Personal Tokens: what they are and how they work

Randy Ginsburg
August 4, 2022

Randy Ginsburg explains how Vitalik Buterin’s newest vision could change your life and become a foundation of a decentralised society.

Eight years ago, Vitalik Buterin changed the world with the publishing of the Ethereum Whitepaper. Since then, he’s published a handful of other written works outlining updates to the Ethereum ecosystem and visions of a new future, but perhaps none grander than his most recent.

In the 37-page whitepaper titled Decentralized Society: Finding Web3’s Soul, Buterin and fellow authors E. Glen Weyl and Puja Ohlhaver outline a vision for a fully decentralised society, “where Souls and communities come together bottom-up, as emergent properties of each other to create plural network goods and intelligence, at a range of scales.”  

In layman's terms, Buterin et al. are aiming to create a decentralised society built upon non-transferable relationships and facts. And Soulbound Tokens (SBTs) are the key to it all. 

What is a Soulbound Token? 

Soulbound Tokens are permanent, non-transferable NFTs that are, more or less, attached to your private blockchain wallet for life. The name Soulbound is inspired by the name given to a subset of items in World of Warcraft which, once picked up, cannot be transferred to another player. The name hasn’t been universally popular, and like everything else in web3, it’s a work in progress. At Culture3 we’re calling them ‘Personal Tokens’ for now. 

In Buterin’s decentralised society, these personal tokens will serve as an extension of one’s personal identity, representing your commitments and affiliations across various relationships, like with employers, educational institutions, and government bodies. Each publicly visible, non-transferable (but possibly-revocable-by-the-issuer) token can be issued and stored in private wallets labeled by Buterin as “Souls.” 

For example, a university could issue a personal token to its graduates. A startup could issue a personal token to its first 100 employees. Freelancers or independent contractors can receive personal tokens to verify the quality of their work and relationships with clients. Governments can administer official documents like IDs and passports to make them impossible to forge. Similar to a self-certified 'badge' of affiliation, like listing your alma mater or previous employer in your Twitter bio, each personal token represents a verifiable relationship between an individual and an institution, signaling your reputation in a credible way.

“The idea is to bolster people's social identities by customizing them with unique, non-exchangeable badges. In theory, the tokens could help solve some of the problems ravaging decentralised finance, like scams and theft," Buterin writes.

The most comparable example of Personal Tokens today, as outlined in Buterik’s blog post Soulbound, are Proof-of-Attendance-Protocol badges, also known as POAPs. Initially created for ETHDenver 2019 to reward fellow hackers for their attendance, POAPs serve as commemorative proof that an individual attended a certain event. But unlike Personal Token, POAPs are still transferable.

POAPs are usually used to certify attendance at events or early membership.

In theory, I could bribe a friend to sell me a POAP that signaled his attendance at the Harvard graduation ceremony. Now, although I never attended a single class at Harvard, I own the badge that signals I spent four years there. Clearly, you can see the issue here; that signal becomes far weaker when it can be sold to the highest bidder.

Buterin argues that Personal Tokens aim to address a key issue that the web3 ecosystem has yet to solve: its reliance on centralised authorities to verify social identity. 

Most artists rely on platforms like OpenSea and Twitter to commit to scarcity, whilst DAOs fall back on web2 social media to strengthen governance; the large majority of cryptocurrency holders store their tokens in custodial exchanges. As much as we want to be decentralised, the existing web3 ecosystem is far from it, partly because using those decentralised alternatives is, right now, far from easy. As well as offering genuine advantages to how existing societal structures verify personal information, Personal Tokens fill a gap by creating truly web3-native social identities and are fundamental to how a truly decentralised society functions.

How would Personal Tokens work?

To administer a Personal Token from one wallet (Soul) to another, the creator of the token must grant the transfer to the recipient’s private wallet, thus attesting to these social relations. This power ensures that only the proper recipients and affiliates receive the Soul, thereby eliminating any possibility of false credentialing. It’s important to note that given its function as a form of web3-native identity, there is no requirement for a Personal Token to be linked to a legal name. 

Yet, the ability to allow any individual or institution to send Personal Tokens creates instances where they aren’t desired by the recipient. 

This issue is already rampant in the existing web3 ecosystem, where unwanted or fraudulent tokens are sent to user wallets unannounced, sometimes associated with scams. For individuals with high degrees of influence, this causes an additional problem as it can signal an endorsement of, a specific collection, further influencing others to buy. In May last year, Vitalik Buterin was sent trillions of Shiba Inu tokens in an attempt to increase the price. The Ethereum co-founder burnt most of the coins and donated the remainder to create a scholarship programme for tackling existential risks associated with artificial intelligence.

