NoDW #8: Identity: on-chain? or off-chain?
The Newsletter of Decentralized Work: Data-driven insights on the world of decentralized work
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In this edition:
Our feature article: Identity: on-chain? or off-chain?
Decentralization & DAOs
Humans & DAOs
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Identity: on-chain? or off-chain?
Soul-Bound Tokens (SBTs) and Verifiable Credentials (VC): competitors or complements?
By: Sandeep Das
Vitalik Buterin, Puja Ohlhaver and E. Glen Weyl introduced “soulbound tokens (SBTs)” as an on-chain non-transferable credential of individuals, which would represent their credentials, commitments and affiliations in May 2022. In short, SBTs would act as foundations of a truly, decentralized web3 identity for individuals, and would be free from any form of sybil-resistance, reliance on centralized social media platforms and dependence on custodial wallets managed by centralized entities.
From the time they have been introduced, SBTs have been a source of fierce discussion and debate across the web3 ecosystem, and we already have groups of promoters and detractors. It is important that we understand that SBTs are not a definitive form of web3 decentralized identity (and potentially never will be). But its introduction opens up further avenues of exploration, and more debate around decentralized identities.
One such passionate debate between Vitalik Buterin and Evin McMullen (Founder, Disco.xyz) hosted by Bankless HQ:
The debate highlights how SBTs come up against off-chain verifiable credentials (VCs), and the pros and cons of each. The debate brings out use cases where one is pitted against the other, and one comes out better.
Before we go any further, let us understand the definition of SBTs and compare them against VCs. SBTs are “non-transferable, (initially public) soulbound tokens” representing commitments, credentials and affiliations. The accounts or wallets, which hold these SBTs, are called “souls”. Because an individual can have multiple wallets holding SBTs, they can have multiple souls. SBTs can be issued by other souls, which are counterparties accepting souls from an individual. Additionally, the more SBTs of a specific type you hold in a soul, the stronger and more verifiable your identity becomes. For example, if you are Rust developer, and everytime you create a smart contract a SBT is allocated to you in your soul, over a period of time you can accumulate a big collection of Rust driven SBTs as a verifiable, non-transferable, on-chain identity.
If we compare these fundamental characteristics of SBTs with verifiable credentials (VCs), there are significant differences. Verifiable credentials are open-standard, and can be found in physical identification documents, which can include passports, college degrees, birth certificates, driving licenses etc. VCs are primarily off-chain credentials, and are not dependent or influenced by an individual’s behavior and engagement with web3 (aka on-chain). Also, VCs have a non-tamperable principle to it - VCs cannot be changed / edited without legal authorization. VCs provide identity to the individual, and not to their behaviors / interests / needs / habits / passions (and their shifting nature).
In the debate between Vitalik and Evin, SBTs were challenged for their multiplicity (you can have multiple souls containing different types of SBTs), risk of loss (souls can be lost if you misplace your keys) and risk of manipulation (spam into souls). They were challenged for not creating a complete identity of a human being, who does not live and breathe on-chain. Vitalik’s defense of SBTs centered around its ability to create a decentralized on-chain identity for an individual based on their behavior, engagement and participation levels across the web3 ecosystem (e.g., identities as an NFT art creator, smart contract developer, dapp builder etc.). In return, Evin’s defense for VCs were based on examples where an individual’s Ethereum “soul” is not a true reflection of who they are - a successful NFT artist can also be a successful web2 founder, a parent, sit on the board of a local charity, and a massive fan of a local sports team. To represent the complete individual, SBTs fall short and VCs complete the picture.
In short, SBTs create a decentralized on-chain identity around “what you do” vs VCs, which create an off-chain identity around “who you are”.
Let us move on from the debate, analyze potential use cases and assess application and reliability of SBTs and VCs for each. One high impact use case, which Vitalik, Puja and E.Glyn espouse in the SBT introduction paper is its ability to open-source lending markets based on social credit. In this case, the social credit is the collection of SBTs representing educational qualifications, rental history and work experience in the same / different souls. These SBTs can open up access to lending in an ecosystem where a lender will arrange for credit based on these forms of identity in a completely decentralized society. Lending based on SBTs will create a more open, fair and transparent ecosystem compared to the centralized, inefficient and opaque credit scoring system. SBTs could also reduce the inherent human bias associated with traditional lending.
Although the social lending use case has potential for mass adoption, it comes with its own set of risks. No one controls the nature and amount of SBTs that are issued to an individual based on their interests. Who stops a lender from issuing an SBT characterizing someone’s interest or affiliation as average or poor? In the quest to remove implicit human bias in traditional centralized markets, SBTs can introduce its own type of bias. Despite its inefficiencies, credit scoring systems have been built up over years and years of data ingestion. In the case of SBTs, and precisely because of its decentralized nature, any form of scoring is arbitrary and decided by the SBT issuer.
Another potential use case of SBTs is around membership of communities. The foremost distinction is that these communities need to be open and welcoming, and not behind any kind of gating mechanisms. Communities are always looking for evidence of real interest, passion and past engagement when they are accepting new members. SBTs are a potential solution because an individual can showcase a “soul”, which has a collection of SBTs highlighting their contributions and engagements for the specific cause the community is shaped (e.g., a community advocating for cheaper accessibility to renewable energy solutions).
