<p dir="ltr">It is important to note that Web3, a general phrase frequently used to characterize digital and cryptographic breakthroughs made possible by blockchain technology, is already widely accepted. The principles of decentralization and data ownership are at the core of the Web3 movement. Contrarily, the term "Web2" is frequently used in the sector to refer to the internet as it currently exists. The development of Web3 comes along with many problems as well. Vitalik Buterin, the founder of Ethereum, recently proposed&nbsp;<strong>Soulbound Token</strong> - a new type of token standard that will allow users to acquire insights into other people's real-world actions, achievements, likes, and dislikes - something like a peep into their soul. In his belief, this may be the solution to Web3’s current problems. Let's dive in Soulbound Token with a deep analysis from <a href="https://www.builder.news/" alt="Builder.news" title="Builder.news" target="_blank" rel="" class="">Builder.news</a>!</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed37f4bfe2464ca8e6023f659fee92.jpg" alt="Vitalik &amp; Soulbound tokens" title="Vitalik &amp; Soulbound tokens" width="600" height="375" class="lykafe0"></p><p class="prosemirror-p-center">Source: Cryptotimes</p><h2>What is a Soulbound Token?</h2><p dir="ltr"><strong>Soulbound tokens</strong> are non-transferable tokens that attempt to reflect social identity through various memberships and interactions with other "Souls." <strong>Soulbound tokens</strong> can represent commitments, relationships, 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 Soulbound tokens, should reveal their personal views and social group. These Soulbound tokens 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 Soulbound tokens.</p><p dir="ltr">One important component of <strong>Soulbound tokens</strong> is that there can only be one Soul per human to prevent the system from being exploited by people issuing themselves Soulbound tokens or through other means. The purpose of deploying the Soul and SBT systems is to transition to a "Decentralized Society," minimizing reliance on Web2's centralized infrastructure.</p><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed37f4bfe24ff1a8e6023f659fee92.jpg" alt="Soulbound token definition" title="Soulbound token definition" width="600" height="375" class="lykafe1"></p><p class="prosemirror-p-center">Source: BeingCryto</p><h2>Current problems with Web2 and Web3</h2><h3>The over-centralized Web2</h3><p dir="ltr">Vitalik discusses various difficulties with our current systems and how <strong>Soulbound tokens</strong> might help overcome them in his explanation of the need for Soulbound tokens. Vitalik criticizes Web2 and underlines society's dependency on a system that is more authoritarian, 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 such as 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 harvesting.</p><p dir="ltr">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 have access to and profit from data. Soulbound tokens provide a solution to this problem by keeping all data either privately owned by the individual or publicly visible.</p><h3>Web3’s reliance on Web2 and the problem of governance</h3><p dir="ltr">Web3 was created as a decentralized ecosystem to address the centralization and personal data collecting issues that afflicted Web2. Unfortunately, Web3 has relied significantly on Web2 infrastructure, and it has encountered new challenges that restrict its efficacy, all of which Soulbound tokens could address. The need for Web2 infrastructure stems from Web3'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. Soulbound tokens are a Web3 substitute.</p><p dir="ltr">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 palms of the rich. Token voting has also enabled one individual to seize control of a voting process merely because their spending power is greater, implying that many DAOs are governed by whales (large token-holders). As a result, these whales can guarantee that the DAO and all other stakeholders fulfill their own self-interests solely because they wield the most power. The issue is not that people behave in their own self-interest, but that the current system permits them to rule an entire organization and sabotage any form of democracy.</p><p><em><strong>&gt;&gt;Read more:</strong></em>&nbsp;<a href="https://www.builder.news/crypto-insights/web-3-vs-web-2-yyCL5" alt="Web 3.0 vs. Web 2.0: The revolution to decentralization" title="Web 3.0 vs. Web 2.0: The revolution to decentralization" target="_blank" rel="" class=""><em><strong>Web 3.0 vs. Web 2.0: The revolution to decentralization</strong></em></a></p><h3>A short-term investment and speculation tool</h3><p dir="ltr">Web3 has been criticized for encouraging speculation and short-term profit over long-term wealth generation. This is a natural result of the emphasis put on the transferability of Web3 assets, which Soulbound tokens will combat instinctually by holding value despite being non-transferable. Soulbound tokens provide a chance to create a new aspect of Web3: a more non-financial and social aspect that allows Web3 to integrate more easily into society.</p><p dir="ltr">Financial transactions that depend on reputation stakings, 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 organizations such as banks, which enable you to stake your credit, remain necessary. Soulbound tokens address these issues by allowing for decentralized on-chain identities. DAOs can compensate people who do not move liquidity during vampire attacks, with Soulbound tokens recording this. Finally, Soulbound tokens 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.