To combat this, NFT marketplaces like OpenSea have provided users with the ability to hide certain NFTs within their wallets. And of course, you can always burn tokens as well. The authors write that Personal Tokens will incorporate similar features, letting individuals hide select tokens from public view, and perhaps even destroy them. This kind of feature should be executed with nuance, such as to prevent bad borrowers hiding their credit history, or prevent freelancers hiding client engagements that went badly, but it is key to making Personal Tokens and Soul wallets common and useful.

Universities like Harvard could use Personal Tokens to confirm your graduation. Far better than a physical certificate that you've probably lost.

Personal Token use cases

While the general use case for Personal Tokens as a provenance mechanism that verifies your past work and relationships is rather straightforward, it’s what individuals and institutions can do with a web3-native social identity that is truly remarkable. 

Within Buterin’s envisioned decentralised society, social identities can serve as immutable and transparent records of credit-relevant history, replacing traditional credit history requirements that too-frequently are shown to be biased with methods that aren't hidden inside corporate HQs. Moreover, this new system can be designed to refute the bias toward underserved communities that have not accumulated sufficient credit data. Users would be able to “stake” funds or their reputation to avoid collateral requirements, in a similar way to which Generation Home lets parents contribute to their children’s mortgages when they buy their first house — but on a much broader scale. 

Loans and credit lines could be represented as revocable, non-transferable Personal Tokens, which can be burned or replaced with a new Personal Token to mark the repayment of the loan. Inversely, a default on a loan would be negatively marked with an additional Personal Token, and serve as a warning sign for future banks and institutions. Buterin takes this idea to its natural long-term evolution, highlighting the potential for open-source lending markets within social communities. 

Next comes community governance. For governance to be widely distributed among competent individuals, it must be non-transferable. Otherwise, transferability allows those with money and conflicted interests to intervene. In the case of CityDAO, who are working to build an on-chain, community-governed, crypto city, the ability of government officials to award citizens with non-transferable proof of citizenship, and thereby voting power on key decisions, is crucial to creating a stable and sustainable democracy. 

Of course, none of these examples come without flaws or controversy, but the potential of their impact to create a more decentralised and equitable future is undeniable. 

But, what happens if you lose your 'Soul'? 

With hacks, scams, and general malpractice rampant throughout the Web3 ecosystem, it’s an obvious fear: what happens if you lose access to your Soul wallet via a hack or loss of a private key?

To answer this, Buterin has proposed a contingency plan labeled the “community recovery model.” Based on the idea of a social recovery model where users can appoint a set of individuals or institutions as “guardians” of their Soul, community recovery relies on the intersectional vote of users' social networks. In the event of a hack, or if a private key is compromised, recovering access to a Soul would require the consent of a qualified majority of a random subset of Souls communities. 

For example, let’s say a Soul held Personal Tokens from Harvard, CityDAO, my local synagogue, and my previous employer. I, or my appointed guardians, would need the consent of a member of each community in order to regain access. Granting the broader community the ability to assist in the recovery process minimises the flaws inherent in the general social recovery process like death, relationships souring, or people simply falling out of touch.

Risks of SBTs

Despite the obvious upsides, Personal Tokens and the societal emphasis on social-reputation-backed credit still comes with sizeable risk around privacy, discrimination, and bias, much of which is acknowledged by the paper’s co-authors. 

Black Mirror’s episode Nosedive – or even China’s social credit system in real life – illustrates how these initiatives can backfire, reinforce biases and discrimination, or be tools for oppression. Bad actors might target them for harassment, whilst governing bodies can deny opportunities and resources, such as medical care, travel, and voting rights, to certain segments of society. It’s important to remember that whilst many people have many reasons to share their identity, there are others who would prefer aspects of their identity to remain private to them.

“Just as the downside of having a heart is that a heart can be broken, the downside of having a Soul is it can go to hell and the downside of having a society is that societies are often animated by hatred, prejudice, violence, and fear. Humanity is a great and often tragic experiment,” writes Buterin. 

And an experiment it is. Co-author E. Glen Weyl has hinted that early use cases of Personal Tokens could become available by the end of 2022, and the potential of Personal Tokens as both a pillar of decentralised societies and as having genuine use cases for existing institutions certainly deserves respect. However, we expect that Personal Tokens will have to be the subject of significant discussion by the community to navigate these thorny issues before their applications and use cases are rolled out at scale.

Personal Tokens are fundamental to how a truly decentralised society would function.
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Randy is the founder of Digital Fashion Daily and Third Wall Creative, a web3 marketing agency. Straddling the worlds of retail and emerging technology, Randy has worked with many companies including nft now, Shopify, and Touchcast to create compelling and educational web3 content. Previously, Randy worked at Bombas, developing the most comfortable socks in the history of feet.

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