SBT's Potentials and Challenges

In our previous post, we explored the basic concept of "DeSoc (Decentralized Society)" proposed by Vitalik. This time, I'd like to focus on "SBTs (Soulbound Tokens)," the core technology behind this vision, while clearly acknowledging the gap between ideal and reality.

While SBTs have the potential to bring a new value called "trust" to digital spaces, there are many challenges that must be resolved before implementation. What specific changes could SBTs bring to our society, and what obstacles stand in the way of their realization? Let's explore these questions together.

The Possibilities SBTs Unlock for Web3

Web3, with its strengths in representing financial transactions and asset ownership, has created various innovations such as cryptocurrencies, NFTs, and DeFi. However, despite these advancements, there's a critically missing element: the ability to effectively represent "social trust" and "human relationships."

For example, DAOs (Decentralized Autonomous Organizations) are typical applications of blockchain, but voting rights are often designed as tradable tokens. This enables vote manipulation for economic gain, creating an environment where essential trust relationships between participants struggle to develop.

Even more ironically, many current Web3 projects rely on Web2-style centralized platforms like X (formerly Twitter) and Discord for community building and interaction. This is because blockchain itself doesn't yet have mechanisms to represent relationships and trust between people.

This absence of "social ID" is a major obstacle to realizing Web3's potential. For instance, implementing common economic activities like "unsecured loans" or "credit-based contracts" on blockchain is extremely difficult. In the DeFi world, due to high anonymity, lenders cannot assess borrowers' repayment ability or reliability, forcing them to demand excessive collateral.

SBTs (Soulbound Tokens) were conceived to address these fundamental challenges. They represent an attempt to record individual identities and social relationships on blockchain using non-transferable, non-tradable tokens. This new social structure enabled by such mechanisms is what Vitalik and others call "Decentralized Society (DeSoc)."

SBTs as Pseudo-Embodiment

As the name suggests, SBTs are tokens bound to specific individuals ("Souls") that cannot be transferred or sold. Unlike conventional NFTs, which can be traded at high prices and hold economic value, SBTs simply "exist" without becoming objects of economic transactions. What does this "non-transferability" bring to digital space?

In the physical world, our existence is primarily rooted in our bodies. These bodies cannot be transferred to others and are always positioned in specific places and times. The constraints of our bodies enable us to keep promises, fulfill responsibilities, and build continuous relationships. In other words, the "non-transferability" of our bodies underpins our social trust.

In contrast, identities in digital spaces are highly fluid. Accounts can be freely created, abandoned, and transferred, making it difficult to build trust relationships that involve responsibility and continuity. Issues like anonymous harassment and ambiguous accountability are reflections of this fluidity.

SBTs can be interpreted as an attempt to introduce a kind of "pseudo-embodiment" to digital space. SBTs that are bound to specific Souls and cannot be transferred establish a person's continuous digital identity and guarantee the consistency of "being oneself." This could become the foundation for building continuous, responsible behaviors and trust relationships online.

The Gap Between Provable Data and Unprovable Trust Relationships

However, there are clear limitations to this pseudo-embodiment in digital space.

Trust relationships in the real world form through the interplay of non-verbal elements that cannot be fully expressed in words or numbers, such as facial expressions, tone of voice, and attitude. Philosopher Michael Polanyi called such knowledge that is difficult to verbalize "tacit knowledge."

The SBTs proposed by Vitalik and others can visualize formally provable aspects like educational background, work history, and community contributions, but they cannot express non-verbal trust elements like "this person remains calm in difficult situations."

Thus, while acknowledging the significant potential of SBTs, we need to recognize the gap between "provable data" and "unprovable trust relationships."

Potential Applications and Practical Challenges of SBTs

Let's now consider the specific potential applications of SBTs and their associated practical challenges.

Education and Credential Verification

Possibility: By representing university degrees or professional qualifications as SBTs, individuals can autonomously manage their credentials and prove them to third parties when needed. The non-transferability of SBTs also prevents the buying and selling of fake credentials.

Challenge: However, even with the same qualification, learning content and experience vary greatly between individuals, and SBTs cannot fully reflect their quality or depth. There's also a risk that formally provable elements like qualifications might be overemphasized, while non-formal abilities might be undervalued.

Community Certification

Possibility: SBTs can serve as a means to record and verify an individual's community activities, such as contributions to open-source projects or local community activities.

Challenge: It's unclear whether contributions certified within a community would hold value in other contexts, and subjective evaluations might create bias or unfairness.

Unsecured Loans

Possibility: If social reputation can be proven through SBTs, loans might become possible without collateral.

Challenge: However, this risks reinforcing social inequality, as people with good reputations might gain more opportunities, while those who have lost their reputation might find it difficult to recover.

Countermeasures for Sybil Attacks

Possibility: The non-transferability of SBTs could counter Sybil attacks, where one person creates multiple accounts.

Challenge: Currently, there's still the multi-wallet problem (where one person can create multiple Souls). Solutions like mutual authentication and scoring have been proposed, but no definitive resolution has been reached. Ensuring effectiveness requires a strict and trustworthy SBT issuance process, balanced with privacy protection.

Decentralization of Political Capital

Possibility: Political capital refers to the ability and resources to participate in and influence collective decision-making. While Vitalik and others believe SBTs contribute to social capital formation, in my view, SBTs could also play an important role in decentralizing political capital.

Challenge: However, realizing this requires SBTs to function widely as a foundation for social trust and governance, and such mechanisms are currently underdeveloped.

Current State of Implementation and Challenges

While discussing the theoretical possibilities of SBTs, we must also consider their current implementation status. What stage are SBT implementations at currently?

In Japan and elsewhere, practical examples are limited to a few educational institutions and communities. Currently, SBTs don't go beyond digitizing existing certificates such as academic credentials, qualifications, and limited community certifications.

Technical challenges also remain. For example, recovery mechanisms for lost access to a "Soul," balancing privacy protection and information disclosure, and interoperability between different blockchains are among the issues that need resolution.

Contextual Considerations in Japanese Society

When considering SBTs in the context of Japanese society, several characteristic aspects emerge.

Japan traditionally has a culture that values "connections" and "bonds," where trust is often based on long-term human relationships and "character" rather than formal qualifications. For example, in job hunting, non-formal elements such as "personality" and "cooperativeness" tend to be emphasized alongside academic background and qualifications.

In such a cultural context, how SBTs would be accepted and function is an interesting question. On one hand, the certification function of SBTs might have affinity with the formal aspects of Japanese society (e.g., "hanko culture"). On the other hand, it might not work well with aspects that emphasize the nuances of human relationships and "tacit communication."

Additionally, as a Japan-specific issue, there's the question of how to reconcile the high awareness of personal information protection with "indelible records" like blockchain technology. The tension between European-style values that emphasize the "right to be forgotten" and SBTs, which premise permanent records, needs careful consideration.

Seeking Balance Between Ideal and Reality

There is a gap between the ideal that SBTs present and reality, but this doesn't negate the value of the concept itself. A comprehensive approach is needed that gradually expands application from small-scale experiments and positions SBTs as complementary to existing trust-formation mechanisms.

The concept of SBTs questions the relationship between "self" and "other" in the digital age, and the answers may be diverse.

In our next post, we'll delve into the reception and criticism of the DeSoc paper and consider practical steps toward SBT implementation.

---

Enjoyed this post?

Follow me on Substack to get future updates by email — and feel free to leave a comment or reply there.