Soulbound Tokens & Inheritance: Web3’s Solution to Legacy Transfers

Beyond Financial Value

What if your digital identity and your most important relationships could be represented on-chain in a way that is secure and non-transferable? This is the idea behind Soulbound Tokens. And while they have many potential use cases, one of the most powerful is in solving the thorny problem of inheritance.

Crypto is no longer a niche experiment. According to Crypto.com, global cryptocurrency owners reached about 659 million by the end of 2024, a 13% increase driven by wider institutional adoption and policy clarity.

Triple-A estimates global ownership at around 6.8% of the world’s population, or more than 560 million people, holding some form of digital asset. As more people buy crypto as part of their long-term savings or retirement strategy, the question of how these assets will be managed or transferred in the future has become increasingly important.

At the same time, most people still do not have a solid estate plan. Recent data from the United States suggests that nearly half of adults do not have a will or trust, with only about 13% of younger adults having any formal plan in place.

When you combine large-scale crypto adoption with weak estate planning, you get a growing risk that significant on-chain wealth will never reach the people it was meant for.

Soulbound Tokens, first proposed in the paper “Decentralized Society: Finding Web3’s Soul” by Glen Weyl, Puja Ohlhaver, and Vitalik Buterin, are non-transferable tokens that encode identity, credentials, and relationships directly on-chain.

In this article, we explore the emerging role of SBTs in digital inheritance and how they can work alongside social recovery wallets to create a more human, relationship-based framework for legacy transfers.

The Problem: The Single Point of Failure of the Seed Phrase

The Inheritance Dilemma in Self-Custody

Self-custody is a defining principle of Web3. You hold your private keys, and you control your funds. This principle protects users from censorship, arbitrary freezes, and custodial failure, but it also creates a serious inheritance dilemma. If you are the only person who knows your seed phrase and you die unexpectedly, your assets can become permanently inaccessible.

Ethereum co-founder Vitalik Buterin has repeatedly warned that a large portion of lost crypto is not stolen by hackers but simply locked away forever because users can no longer access their wallets.

Research on digital asset loss supports this reality, showing that most private key losses happen through everyday mishaps such as forgotten passwords, discarded devices, or unshared backups, rather than sophisticated attacks. When those keys protect life savings or long-term investments, the consequences for families are severe.

For inheritance, this single-point-of-failure design is especially fragile. If you share your seed phrase too widely while you are alive, you risk theft or betrayal. If you do not share it at all, you risk your heirs inheriting nothing but inaccessible addresses on a block explorer. Traditional solutions like writing the seed phrase in a sealed envelope or placing it in a safe deposit box help, but they still depend on a single secret and a chain of custody that can be broken by fire, forgetfulness, or family disputes.

Why Key Loss and Fragmented Planning Are So Common

The problem is not just technical; it is human. Many people delay estate planning because it feels complicated or emotionally uncomfortable. A recent YouGov-based study for the UK Financial Conduct Authority found that about 12% of UK adults already own cryptoassets, roughly seven million people, yet the legal and inheritance procedures for those assets remain poorly understood.

At the same time, surveys show that younger generations are far more likely to invest in digital assets than older ones: one global study across 26 countries found that around 46% of millennials own cryptocurrency, compared with only 8% of baby boomers.

This generational gap matters. The people most likely to hold substantial on-chain wealth are also the ones least likely to have traditional estate planning in place. Their parents and potential heirs may have little understanding of how a crypto wallet works or how to navigate key recovery. As a result, families are often left guessing at how to access or even locate digital assets after a death, and valuable holdings may never be claimed.

The Solution: A Web of Trust

The Core Idea: From Single Secret to Social Graph

Soulbound Tokens and social recovery wallets propose a different model: instead of relying on one fragile secret, we rely on a network of relationships. Vitalik Buterin’s concept of social recovery describes a smart contract wallet that can be recovered by a group of pre-approved “guardians” if the primary key is lost. Vitalik+1 These guardians might be family members, close friends, or professional advisors. No single guardian has full control, but a threshold of them, acting together, can authorise a recovery or transfer.

