Could Worldcoin be the Next 100x Token?

Worldcoin is a cryptocurrency founded by Sam Altman, former Y-Combinator President and the creator of OpenAI (ChatGPT).

It has caused a lot of controversy lately, mainly because it requires users to scan their eyeballs in return for payment in cryptocurrency.

Is this crazy? Or is there a method behind the madness?

Keep reading to find out:

• The hidden danger of AI
• How Worldcoin is aiming to solve this problem
• How the protocol works (and why privacy fears may be overrated)
• The REAL risks of Worldcoin
• Why $WLD has the potential to 100x

Let’s get started:

The Rise of AI

Unless you’ve been living under a rock, you’re aware of the recent developments in AI.

Large Language Models (LLMs) like GPT-3 and GPT-4 have developed intelligence capabilities that match or exceed human beings in many respects.

This creates a major problem:

Problem: How do we know who is human?

The rapid increase in AI’s capabilities have made it difficult to tell who is a human, and who is a bot.

This will only get worse as technology progresses, leading to two critical issues:

• Sybil attacks
• Disinformation campaigns

Let’s look at each:

Issue #1: Sybil Attacks:

A sybil attack occurs when a single user creates multiple online identities to try to take over a system. These will become more common as AI matures, as it’s very easy for an artificially intelligent system to create fake IDs.

Issue #2: Disinformation

AI systems can create and disseminate realistic looking and sounding content to spread disinformation. We’ve already seen this with the rise of deepfakes.

So how do we solve these issues?

The Solution: Proof of Personhood (PoP)

Proof of Personhood systems establish that an individual is a human being and not a bot.

Perhaps more importantly, they establish that an individual is a unique human being (i.e. no one can have multiple identities).

This solves both problems listed above:

• Fake content: Establishing that an internet user is human can help stop the spread of AI-generate disinformation
• Sybil attacks: Establishing that a user is a UNIQUE human can stop sybil attacks

By proving a person’s humanness and uniqueness, Proof of Personhood will become the first and most important building block in in establishing one’s digital identity.

But how does PoP work in practice?

Types of PoP

There are several types of PoP systems in use today, each with their own pros and cons.

The most common include:

• CAPTCHA tests
• Online identification
• Web of Trust
• KYC
• Social Graph Analysis
• Biometrics

Let’s look at each:

CAPTCHA Tests

CAPTCHA methods involve tests that humans can pass but AI typically cannot (e.g. identifying objects in images).

The problem with these tests is that they don’t prevent one person from passing multiple tests and creating multiple identities.

Online Identification

Online methods involve using existing online accounts like email or social media to establish proof of personhood.

But one person can still have multiple accounts across different platforms, undermining the reliability of this method.

Official ID verification (KYC)

This uses official identification, like passports or driver’s licenses, to verify identity. However, more than 50% of the global population lacks digitally verifiable ID.

Furthermore, KYC fails to preserve privacy adequately, is prone to fraud, and can’t reliably establish global uniqueness.

Web of Trust

A Web of Trust (WoT) is a decentralized, peer-to-peer method for verifying the identities of entities in a network.

Because these systems rely on individuals, they are prone to human error and susceptible to sybil attacks.

Social Graph Analysis

Social graph analysis uses relationships between users to infer real identities (i.e. Alice says she knows Bob).

However, it’s slow to build globally, prone to AI manipulation, and can’t guarantee unique identities for everyone.

Biometrics

“Biometric” solutions such as fingerprinting, facial recognition, voice recognition, etc… may be the best option to prove Proof of Personhood.

There are several reasons for this:

• Uniqueness: Each person’s biometric data (such as fingerprints, iris patterns, voice signatures, and facial structures) are unique to them. This makes it very difficult to replicate or steal someone’s biometric identity.
• Consistency: Biometric data generally remains consistent over time. Although there may be slight changes due to aging or health conditions, the fundamental patterns used for recognition are stable.
• Non-transferable: Unlike passwords or keys, biometric data cannot be lent, lost, or forgotten. You always carry your biometric data with you.
• Hard to fake: While not impossible, it’s much harder to fake biometric data than it is to guess a password or forge a signature. Techniques to ensure the “liveness” of the biometric (e.g. detect if a fingerprint is from a live person rather than a copy) add an extra level of security.
• Convenience: Biometric identification can be much more convenient than remembering complex passwords or carrying physical keys or cards.

In fact, India was able to reduce fraud by $5B per year using biometric identification.

Let’s see how Worldcoin uses it:

Protocol Overview

Worldcoin uses biometric recognition to establish Proof of Personhood.

In particular, it scans your iris and issues you a unique ID that is stored directly in your phone.

