Model makers may judge and measure each contributor’s ability and experience using SBTs, allowing them to weigh votes accordingly.

As a result, when experts forecast what will happen in a market, model builders can generate a considerably more accurate prediction using all of their individual projections than was previously feasible. This would increase the likelihood of getting the right direction of the event, allowing for a higher success rate of anticipating market movement.

The Advantages of Non-Transferable Assets in Gaming

SBTs’ non-transferable character opens up possibilities for resolving concerns linked with the transferability of all #crypto #assets.

For example, many problems in the crypto #gaming business are built on transferable high-value in-game assets, allowing wealthy speculators to get into the game at a high level and benefit immediately.

The assumption that the highest level of a game may be purchased leads to an unsustainable #P2E economy.

Turning the highest valued/best in-game goods into #Soulbound would guarantee that players would earn the most. This would prohibit “whales” of capital from entering and racing through the economic loops quicker than anybody else.

Concerns around SBTs

Regarding SBTs, privacy is a critical issue that lacks a clear solution. There must be a balance between disclosing enough information to enable reputation staking and social circle mapping while not jeopardizing an individual’s privacy.

People will feel apprehensive about the SBT system if too much information is revealed, making them vulnerable to malevolent actors.

One approach is to make certain SBTs public, such as those that are negative and may prevent the applicant from acquiring a loan. In addition to SBTs, another method for maintaining privacy is to utilize zero-knowledge proofs.

The third major debate concerning privacy and SBTs is how to store #off-chain data. Data can be either the Soul’s responsibility and stored on hardware or rely on more centralized Web2 infrastructure, such as the cloud.

Conclusion

SBTs provide a wide range of applications to improve how Web3 is currently used. Web3 was supposed to accomplish large-scale #decentralization, a big challenge that has yet to be fully met.

The improvements that can be made to Web3 governance due to SBTs without reverting to Web2 design will prevent whale domination and dramatically reduce #Sybil attacks.

Furthermore, engaged community members will be able to demonstrate their interest and will be rewarded accordingly.

SBTs can also considerably advance prediction #markets, crypto games, and Web3 DeFi organizations’ financial capacities by putting less weight on transferability and more emphasis on reputation.

They eliminate the identity issues that limit Web3, allowing Web3 to become more helpful in our daily lives than ever before.