The Signing key has the ability to add or remove guardians. Source: vitalik.eth

This model reflects how trust works in real life. Most people do not rely on one person for every critical decision. Instead, they have a circle of relationships that collectively define their identity, reputation, and support network.

SBTs bring that web of relationships on-chain. They provide cryptographic proof that a particular wallet has a specific relationship with another wallet, such as guardian, beneficiary, or executor, without relying on transferable ownership.

How Social Recovery Wallets and SBTs Work Together

In a typical setup, a user creates a smart contract wallet that holds their assets. This contract is configured with social recovery rules: for example, any three out of five designated guardians can collectively approve a recovery if the owner loses access or passes away.

Each guardian then receives a Soulbound Token from the owner’s soul, representing their role in the recovery network. Because these SBTs are non-transferable and permanently bound to the guardian’s address, they serve as on-chain credentials proving that the guardian is part of that trust web.

In an inheritance scenario, the smart contract can include conditions that treat prolonged inactivity, a death certificate verification process, or an off-chain oracle signal as triggers. Once triggered, the guardians can use their SBTs to authenticate themselves and collectively authorise the transfer of assets from the deceased person’s wallet to a designated heir’s address.

The rules for that transfer are encoded in the contract, not decided in real time by a centralized intermediary. The result is a process that feels closer to how families and advisors already work together, but with cryptographic guarantees and transparent logic.

The Benefits of the SBT Model

Security Without a Single Point of Failure

The most obvious advantage of combining SBTs with social recovery is the removal of a single point of failure. There is no single seed phrase that, if lost or stolen, destroys the entire inheritance plan. Instead, the security burden is spread across several trusted parties and enforced by threshold rules encoded in the smart contract.

This design aligns well with the broader security challenges facing the industry. Chainalysis reported that in 2024 alone, about $2.2 billion worth of crypto was stolen in hacking incidents, with compromised private keys on centralized platforms accounting for most of the damage.

At the same time, Buterin has highlighted that many irreversible losses are self-inflicted through bad key management rather than pure hacking. By shifting from a single secret to a guardian-based model, social recovery wallets seek to reduce both categories of loss.

There is also a usability benefit. A growing share of Web3 participants now use non-custodial smart contract wallets. Recent Web3 wallet statistics suggest that monthly active users for decentralized application wallets sit between 5 and 10 million, with some leading wallets like MetaMask reporting over 30 million monthly active users. As people get more comfortable with contract-based wallets, features like built-in recovery and SBT-based identity become more approachable in everyday use.

Beyond Money: Identity, Reputation and Legacy

SBTs are not just about money. The original “Decentralized Society” paper envisioned Soulbound Tokens as a way to encode commitments, credentials, and affiliations: university degrees, DAO memberships, professional licenses, or community roles.

When applied to inheritance, this means a person could pass on more than just tokens or NFTs. They could design a legacy that includes access to certain communities, proof of reputation within a protocol, or even ongoing governance rights in DAOs that matter to their family.

For example, an SBT might record that a given address is recognized as a contributor to a specific protocol or a long-standing validator in a network. If that role is important for family income or status, the inheritance process might grant heirs the ability to claim or continue that role. Academic work on SBT applications has already begun exploring domains like healthcare, education, and decentralized reputation systems, showing that the concept is versatile and not limited to speculation.

This broader framing also makes SBT-based inheritance feel more human. Instead of treating a digital wallet as a cold vault of assets, it can be seen as a representation of the person’s life, relationships, and contributions. The inheritance plan becomes a way to hand down identity and reputation as well as financial value, which aligns more closely with how people think about legacy in the real world.

The Challenges and the Future

Early Technology, Real Frictions

As promising as SBT-based inheritance sounds, the technology is still in its early stages. Most SBT implementations are experimental or limited to specific ecosystems. User experience remains a challenge because setting up a social recovery wallet, understanding threshold rules, and choosing suitable guardians all require technical confidence that many mainstream users still do not have.

