Current hot spots within the web3 digital identity space are Non-Fungible Tokens (NFTs), Verifiable Credentials (VCs), and Soul Bound Tokens (SBTs).
Each has its own strengths and weaknesses, and it is important to understand the different token use cases individually to further understand where each is best positioned in the ever-changing digital marketplace.
Given the rapid rise in popularity of NFTs, what hasn’t caught on yet? NFTed That said, given the arrival of SBT, the natural desire to use it in every way possible is understandable. Despite the enthusiasm, someone has to break the news. NFTs and SBTs are often not fit for purpose. From fraud to privacy concerns, here are the key use cases where NFTs and SBTs cannot be achieved or may be “enhanced” by fit-for-purpose digital identity solutions such as self-sovereign identity (SSI), including VCs: indicate. .
Access Discord Server with NFT
Inspired by the above use cases and in the perceived lack of a decentralized digital identity solution, NFTs began to be used as proof of identity for Discord’s Decentralized Autonomous Organization (DAO) membership. People join the DAO’s private channel by proving that they own DAO-issued NFTs. But more often than not, they are able to sell his NFTs and remain on DAO’s private channel on his Discord server. This is because few DAOs can constantly monitor whether an NFT still belongs to a member. SSIs, on the other hand, have circumvented this problem with VCs that can be easily checked on a regular basis, and new approaches are now available for verifying that the same individuals are accessing the community.
As soon as a collection is launched on a chain, people tend to copy that NFT and “recreate” it on another chain.Market forces will set the price accordingly. Situations can arise where versions of NFT exist. For now, we’re leaving it up to the free market to decide which could lead to speculation as to which one is real. please look. This is already possible with SSI and VC that prove ownership to an account or address.
In addition to creating an NFT, SSI and VC help prove who owns or currently owns the NFT throughout its lifecycle.
Outside of NFT marketplaces such as OpenSea, peer-to-peer (P2P) trading takes place on Discord and other platforms. However, unlike the former, there is no way to verify whether an individual actually controls their assets or funds, leading to fraud. Instead, through SSIs and VCs, it will be possible to prove ownership of NFTs without exposing the account outside of personal trading.
This same approach can be extended beyond NFTs to other assets and proofs. For example, it will be possible to prove ownership of alternative tokens that exceed a certain threshold of tokens (let’s call this the whale threshold) without exposing the underlying account.
Overall, SSI can reduce the potential for fraud and misconduct associated with trading tokens (fungible or not) via p2p trading.
What about SBT?
Vitalik Buterin (founder of Ethereum) and co-author Puja Ohlhaver, E. Glen Weyl, recently introduced a new token concept for web3, the Soulbound Token (SBT). These are described as non-transferable types of non-fungible tokens. Unlike regular NFTs, SBTs are non-transferable, but can be revoked. Issued by an entity or individual and intended to be linked to a specific organization or identity. SBT has been proposed to represent various types of personal information. Similar to NFTs but with an increased level of security as they cannot be transferred to another individual through a transaction.
However, SBT seems to come from the opposite privacy paradigm of SSI. This can have some dangerous unintended consequences, such as decentralized societies (DeSoc) being public by default from a philosophical point of view, which, for better or worse, exposes data on the ledger. Little wonder why they received considerable criticism for creating a system similar to China’s “social credit system” where an individual’s actions were exposed to others and individual privacy was compromised (E. Barrett , Fortune, 2022).
Finally, to illustrate the differences between the NFT, SBT, and VC alphabet soups, take a look at the diagram below. The difference mainly comes down to the privacy stance each technology uses, while VCs avoid traceable transactions on the ledger, while NFTs and SBTs aim for the opposite.
Ultimately, each of these has their uses, but you have to be careful not to create another scandal like Clearview AI. In scandals like this, people expose their data to the world without realizing the downsides it brings. Privacy, you don’t know what you got until it’s gone!
If you like this blog, check Share your thoughts on how the combination of NFTs and SSIs can unlock new gaming experiences.
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Featured image: © Chao Samran