The Breakdown - Worldcoin: Good Faith Global UBI Effort or Dystopian Dumpster Fire?

Episode Date: July 25, 2023

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Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Monday, July 24th, and today we are asking whether WorldCoin, which is now live, is a good faith global UBI effort in the era of artificial intelligence or a dystopian dumpster fire. Before we get into that, a quick note. If you would like to join the conversation about such topics as these, let me invite you to the Breakers Discord. It is a place for chatting what's going on on in the show, what's going on in the world, and you can find a link at bit.ly slash breakdown pod.

Second quick note before we dive in. Today's show is again being brought to you by In Wolf's Clothing. Wolf, as you have heard me tell you over the last couple shows, is the first startup accelerator are dedicated entirely to Bitcoin and Lightning. The program is a super cool in-person advisory mentorship style accelerator that happens in New York comes with access to guaranteed funding. And it's just really an incredible way to get a jumpstart if you are building in Bitcoin or Lightning or a related field.

Applications for their third cohort are currently open and you can check it out at WolfnYC.com. Thanks again to Wolf for sponsoring the breakdown. All right. So today, friends, we have a spicy. One of the most ambitious and most controversial crypto projects has gone live, and what we're going to try to do today is get the first wave of community reactions. Now, for the sake of this episode, we're particularly interested in how the crypto community

is looking at WorldCoin and talking about it, but for a deeper explanation of the artificial intelligence context around this project, check out today's AI breakdown, which explores it from that angle. If you're not subscribed currently, you can find the link to do so at breakdown. work. So let's start with what WorldCoin is, and we might as well use their introductory letter and how they describe themselves. The letter, which is signed by Alex Blania and Sam Altman, starts, more than three years ago, we founded WorldCoin with the ambition of creating a new identity and financial network owned by everyone. If successful, we believe WorldCoin could drastically

increase economic opportunity, scale a reliable solution for distinguishing humans from AI online while preserving privacy, enable global democratic processes, and eventually, show a potential path to AI-funded UBI. WorldCoin consists of a privacy-preserving digital identity, World ID, and where laws allow, a digital currency, WLD, received simply for being human. We hope that, where the rules are less clear, such as in the U.S., steps will be taken so more people can benefit from both. You can now download World App, the first protocol-compatible wallet, and reserve your share.

After visiting an orb, a biometric verification device, you will receive a World ID. This lets you prove you are a real and unique person online, while remaining completely private. As the global distribution of Orbs is ramping up, you can find the closest one and book time to be verified with World App and at WorldCoin.org. WorldCoin is an attempt at global scale alignment. The journey will be challenging and the outcome is uncertain, but finding new ways to broadly share the coming technological prosperity is a critical challenge of our time. We hope you'll join us. Now, Sam Altman built on that with the Twitter thread where he wrote WorldCoin launches today. The goal is simple, a global financial and identity network based on proof of personhood. This feels especially important in the AI era.

I'm hopeful WorldCoin can contribute to conversations about how we share access, benefits, and governance of future AI systems. More than 2 million people signed up during the beta, hopeful for that number to get to 2 billion now. I am super impressed by the work of Alex Blania and the team to get to this point. The project has a level of complexity and ambition I haven't seen very often. Like any really ambitious project, maybe it works out, and maybe it doesn't, but trying stuff like this is how progress happens. In either case, we especially love our haters. It gives us energy. Please keep it coming. All right, so that is them in their own words. But what about the real no BS behind this? Effectively, this is a project that is predicated on a few assumptions about how the

world is going to change. In a world where we, one, create super intelligent artificial intelligence, and two, sufficiently align that superintelligence such that we survive, then three, some likely outcomes are needing a totally different economic modality and a way to prove who's human and who's not. Now, as you guys know, if you are regular listeners of the breakdown, we try to assume good faith in most context, and we try to provide a wide array of perspectives. That said, as you might guess, when it comes to WorldCoyne and the orb that goes with it, a biometric device that captures people's irises as a way of proving personhood, the crypto community is far more slanted to one side than the other on this. So let's explore the layers of critique. You can organize them into a few

different categories. One is bad tokenomics, including venture capital incentives. Two is the issues around privacy and the exploitability of data. Three is the exploitation of vulnerable populations. Four is problems we're already seeing in practice. And five is the source, the people who are behind this. So let's start to explore across all of those dimensions, and we'll start with bad tokenomics. Tokenomics dashboard at Token Unlock says, are you curious about WorldCoin token distribution? Initial total supply, 10 billion. Community, 75%, team 13.5%, investor 9.5%, reserve, 2%. Now, adding a subjective take onto that is Dr. Nick from Factory Dow, who says they've literally copied MAPS token economics.