The protocol has 3 main components:

• WorldID
• Worldcoin Token
• World App

Let’s look at each:

World ID

World ID is a privacy-preserving digital identity that lets users prove they are a unique and real person while remaining anonymous.

World IDs are stored in a user’s phone and act as a “digital passport”.

Worldcoin Token

$WLD is the native currency of Worldcoin.

It will be issued to all World ID holders and is designed to be used as both a digital currency and governance token for the Worldcoin network.

It’s intended to be the first globally and freely distributed cryptocurrency.

World App

World App is Worldcoin’s wallet.

Like traditional crypto wallets, it’s designed to enable payments, purchases of goods and service, transfers, etc…

While “mass eyeball scanning” sounds like something out of a dystopian novel, it’s not quite as scary as it first seems.

Let’s dive in to how it works and, more importantly, how it’s designed to protect your privacy:

How does Worldcoin work?

Worldcoin follows a five step process to generate digital IDs and issue $WLD tokens:

• Step 1: App installation
• Step 2: Iris scanning
• Step 3: ID creation
• Step 4: ID usage
• Step 5: Currency distribution

Let’s dig into each:

Step 1: App installation

Users install the World App on their phone.

The app generates a private and public key, much like an Ethereum wallet.

Step 2: Iris Scanning

After downloading the app, users visit an “Orb” to have their retina scanned.

The Orb scans the user’s eyes and uses AI to verify that the user:

• Is human
• Is unique (i.e. has not already been scanned)

While “eyeball scanning” sounds scary, it was chosen because it’s considered by many to be more reliable than other forms of biometric data such as fingerprinting and face recognition.

(which we’ve all been using for some time now)

Step 3: ID creation

If both scans pass, the Orb creates the Orb assigns the users a unique digital identity known as a “World ID”.

Contrary to popular belief, Worldcoin does not store a user’s retina scans on the system.

Instead, it uses cryptography to create a unique numerical code representing the scan (called an “IrisCode”), and then promptly and permanently deletes the actual scan from the device.

This process, known as hashing, is one of the foundational technologies of crypto. A core property of hashing is that it’s impossible to decode the input data from the output data.

In the case of Worldcoin, that means that there’s no way to reverse engineer a person’s retina scan from their Iris Code.

In short, all a World ID does is prove that a person is a unique human being.

It does not reveal any information about that person like their name, email, physical address, phone number, etc…

(and this is a much better alternative to the IDs we have today)

Step 4: ID Usage

Once assigned, a user can use their World ID to access other apps and websites (much like we use our Google or Facebook logins to access websites today).

Data is shared using Zero Knowledge Proofs (ZKPs), which means that these sites do not receive a copy of your Iris Code, nor can they track what other sites you have previously visited.

So even if someone rescans you, they won’t be able to see what you’ve done in the past.

For more on ZKPs, check out my Twitter thread below:

Step 5: Currency Distribution

Once a user is in the system, they will be eligible to claim Worldcoin tokens ($WLD) at regular intervals.

These grants are now available weekly, but will soon shift to monthly.

In theory, this system is secure and completely private:

• Hashing removes any personal information from the system
• ZKPs allow users to safely share their ID

But as we will soon see, in this might be harder to accomplish in practice:

The Real-World Risks of Worldcoin

In a very thorough article (which I highly suggest reading) Vitalik Buterin identifies four possible concerns with Worldcoin:

• Privacy
• Accessibility
• Centralization
• Security

Let’s look at each:

Privacy

Privacy concerns Vitalik the least.

He believes that Worldcoin has done a good job at protecting both:

• User identity through hashing
• User activity with ZKPs

While there is a slight risks of data leaks, it’s much less than other mass data-gathering systems like street cameras.

In short, Vitalik believes:

“On the whole, despite the “dystopian vibez” of staring into an Orb and letting it scan deeply into your eyeballs, it does seem like specialized hardware systems can do quite a decent job of protecting privacy.”

Accessibility

Accessibility represents a much larger hurdle.

To achieve its goal of “scanning the world”, Worldcoin will have to manufacture and distribute hundreds of millions of Orbs.

This is both costly and logistically challenging.

Centralization

The Orb is a hardware device, and this creates several problems.

First, there’s no way to verify it was constructed to work as designed (i.e. deleting iris scans).

Second, even if the software layer works perfectly, Worldcoin could insert “backdoors” into the system.