The above use case highlights a conundrum associated with SBTs. From a community membership perspective, it introduces the concept of “trust” (yes, this individual has a collection of SBTs showcasing work for renewable energy adoption, so I trust it), which is fundamentally the opposite to web3 principles of “trustless” and “permissionless”. In addition to becoming forms of decentralized identities, if SBTs are used to invoke trust around our behaviors / interests / affiliations, then we are not fully adopting decentralization. In spite of this conundrum, SBTs are a better fit than VCs for this use case, because in terms of community memberships, VCs provide a siloed view of the individual (and not their interests).
Let’s investigate the potential of SBTs in defining the future of work as a third use case, which also brings us into the DAO ecosystem. A core tenet of DAOs is the freedom to participate in any initiative or workstream in a permissionless manner. The value of a DAO contributor is measured by the value they add, consistency of participation, and visibility. There is no reference or need for VCs, which can include nationality identifiers, educational credentials, work experience certifications, employer references and the proverbial CV. Because SBTs preserve high levels of anonymity on-chain, their role in building up a web3 work experience portfolio is significant. They have the potential to act as a decentralized identity of a web3 contributor, while showcasing experience as part of that identity. In the DAO ecosystem, SBTs stored in a soul(s) is your web3 CV (minus any centralized identifier).
If we stop and reflect on these three use cases, and the fit of SBTs vs VCs in each, it is evident that the whole notion of decentralized identity continues to operate in a gray area. In the Vitalik vs Evin debate on Bankless HQ, a central point was on and off-chain identity systems and whether they come together.
The advantage VCs have at this point is their acceptance both on-chain and off-chain. Think about the number of times you have connected your Metamask wallet, filled in your LinkedIn or Twitter profile, connected your Discord (which uses an email as an identifier) with DeWork and minted NFTs on marketplaces and imported them into your wallet. Even though these might seem far off from the driving license in your purse or the passport you carry to the airport, they are all VCs. They invariably tie together your on-chain and off-chain identities.
SBTs as complete decentralized identities can have accelerated adoption when economies, capital markets, labor markets, finance and industry have accelerated web3 / on-chain adoption. The inherent characteristics of SBTs (a set of identities defined by an individual’s interests / engagement / participation) gives it the power to remove bias from multiple decision-making points. In service industries, there is experimentation going on around evaluating job applications blind (name and age of candidates not shared). SBTs can further this in knowledge skill-based and creative employment by removing everything apart from a collection of experiences / interests / participation details. This will continue to be easier to implement in web3, because real world hiring (for many occupations) requires adherence to employment laws, and right to work (all of which are use cases of VCs). Additionally, the multiplicity of an SBT-driven identity system allows individuals to adopt portfolio careers rather than linear employment opportunities.
A comparison table of the defining characteristics of SBTs and VCs will look something like below. These are not definitive as SBTs are very much in the initial stages of the evolution cycle.
VCs and SBTs will co-exist as long as human beings have an on-chain and off-chain existence, which is not likely to change anytime soon.
Decentralization & DAOs
When is a DAO Decentralized? / Henrik Axelsen et al.
As the debate about decentralization in DAOs rages on, how can we bring more nuance to the conversation? Henrik Axelson and team propose looking at decentralization around 5 core dimensions: Token-weighted voting, Infrastructure, Governance, Escalation and Reputation (TIGER) and offer a framework for more accurately measuring decentralization on each one of those dimensions.
The Dissensus Protocol: Governing Differences in Online Peer Communities / Jaya Klara Brekke et al.
One of the hardest tests for any governance mechanism is when the community reaches dissensus - irreconcilable differences between opposition views. Since blockchain technology set out to solve tough collaboration challenges - looking at how it’s been use in dissensus situations is particularly interesting. The article explores two dissensus case studies: at Genesis DAO and Ouishare.
DAOs are not corporations / Vitalik Buterin
In our previous edition, 0xJustice made a compelling case for efficient DAO design. But should we always optimize for efficiency? Not according to Vitalik, especially in “concave” governance decision, when we’d prefer a compromise between two options over a coin toss that’d pick one of them.
Humans & DAOs
The humanity in our DAOs / Crystal Street
How can we stop the inherent technological mediation that exists in DAOs from destroying the human connections that are so vital to the DAOs success? By baking humanity into the very framework of our DAOs. Crystal Street offers a few preliminary ideas on how to go about that.
A political history of DAOs / Kelsie Nabben
Kelsie Nabben with a fascinating trip down recent-ish history lane, all the way to the early 90s and the Cypherpunks mailing list. Can the Cypherpunks mailing list be given credit as perhaps the first prototypical DAOs? Nabben sure makes a compelling case.
Dark Matter, Water, and the Word "We": Describing power in DAOs / Samantha Marin
Friend-of-talentDAO Samantha Marin with a deep, multi-faceted musing on what having “power” in a DAO actually means. Pairs well with Richard Bartlett’s pieces “Hierarchy Is Not the Problem…” and “11 Practical Steps Towards Healthy Power Dynamics at Work”.
For DAOs, with Love / Ants Cabraal
At talentDAO we work hard to ensure that DAOs don’t reinvent the wheel and make “old mistakes” but instead “stand on the shoulders of giants” and learn from the decades of science and rich experiences of human collaboration. Ants Cabraal offers some timely advice to DAOs based in his decade long experience building decentralized organizations.
Cowboy Bebop was a warning / The Blockchain Socialist
Bounties, fixed payments for well scoped worked, are a popular collaboration mechanism in many DAOs and are considered to be a crucial, positive stepping stone in the transition of community members from Discrod lurkers to core contributors. The Blockchain Socialist reminds us that bounties also have a deep shadow, that needs to be proactively managed in order to avoid their adverse effects.
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