1% circulating supply, 30 billion fully diluted value. It's a straight up pump and dump and they're not even trying to hide it. They honestly must have let SBF design the token economics. He was in this scam day one. Now, of course, for those of you who don't know, MAPS was one of the tokens which was largely valueless and illiquid by the time it showed up in droves on Alameda's balance sheet, which obviously caused the cascade, through which FTX eventually perished, and Sam's fraud was eventually revealed.

DeFi analyst Ingus explores the same themes as Dr. Nick but in more detail. 18.7 billion. That's the massive fully diluted valuation of Worldcoin, WLD. That's higher than established players like Cardano, Solana, Doge, Tron, Maddoch, and more. Are you buying it? Out of the 143 million circulating tokens, 43 million are airdrop to pre-launch verified users, and 100 million are allocated to market makers. End quote. There has been, in fact, a lot of commentary around the market making activity. Defi Squared writes, Worldcoin distributed around 25 WLD to 90,000 participants, totaling 2.25 million to the global

community. So who on Earth is selling blocks of size 400,000 WLD, i.e. 20% of the entire global community supply. Anyone have more info on the token distribution today? Where the supply is from? And the broad answer that D5 squared got was that this was market makers. Stealth election writes, tokens earmarked for liquidity purposes, ostensibly for market makers. In reality, they loan a bucketload of coin. They get dollars. Devs aren't technically dumping on you, but they kind of are. Can't wait for the perp shenanigans. Bitcoin Birch writes, Lull, Worldcoin launches his sixth largest crypto overnight. Reminds me of when internet computer launched at $700 per coin, now $4. Highly recommend you don't become VC exit liquidity anon.

Now, of course, another big critique that is all over Twitter is the privacy issues. Alex Kruger actually connects the dots on multiple levels of critique when he says, beauty about Worldcoin is that the valuation crowd can put multiples on top of world population to justify whatever insane valuation they want. Meanwhile, the masses happily give their privacy away for nothing. Free money for a picture of my eyes? Where do I sign? I need a posh the founder of Bitcoin for fairness writes, a global database of human IDs issued after an eye scan, paid for with useless World Coin token, connected with all financial transaction data of each individual managed by a centralized nonprofit, collecting sensitive data for KYC AML. What could go

wrong. Now, a lot of people are also pointing out the way that privacy is handled in WorldC terms. Anita says from their website, quote, may collect certain categories of personal data, including sensitive personal data for permissible purposes such as to comply with any applicable legal KYC slash AML requirements, rely on third-party service providers to host or otherwise process some of the data. Now, all the way back on October 22, 2021, MBTC wrote, WorldCoin's privacy policy states that they can share data, quote, with third parties who have a legitimate purpose for accessing it. Their job openings mention, machine learning algorithms, facial recognition, creating larger data sets, large-scale data ingestions, and work closely with

internal stakeholders to incorporate their data usage needs. Now, when it comes to the claims or accusations of exploitation, a lot of it comes from the fact that people in the global south are effectively seeing these eye scans through the WorldCoin Orb as a trade to get a bunch of WLD tokens. Ingus again writes $62 USD. That's how much an orb verified individual received in WLD tokens for registering at $3 USD per WLD. And while it sounds like this might be just a free market transaction, in April of 2022, the MIT Technology Review wrote a long piece called Deception, Exploited Workers and Cash Handouts, how Worldcoin recruited its first half a million test users. The startup promises a fairly distributed cryptocurrency-based universal basic income.

So far, all it's done is build a biometric database from the bodies of the poor. As part of the article, the MIT Technology Review says they interviewed over 35 individuals in six countries, Indonesia, Kenya, Sudan, Ghana, Chile, and Norway, who either worked for or on behalf of WorldCoin, had been scanned, or were unsuccessfully recruited to participate. They write, quote, we observe scans at a registration event in Indonesia, read conversations on social media and in mobile chat groups, and consulted reviews of WorldCoin's wallet in the Google Play and Apple stores. Our investigation revealed wide gaps between WorldCoin's public messaging, which focused on protecting privacy and what users experienced.

