Web3’s search for a digital ID solution

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Fraser Edwards is the co-founder and CEO of cheqda digital ID business creation network.

In the recent research paper titled ‘Decentralized society: finding the soul of Web 3‘, Vitalik Buterin, co-founder of Ethereum (ETH), alongside authors Glen Weyl and Puja Ahluwalia Ohlhaver, introduced the concept of ‘Soulbound Tokens’ (SBT) as a whole new approach to digital identity. The article talks about the importance of digital identity within Web3 and responding to the hyper-financialization of Web3 with equal amounts of trust and social relationship building.

However, we couldn’t help but notice how close the use case of SBTs is to what self-sovereign identity (SSI) does. SSI is already paving the way for the creation of a trusting society. We wanted to compare the Soulbound token hypothesis of Vitalik et al. to SSI to see which is more valid when we enter Web3.

In their simplest form, soulbound tokens are fungible, non-transferable tokens that can be displayed in a digital wallet. These tokens are issued by one soul (individual) to another. They cannot be traded with anyone else. Once an SBT is obtained, it is bound to that person, hence the name soul bound.

SSI uses the relationship between issuers, verifiers and data holders to create a user-centric model. In this model, the holder has the possibility to share with the verifier the exact information he needs (and no more). The verifier can then cross-check the information with the issuer’s signature (sometimes stored on a blockchain) to ensure that the bearer’s data is valid.

The draw for SBTs is their non-transferable nature, they are linked to their recipient. They could be used to declare identifying information and form an online identity on behalf of their owner. Similar to a set of Scout badges, you can have multiple SBTs for various credentials, ranging from a driver’s license to a token that represents a concert ticket.

On the other hand, SSIs differ in that their default visibility is private and off-registry, while SBTs are offered as public and on-registry by default.

SSI aims to allow the user to take control of their data and store issued documents in a private digital wallet. The default private mode gives the holder more control over their personal data and how to access it.

SBT vs. NFT vs. SSI

As an identity solution, SBTs work similarly to a non-fungible token (NFT). The main difference is their lack of portability. SBTs are under construction, but are hitting a key hurdle: privacy.

SBTs are a means of self-expression in Web3, similar to crypto and NFT ownership. However, they could replicate many of the current identity issues facing modern times on a new, public, immutable platform, which is the main drawback of SBTs.

There are tensions around the creation of SBTs, with some parties concerned that it will create a public social merit system, similar to China’s social credit system. There are fears that if widely adopted, the accomplishments and mistakes we make in the real world could amount to an SBT related to this action. This would create a record of every success and every mistake made, with no business function, for life.

SBTs, in this sense, are not immune to human error; it is possible for issuers to send SBTs to the wrong holder, which can open up the solution to a number of privacy issues. There was once a case where an individual created a ‘SBT asshole‘, a token that uses the same technology as an NFT but can be sent to an individual who can then only have it removed by paying a fee. This aspect of SBTs has the potential to cause a lot of harm and could contribute to devaluing the soul of Web3.

SSI exists to address the major identity issues currently faced in a digitally-centric society. By creating a system where the user controls their data and has the right to send it to whomever they want, we begin to facilitate true data ownership as a societal norm. Data transactions between businesses and individuals could become as simple as messaging. By not creating an inherently public identity system, SSI can combat data theft and centralized data silos without any ambiguity between issuer and holder.

SBTs are built on pre-existing Web3 concepts such as NFTs, giving them a solid path for community adoption, especially as developers become comfortable with the tools. However, as communities begin to grasp the public nature of SBTs and the privacy issues this creates (e.g. tracking online behavior), they will begin to seek privacy-preserving alternatives.

On the other hand, SSI has seen strong adoption by universities in recent years and has a strong adoption market among governing bodies, especially given recent events such as COVID-19. This interest in ISS is already starting to gain momentum, with the European Commission proposing that all Europeans have a secure form of digital identity. This level of government adoption will benefit SSI as it continues to expand into key global sectors such as education and healthcare.

SBTs and SSIs are both gaining publicity to solve the current Web3 identity disorder. SBTs seek to leverage the community’s familiarity with NFTs to ensure rapid and seamless adoption. However, SSI seeks to address these issues with privacy-focused technology, which has been developed over years of research. Yet both systems have the potential to add value to our digital lives. Nevertheless, only SSI digs deep enough to address identity and privacy issues to enable Web3 to be truly embraced by the masses and put us at the center of our own ecosystems.


Learn more:
– Ethereum’s Vitalik Buterin lists “interesting” ideas for developers to work on
– 6 key points of Vitalik Buterin’s vision for Ethereum presented at EthCC

– Here are some topics where Ethereum developers disagree with Vitalik Buterin
– Crypto in 2022 will highlight new and older emerging trends

– Where are we with self-sovereign identity?
– Soulbound Tokens – The Future of NFTs

– How Soulbound Tokens Could Reduce Speculation and Improve DAO Voting
– Soulbound: on or off channel? Vitalik Buterin vs. Evin McMullen

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