Blockchain

The crypto plan to save our souls

Packed with references to DAO-on-DAO “vampire attacks” and sentences like “we also do not assume non-transferability of Souls across humans”, a whimsical paper on the future of Web3 from Eric Glen Weyl, Puja Ohlhaver and Ethereum co-founder Vitalik Buterin makes for quite the ride. 

As far as these technologists are concerned, the world lacks any hopeful vision of the future. “We’re heading either for a Peter Thiel-inspired anarcho-capitalist dystopia or a Chinese government-style top-down surveillance system,” Weyl told FT Alphaville. Web3’s “radically democratic” horizontality constitutes a potential third way. 

Yet the internet’s ill-defined next iteration needs plenty of work if it’s going to supplant what we already have, the trio write. At its core, Web3 today still “centres around expressing transferable, financialised assets”. What it lacks is any way of “encoding social relationships of trust”. Pseudonyms are great, in other words, but they don’t inspire confidence. “Persistent identities” are a must. Enter “soulbound tokens”, or SBTs for short. (Ohlhaver acknowledges that a rebrand may be required. )

As in World of Warcraft, where “soulbound” items are those that can’t be traded with other players, SBTs represent similarly non-transferable (and revocable) credentials. In theory, these would be issued by institutions like universities, companies and foundations then deposited in users’ wallets (aka “Souls”) as proof of past achievements. Or, as the paper puts it:

Imagine a world where most participants have Souls that store SBTs corresponding to a series of affiliations, memberships, and credentials. For example, a person might have a Soul that stores SBTs representing educational credentials, employment history, or hashes of their writings or works of art. In their simplest form, these SBTs can be “self-certified,” similar to how we share information about ourselves in our CVs. But the true power of this mechanism emerges when SBTs held by one Soul can be issued — or attested — by other Souls, who are counterparties to these relationships.

Once users can stake their reputation on the blockchain, the possibilities are endless. Forget decentralised finance. A truly “decentralised society” — where “souls and communities convene bottom-up, as emergent properties of each other to produce plural network goods across different scales” — would finally be within reach. 

Grasping the damn thing is another matter entirely, however. “I don’t expect most people will buy into our long-range vision,” Weyl said. “We need to give people breadcrumbs to follow. We want to get to a world where people are issuing SBTs, but they’re not going to do that because they want to build a radical future. That’s not what’s going to appeal to them immediately.”

So what might? One example appears early in the paper:

An ecosystem of SBTs could unlock a censorship-resistant, bottom-up alternative to top-down commercial and “social” credit systems. SBTs that represent education credentials, work history, and rental contracts could serve as a persistent record of credit-relevant history, allowing Souls to stake meaningful reputation to avoid collateral requirements and secure a loan. Loans and credit lines could be represented as non-transferable but revocable SBTs, so they are nested amongst a Soul’s other SBTs — a kind of non-seizable reputational collateral — until they are repaid and subsequently burned, or better yet, replaced with proof of repayment.

What could possibly go wrong? Erm, quite a lot, as it turns out. The authors admit their bottom-up social credit system could be used to “automate red-lining of disfavoured social groups or even target them for cyber or physical attack, enforce restrictive migration policies or make predatory loans.” 

But hey, what’s one more dystopia between friends?

DeSoc does not need to be perfect to pass the test of being acceptably non-dystopian; to be a paradigm worth exploring it merely needs to be better than the available alternatives. Whereas DeSoc has possible dystopian scenarios to guard against, web2 and existing DeFi are falling into patterns that are inevitably dystopian.

FTAV asked David Gerard, author of Attack of the 50-foot Blockchain, what he made of the prospect of a blockchain-based social credit system designed to facilitate unsecured lending. Suffice to say, he was far from impressed.

Everything about the “soulbound” paper is fractally wrong and bad. Even if any of this could actually work, it’d be the worst idea ever. What Buterin wants to implement here is a binding permanent record on all people, on the blockchain. It’s Black Mirror’s “Fifteen Million Merits”, except he seriously thinks this is a good idea.

Considered as a tech startup, Ethereum is a huge success. This does not mean any other idea from its creator is worth taking seriously, except as a threat.

Equally sceptical was Martin Walker, director of banking and finance at the Centre for Evidence-Based Management. 

The simple answer is don’t use a blockchain or lend money to people hiding behind a pseudonym. It really is that simple.

This is where [Buterin’s] lack of understanding of the real world comes into things. For example unsecured lending (which can obviously go wrong) works because:

1. Banks make great efforts to identify who they are lending money to

2. Banks understand the borrowing history and other information about the credit history of the potential borrower.

3. Loan agreements (particularly for large amounts) are very detailed and have all sorts of covenants and conditions. They specify the seniority of debt, what sort of information the borrower has to provide the lender, conditions on how much other debt they can take on etc.

What Buterin, Weyl and Ohlhaver have done is come up with a complex solution to a problem they created, Walker said. Soulbound tokens, however clever, do little to mitigate the risk of a loan going bad. 

“I see the uncollateralised lending thing, even though it could go wrong in several ways, as potentially better than our current lending environment,” Weyl said. Extending credit on the blockchain isn’t what excites him or his co-authors, he added it’s simply “an illustration to people that are super close to the existing ecosystem” of how SBTs could be used to do the “basic things they want to do”. 

And yet there remains a chance that less high-minded actors confuse the means with the end. The road to web3 will be paved with good intentions.



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