We found that the company's representatives used deceptive marketing practices, collected more personal data than it acknowledged, and failed to obtain meaningful informed consent. Now, the piece is much longer and really worth a full read, but the two big things that it takes issue with are one, questions around privacy, how much data is actually being collected, and what users have to rest on that their data won't be violated in some way other than a sort of hand-wavy promise that eventually it will be deleted by WorldCoyne,

and a real question around the strategy to catalog people in lower income countries first. Now, we'll talk a little bit more about that at the wrap-up of this show. But one of the things that it's done in practice is that it's created a black market for IDs. Some have pointed out that right now you can go on Telegram and buy WorldToken IDs for around 50 cents each. Now, trying to wrap up these critiques a little bit, as I mentioned, a fifth one is the source of WorldCoin, and the fact that it shares a founder with OpenAI. Isabella Kaminsky from Politico Europe writes, so the point of WorldCoin is to help humans figure out who is human or not

by handing the maker of the AI that might decide to go rogue against humans all the data it needs to better target humans rather than rival AIs on the internet. Onchainslooth, Zach XPT really summed all this up in a short thread today. He writes, my issues with WorldCoin. Most alarming to me is how the WorldCoin team has boasted about how many users they have, when in reality they have been exploiting people in developing countries. Verification that you're a real person seems to only currently be enforced at the enrollment level. This has led to the emergence of a black market for accounts.

Currently, accounts got as low as $1 per account on telegram. Worldcoin increased the amount allocated to insiders from 20% to 25% according to CoinDesk. Yet an early Worldcoin onboarding video claimed WLD is better than BTC. Bitcoin is just in the hands of a very few rich people. Then we have all of the privacy and security concerns around IRA scans described very well in the latest Fatalic blog post. And again, editor's note, I will come back to that in just a moment. Zach concludes somewhat depressingly, while I am mainly against WorldCoin due to the problems described above,

I think that the general CT narrative around WLD will change based on how the token performs. Price up equals good project, price down equals dystopian nightmare. Now, one of the things that I've avoided on this show so far is just giving the very basic hot takes that say this is bad a priori, even though that is by far the most dominant thing on Twitter right now. However, one of those takes that I think you have to take a little bit more seriously comes from Daniel Butchner, who goes by at CSU Wildcat on Twitter, who works on decentralized identity at Block, and who's been working on this set of problems for just about as long as anyone else has. Today, he wrote, I've never met anyone in the decentralized identity community

who views World Coin as anything but a dystopian dumpster fire of bad ideas, motivated by VC vampires who would trade our digital enslavement for profit. I hope this radioactive crap fails quickly before it hurts people. says it about as crisply as you can. So again, for the sake of completeness, what is the argument for this? And who's stepping up to defend it? David Hoffman, the co-hosted Bankless, writes, Worldcoin cheap shots are a dime a dozen. Valid attempts at a decentralized proof of personhood protocol are invaluable. Basically what he's saying is that the problem itself is something that should be worked on, and that assuming bad faith isn't necessarily going to get us anywhere.

Ethereum creator Vitalik Buterin also wrote a long blog post, sort of about similar themes, who's published today and called What Do I Think About Biometric Proof of Personhood? Vitalik starts, one of the trickier but potentially one of the most valuable gadgets that people in the Ethereum community have been trying to build is a decentralized proof of personhood solution. Proof of personhood, aka the unique human problem, is a limited form of real-world identity that asserts that a given registered account is controlled by a real person, and a different real person from every other registered account, ideally without revealing which real person it is. Here's how Vitalik sums up WorldCoin. The philosophy behind the project is simple.

AI is going to create a lot of abundance and wealth for humanity, but it also may kill very many people's jobs and make it almost impossible to tell who is even a human and not a bot, and so we need to plug that whole by, one, creating a really good proof of personhood system so that humans can prove they are actually humans, and two, giving everyone a universal basic income. Now in his piece, which is clearly Vitalik coming at this from the standpoint of believing that the problem underneath is an important one to try to address, Vitalik identifies four major issues with World Coin's construction. He says there are four major risks that immediately come to mind. Privacy. The registry of iris scans may reveal information. At the very least, if someone else

scans your iris, they can check it against the database to determine whether or not you have a world ID. Potentially, iris scans might reveal more information. Two accessibility, World IDs are not going to be reliably accessible unless there are so many orbs that anyone in the world can easily get to one. Three, centralization. The orb is a hardware device, and we have no way to verify that it was constructed correctly and does not have back doors. Hence, even if the software layer is perfect and fully decentralized, the WorldCoyne Foundation

still has the ability to insert a back door into the system, letting it create arbitrarily many fake human identities. For security. Users' phones could be hacked. Users could be coerced into scanning their irises while showing a public key that belongs to someone else. and there is the possibility of 3D printing fake people that can pass the iris scan and get world IDs. Now, adding a lot of nuance to the conversation, Vitalik points out, quote,

It's important to distinguish between one, issues specific to choices made by WorldCoin, two, issues that any biometric proof of personhood will inevitably have, and three, issues that any proof of personhood in general will have. Ultimately, where Vitalik lands is sort of that it's important to keep trying. He concludes his piece, the concept of proof of personhood in principle seems very valuable, and while the various implementations have their risks, not having any proof of personhood at all has its risks too. A world with no proof of personhood seems more likely to be a world dominated by centralized

identity solutions, money, small close communities, or some combination of all three. I look forward to seeing more progress on all types of proof of personhood, and hopefully seeing the different approaches eventually come together into a coherent whole. Now beyond this, really the only people defending WorldCCs, many of whom are invested in it. Austin Barak of Coin Fund yesterday shared their investment thesis in both a blog post and a Twitter thread. Austin writes, Worldcoin solves one of the most fundamental problems of decentralization technology by preventing civil attacks and all of their negative externalities.