Even among current Web3 participants, confusion about wallet security is common, which is one reason why both regulators and industry leaders continue to emphasize education.

There is also the legal side. While many jurisdictions now recognise cryptocurrency as property for inheritance and tax purposes, the laws rarely mention SBTs, social recovery wallets, or smart contract-based succession planning. Estate lawyers must learn how to interpret these on-chain structures within existing frameworks for wills and trusts.

Families may still need traditional documentation that explains how the Web3-based recovery process works and who is authorized to initiate it. Without this bridge between code and law, heirs could face uncertainty even if the smart contract logic is clear.

What Mainstream Adoption Might Look Like

Despite these challenges, there are signs that the market is moving toward more secure and socially aware wallet designs. Surveys like Consensys’s 2024 Web3 and crypto global report show rapidly increasing familiarity with Web3 tools in emerging markets, with more than half of respondents in countries like Nigeria, South Africa, and Vietnam reporting that they own at least one crypto wallet.

As more people use smart contract wallets and identity-focused tokens, the groundwork is being laid for normalized features such as social recovery and SBT-based credentials.

In the medium term, mainstream adoption might not start with highly experimental setups. Instead, we may see hybrid models where a user stores part of their assets with a regulated custodian and part in a social recovery wallet, both referenced in a traditional will. Over time, as UX improves and standards emerge for SBT schemas and guardian selection, fully on-chain inheritance flows could become as intuitive as setting beneficiaries on a bank account today.

Platforms that help users compare, monitor, and plan across exchanges, wallets, and on-chain protocols will be key to making this transition manageable. For some, that process might start at the moment they first decide to buy crypto on a well-known platform; for others, it might begin when they migrate from a custodial account to their first fully self-managed crypto wallet.

Conclusion: A More Human Approach to Inheritance

The combination of Soulbound Tokens and social recovery wallets offers a compelling new answer to one of Web3’s hardest questions: how do we pass on digital assets and identities without sacrificing security during our lifetime? Instead of relying on a single secret that can be lost, stolen, or forgotten, this model builds on a web of trusted relationships encoded directly on-chain.

The result is a more human, socially grounded approach to legacy transfers, one that mirrors how families and communities actually share responsibility and memory.

As the crypto ecosystem matures, the tools for digital inheritance are becoming more sophisticated and more aligned with real-world needs. Contract-based wallets, SBT frameworks, and dedicated digital inheritance protocols are slowly turning abstract theory into practical options that everyday users can understand.

At the same time, legal recognition of crypto as property means that on-chain planning can and should be integrated with traditional wills, trusts, and estate advice.

The future of digital inheritance is likely to be both social and decentralized. Rather than a cold, impersonal system of secret keys, we are moving toward a model where our most important assets and relationships are managed through a secure web of trust.

Platforms like Digitap can help users explore this emerging landscape, understand the strengths and trade-offs of different inheritance tools, and design a more resilient plan for their digital legacy that brings together identity, reputation, and wealth in one coherent framework.

Frequently Asked Questions

What is a Soulbound Token (SBT)?

A Soulbound Token is a non-transferable NFT permanently tied to one wallet to represent identity, reputation, or relationships. It cannot be sold or moved, making it useful for on-chain credentials and trust systems.

What is a social recovery wallet?

A social recovery wallet is a smart contract wallet that allows trusted “guardians” to help restore access if the owner loses their private key. It replaces the single point of failure with a shared and secure recovery process.

How can SBTs be used for inheritance?

SBTs can identify guardians on-chain and verify their role in an inheritance or recovery setup. When the owner dies, a set number of guardians can authenticate using their SBTs to authorize the transfer to the heir.

Is this system more secure than just using a seed phrase?

Yes, because it removes the risk of losing one private key or having it stolen. Security is distributed across multiple guardians, reducing the chance of total loss or unauthorized access.

When will this technology be ready for mainstream use?

Social recovery wallets already exist, and early forms of SBTs are being tested across Web3. Mainstream adoption should pick up in the next few years as user experience and legal clarity continue to improve.