</p><h2>How will Soulbound tokens solve the mentioned problems?</h2><h3>Enhancing voting and governance</h3><p dir="ltr">This implementation of <strong>Soulbound tokens</strong> has the potential to deliver a range of long-term benefits to both Web3 and, if widely adopted, societal structures as a whole.</p><p dir="ltr">The most important <strong>application of Soulbound tokens</strong> is that they give a quick solution to the token voting system on which many Web3 institutions and DAOs rely. Soulbound tokens grant governance rights to every individual member of a community and can demonstrate how involved they are in the community. More involved participants are given more weighted votes by issuing Soulbound tokens for engagement, attendance, and regular voting. This solves the issue of vote manipulation by whales, whose financial status does not grant them instant authority.</p><p dir="ltr">It also decreases the impact of bot assaults by preventing fraudulent accounts from earning donations or participating in Soulbound tokens.</p><p dir="ltr"><strong>Another application of Soulbound tokens</strong> in voting arises from their ability to map out social networks, communities, and shared prejudices. The ability to identify 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 entities such as DAOs at first, so that "whales" do not dominate, and then integrated into real-world voting methods.</p><h3>Breaking decentralized data</h3><p dir="ltr"><strong>Soulbound tokens</strong> can provide a full answer to Web2's data centralization challenge. They provide a means to implement economic incentives for data collection while still providing individuals control over their own data. The availability of data 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 <strong>Soulbound tokens</strong> becomes more of a public good, this enables significantly higher value creation.</p><h3>Enabling lower-collateral loans</h3><p dir="ltr"><strong>Soulbound tokens' ability</strong> 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 created, allowing for lower-collateral or non-collateralized loans on Web3. This is not the only approach for Soulbound tokens to improve Web3's financial ability. Unlike in the physical world, property rights are frequently inseparable in Web3. As a result, real-world contracts, such as a rent contract, are not possible. A rent contract permits the use of a property but not its demolition or profit (subletting). A rent contract divides property rights, which Web3 does not allow. The inclusion of non-transferable and revocable tokens will alleviate Web3's constraint and therefore make blockchain viral.</p><h3>Improving market predictions</h3><p dir="ltr"><strong>Soulbound tokens</strong> will also enable us to innovate our market forecasting model beyond the current 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 Soulbound tokens, allowing them to weigh votes accordingly. As a result, when experts forecast what will happen in a market, model builders will be able to 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 orientation of the event, allowing for a higher success rate of anticipating market movement.</p><h3>Assuring P2E economy</h3><p dir="ltr"><strong>Soulbound tokens'</strong> non-transferable character opens up possibilities for resolving concerns linked with the transferability of all crypto assets. Many concerns in the crypto gaming business, for example, are built on high-value in-game assets being transferable, 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 things would provide some certainty that players would earn the most. This would prohibit whales from entering and racing through the economic loops quicker than anybody else.</p><h2>However, there is still an unsolved problem</h2><p dir="ltr">When it comes to <strong>Soulbound tokens</strong>, privacy is a critical issue that lacks a clear solution. There must be a balance struck 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 Soulbound tokens public, such as those that are negative and may prevent the applicant from acquiring a loan. In addition to Soulbound tokens, another method for maintaining privacy is to utilize zero-knowledge proofs. The third major debate concerning privacy and Soulbound tokens is how to store off-chain data.</p><p><strong>Conclusion</strong></p><p dir="ltr"><strong>Soulbound tokens</strong> provide a wide range of applications to improve the way 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 as a result of <strong>Soulbound tokens</strong> without reverting to Web2 design will prevent whale domination and dramatically reduce attacks. Furthermore, engaged community members will be able to demonstrate their interest and will be justly rewarded. Soulbound tokens can also considerably advance prediction markets, crypto gaming, and Web3 DeFi organizations' financial capacities by putting less emphasis on transferability and reputation building. They eliminate the identity issues that limit Web3, allowing Web3 to become more helpful in our daily lives than ever before.&nbsp;</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div><p><br><br></p>

Vitalik Buterin recently proposed Soulbound Token - a new type of token standard that will allow users to acquire insights into other people's real-world actions

Soulbound Token: A solution for web3 problems