Notes 7/24: Worldcoin, Crypto Markets

Artificial Intelligence (AI) has been a hot topic this year and there have been many posts discussing its intersection with cryptocurrencies. Can the combination of AI, with its potential to reshape human existence, and cryptocurrencies, another supposedly world changing technology, produce a revolution?

If Worldcoin, the latest project from OpenAI co-founder Sam Altman, is any indication, then the answer to that question is a hard no. Worldcoin is a familiar crypto tale of profiteering and control disguised as altruism and freedom. All of that spiel is braided with, what else, worthless tokens.

The WLD Token

Up until now, the discussion on AI ethics has revolved around its capabilities to usurp power from humans. Association with the corrupt crypto ecosystem has infected it with tokens.

So, one of the three components that comprise the Worldcoin project is the WLD token. It is handed out to each human whose iris is scanned for a digital identity. But the majority of those tokens reside with an insider cohort consisting of investors and developers.

Worldcoin has raised $215 million in funding from the likes of Blockchain Capital and a16z. Insiders control 25% of its total supply of 10 billion and the vesting schedule for their tokens is relatively short, ranging from one to three years.

Out of the remaining 7.5 billion tokens, six billion will be released into the markets over a period of fifteen years. Oh, and all of the tokens are pre-mined, meaning the foundation governing Worldcoin controls their supply into crypto markets.

A Price Pump

What are the chances that the token’s price is not manipulated?

Already, this morning showed a preview of future price movement. The token’s price spiked by 60% at certain exchanges minutes after being listed. [No prizes for guessing that its biggest trading volumes, almost 59% as of this writing, occur at unregulated Binance]. The increase was a result of some very large trades made by a few investors. As of this writing, it is trading at $2.20, up 3.2 percent from its price earlier this morning.

This is not the only financial chicanery in the project. There are, ahem, “incentive mechanisms” for operators of the orb, which will used to scan irises, to who sign up people for the project, meaning they will be paid in more of a token subject to wild price swings.

The Ethereum Connection

Worldcoin also has an Ethereum connection. The protocol operates on Optimism – a second layer solution to solve Ethereum’s scaling problem. Optimism is a rollup, meaning it bunches transactions occurring on its chain before sending them to Ethereum for confirmation. It has several problems, including the absence of comprehensive fraud proofs to ensure that there are no fraudulent transactions. Ethereum itself suffers from settlement finality issues.

Having a token to facilitate transactions is just one of problems with Worldcoin, unfortunately. Perhaps the biggest one is that of its premise that an unaccountable foundation, controlled by rich investors, should be put in charge of establishing “proof of personhood” or managing the identity of billions of people.

Crypto Market Realignments

Trader consensus for a Fed interest rate hike is almost unanimous. Higher interest rates are bad for risky assets like crypto because they siphon money towards government securities.

Bitcoin is already preparing for a price decline. Its difficulty level and hash rates are primed to fall this week. Investors are also pulling money out of bitcoin investment funds. According to investment firm CoinShares, there has been an outflow of $13 million from bitcoin-related funds in the last week. Investors are putting money into ether and XRP funds, the firm says.

Specifically, they have put $6.6 million and $2.6 million into Ether and XRP funds. “This implies investors are increasingly confident in the outlook for XRP,” James Butterfill, Head of Research at CoinShares told CoinDesk.

But XRP’s fate remains undecided even after the New York court ruling because the Securities and Exchange Commission (SEC) gearing up to appeal it. Ether, meanwhile, has witnessed a decline in the number of its large holders in the last two weeks, according to research firms. This means investors might be in for a rude shock this week.

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