Worldcoin started with the question, how do we prove human uniqueness in a digital context, and do so while retaining anonymity and privacy. There are a number of reasons for this question, but one that truly spur the need was how to disambiguate AI from humans as AI improves. A few tweets later, Austin continues, the iris code is not linked to any user personal information or their wallet, and it is only used to prevent a user from trying to sign up again, since a repeat signup would generate the same iris code. Privacy preserving unique proof of personhood was created. Why is unique proof of personhood so impactful? It expands the surface area of digitally native interaction by orders of

magnitude, in a purely digital context demonstrating that a user is one, human and not a bot, two, only participating once and not via multiple wallets and accounts, and three, can do so without needing the user to share a government ID or personally identifiable information is a true game changer. What does this enable? One person, one vote in a Dow instead of voting weighted by token ownership. Unique proof of personhood prevents civil attacks where a user could try to vote from many different wallet addresses. Practical result, voting not controlled by whales. Privacy preserving verification of users for social media applications. Prevent users from creating spam social media accounts without the company needing the user to verify with their phone number

or other personal info. Obvious application, get rid of bots on Twitter. Fair distribution of a network asset on a global scale. With the WorldCoin orb and World ID delivering privacy preserving unique proof of personhood, truly equitable distribution of a digital asset on a global scale becomes possible. Crypto assets have traditionally been accumulated by buying the asset and or earning it via network participation. Result, those who bought earlier when prices were lower or had more capital to invest, were able to accumulate a much larger percentage of the network than later users. This traditional adoption curve disincentivizes subsequent users as they feel like they are late. With proof of personhood in the orb to onboard users, every World Coin user is

early, and all users can have a similar impact on the network development and governance. Now, Austin points out that Coin Fund first invested in February 2021 and concludes, privacy preserving proof of personhood is a fundamentally transformative innovation, and we can't wait to see what the future holds. So I am already so long on today's show, and this is not a conversation that we're going to be able to quickly end in the context of one episode. By way of wrapping up, let me give just a few first thoughts, as maybe places we can pick up the conversation either on Discord or later in future episodes. The first is around tokenomics and VC involvement. It strikes me as very, very hard ultimately to get the world to buy into something, where 20 to 25%

of the supply is held by or benefiting from the early investors. It's sort of ironic that their main critique with Bitcoin was this, that so much of it is held by early whales, when the structure of it is sort of repeating another version of that problem. Now, one can debate which of these supply concentrations is worse or better, but they still both amount to a supply concentration in the hands of a small number of centralized parties. Maybe that doesn't matter ultimately, because maybe the proof of personhood aspect of this is much more important than the universal basic income, fair distribution aspect of it, but it still feels like a very difficult barrierous amount for many, many people. Another thing. Now, when it comes to developing world users as the early users,

on the one hand, I understand why world coiners have pushed back on the idea that this is exploitative, in the sense that what they are seeing is a way to distribute free value into the hands of people who need it the most first. But at the same time, any attempt to put that group first in line creates the real challenge where they are being subjected to the risks first, not just the benefits first. To the extent that there are exploitable vulnerabilities, it's their irises that have been scanned. On top of that, I do think there's an important ethical conversation to be had around how free market the free market transaction of trading biometric data for cryptocurrency is in the context of some of the world's most vulnerable populations.

Having spent a ton of time working in communities like that, I'm certainly not willing to jump out and say that people aren't able to make their own decisions, because even at the bottom of the economic pyramid, people are full market participants and understand rational incentives. But it's still tricky. And what's more, it makes the question of informed consent even more important. There are, of course, the questions of whether global UBI is really the right approach to dealing with the world of AI abundance or even what that world looks like. And I do think that there is a real question about whether every project should be taken on by every entrepreneur. In other words, would World Coin be more in?

interesting to people if it weren't from the same guy who was starting open AI, I'm not sure. Whatever the case, now that this is officially here, it's something we have to discuss, because it's going to be a major part of the conversation in the next crypto cycle, and on a much bigger societal level as well. Anyways, guys, that is going to do it for today's episode. I appreciate you listening as always. Big thanks again to my sponsor in Wolf's Clothing. Go check out WolfNYC.com to learn about applying to their next cohort.

And until tomorrow, be safe and take care of. each other. Peace.