Security

There are numerous other security challenges that we haven’t even begin to discuss, like:

• Phone Hacking: This risk involves malicious actors gaining unauthorized access to a user’s smartphone, often through phishing attacks, malware, or other cyber threats. Once inside, they can steal the user’s World ID, effectively taking control of their personal identity within the system. This risk is particularly challenging due to the ubiquity of smartphones and the high potential for security vulnerabilities
• 3D-Printed Fakes: With advances in artificial intelligence and 3D printing, there’s a growing risk of creating artificial identities that are convincing enough to pass system checks. These fakes can lead to fraudulent registrations, diluting the integrity of the proof-of-personhood system, and potentially enabling illicit activities under these false identities
• ID Sales/Rental: The decentralization of proof-of-personhood systems can open up avenues for individuals to monetize their IDs. People may be tempted to sell or rent control of their personal IDs for profit, leading to misuse of these identities. This scenario undermines the system’s integrity and can lead to complications, including the original owner losing access to services and rights associated with their ID
• Government Coercion: In authoritarian or intrusive government regimes, there’s a risk of forcible or covert seizure of citizens’ IDs. Governments could mandate citizens to register their IDs under government control, leading to a scenario of mass identity theft. This risk has severe implications, from privacy violations to government misuse of these IDs for surveillance, control, or political manipulation
• Criminal Coercion: Criminal organizations or malicious individuals could pose significant threats by coercing people into relinquishing control of their IDs. Tactics could range from physical threats to deceptive scams, with victims often unaware of the implications until it’s too late. This risk creates avenues for identity theft, fraudulent activities, and even personal harm, making it a serious concern for proof-of-personhood systems

User Perception

Another risk not specifically addressed by Vitalik, but important nonetheless, is that of public perception.

While iris scanning may indeed be the best form of biometric identification, it simply feels “creepy” to most people.

This may ultimately hamper growth.

Ultimately, while the system works in theory, it has not been tested at scale.

Like any new technology, there are a lot of “unknown unknowns” and “kinks” to be worked out.

Market Overview

While it offers functionality, the primary purpose of Worldcoin is not to be a decentralized application or a “company”.

Instead, it’s a digital currency.

That makes it comparable to $BTC, $ETH, $DOGE or even traditional fiat currencies, yielding a TAM of $138T.

So what sets Worldcoin apart?

Competitive Advantage

Today, not much.

Although it currently has a FDV of $22B, $WLD is still relatively small compared to the market leaders.

But its vision to be the first cryptocurrency that’s freely distributed to EVERYONE could spur traction and eventually create an economic moat.

How is it doing so far?

Traction

Worldcoin has achieved significant traction, reaching 2 million signups on July 13th (in less than half the time it took to reach the first million).

On average, the protocol registers 40K individuals every week.

Worldcoin initially targeted developing nations due to the high percentage of “unbanked” people. Early targets included Argentina, Chile, India, Kenya and Indonesia.

The protocol now plans to broaden its release, rolling out an additional 1,500 Orbs to 35 more cities in 20 countries by the end of 2023.

Target cities include: Dubai, Los Angeles, Mexico City, Miami, New York, Rio de Janeiro, San Francisco, Delhi, Seoul, Singapore, Tokyo, Barcelona, Berlin, London, Paris, Warsaw and more!

Team

The most famous face behind Worldcoin is Sam Altman, former head of Y-Combinator and founder of Open AI (Dall-E and ChatGPT).

Other key executives include co-founders Max Novendstern and Alex Blania (who is now the CEO).

Investors

Worldcoin is backed by several notable investors including:

• a16zCrypto
• Bain Capital Crypto
• Coinbase Ventures
• Multicoin Capital
• Khosla Ventures

It also included notable angels like Reid Hoffman.

Community

Worldcoin has a growing social media presence with 168K Twitter followers.

Tokenomics

$WLD is the native token of Worldcoin.

It has a circulating supply of 108.8M tokens and total supply of 10B, which is subject to a long-term inflation rate capped at 1.5%.

Below we will cover $WLD ’s:

• Usage
• Initial distribution
• Emissions schedule

Let’s dig in:

Token Usage

$WLD is an ERC-20 token that is intended to operate primarily on the Optimism network.

There are two core uses for the token:

• Digital currency: The majority of $WLD tokens will be given to individuals for use as a digital currency
• Governance token: $WLD, along with the World ID, will be used for protocol governance

Token Allocation

The token launched on July 24th, 2023 and initial allocation was as follows:

• 9.8% to the team
• 13.5% to investors
• 75% to the community
• 1.7% in reserve

Team and investor tokens are subject to lockups, while community tokens are not.

Emissions Schedule

$WLD tokens will be gradually released over the next 15 years until the protocol reaches its total supply of 10B tokens.

After year 15, governance may choose to enact a yearly 1.5% inflation rate.

What makes the tokenomics of $WLD unique is that unlike other cryptocurrencies like $BTC and $ETH, the protocol’s plan is to issue everyone a token.

If they execute on this plan, it would make $WLD the most widely distributed digital currency.

This is an important fact when it comes to valuation:

Potential Valuation

Valuing Worldcoin, or any digital asset, is tricky.

Projections are generally way too high (as most tokens go to zero) or way too low (as a small few wildly exceed expectations). As such, this analysis is of the potential value of $WLD, not the expected value.

And quite frankly, the potential value of $WLD is massive. Because the token is intented to be a digital currency (vs. the governance token for a dapp), its closest comps are $BTC or $ETH (and perhaps even “money” itself).

As such, $WLD has the potential to yield 400x returns.

This is based on the following assumptions:

• TAM of $138T
• SOM of $35T
• 28% market capture
• 10B tokens

Sound too aggressive? Let’s explore each assumption:

The TAM for Cryptocurrencies is $138 Trillion

The total addressable market opportunity for digital currencies is immense.

In short, they can function as a replacement for traditional money and, as such, could capture a significant share of global M3.

In fact, if we compare cryptocurrencies to fiat currencies using the six properties of money — durability, portability, uniformity, divisibility, scarcity and acceptability, we see that they are superior in almost every category.

Indeed, cryptocurrencies are already being used as money:

• Store-of-Value: They are the preferred form of collateral for DeFi protocols
• Unit of account: Most NFTs are priced in crypto
• Medium of exchange: Many dApps only accept crypto as a medium of exchange

As such, we can make a reasonable argument that the TAM for digital currencies is $138T, the global M3 base.

The SOM for #Cryptocurrencies is $35 Trillion

While the thought of the digital currencies replacing physical ones may seem ridiculous, such a feat is not without precedent as there is a long history of disruptive technologies stealing market share from incumbents.

For instance:

• Digital entertainment is 72% of all entertainment revenue
• Online advertising makes up 2/3rds of total advertising
• Global eCommerce sales are approximately 20% of total retail sales and expected to grow to nearly 25% by 2025

As cryptocurrencies mature, they too will likely begin to take share. While how much is still up for debate, we can start to make some predictions using digital penetration in other industries.

Let’s take a conservative estimate though, and assume that cryptocurrencies can capture 25% of the global M3 base within the next 10–30 years (in line with the penetration of eCommerce into physical commerce).

That will yield a SOM of $34.5 trillion.

Worldcoin has the Potential to Reach an FDV of $9.8T

How much of this $34.5T will Worldcoin capture?

This is — by far — the biggest unknown of the analysis.

But what happens if $WLD manages to surpass $BTC and $ETH as the dominant cryptocurrency?

Historically, market leaders in technology tend to have around 25% market share.

Using that as a baseline, we can estimate a value of around $9.7T.

The Long-Term Supply of Worldcoin is expected to be 10B

As stated previously, Worldcoin is expected to reach a steady state supply of 10B coins after 15 years.

Although they do have the option to turn on a 1.5% “inflation switch”, let’s use 10B for the sake of this analysis.

The Potential Value of $WLD is $966

Taking the estimated fully-diluted market capitalization of $9.7 trillion and dividing by a total supply of 10B tokens gives us a potential price of $966.

That’s a > 400x increase over today!

Expected Valuation

Now for the caveat:

Do I actually think $WLD will return 400x? Do I think it will replace $BTC as the leading digital currency?

Probably not

Worldcoin still has many obstacles to overcome and I personally believe $ETH is best positioned to dominate the digital currency market.

But does that mean it’s worthless?

Absolutely not

There’s a compelling case to be made for Worldcoin’s “democratized” distribution method and goal of issuing $WLD to every person alive.

If it it executes this vision and captures even a small percentage of the currency market, it could be extremely valuable.

For instance, capturing:

• 10% of the market would yield a 156x return
• 6.4% of the market would yield a 100x return
• 5% of the market would yield a 78x return

And, of course, it could also completely fail and go to $0 (the most likely case with all early-stage investments).

Ultimately, the percentage of the market that $WLD will capture — and therefore, the expected value of the token — is up to every investor to decide for him or herself (along with whether or not they think Worldcoin can actually execute on this vision at all).

The Long-Term Vision

Worldcoin’s long-term vision is monumental in scope.

They intend to serve as a “social security” net for mankind in the face of Artificial General Intelligence (AGI).

What do they mean by this?

Worldcoin believes that the development of Artificial General Intelligence (AGI) is imminent. As AGI surpasses human intelligence, they argue that human workers will become obsolete, making it difficult for people to earn incomes.

Their proposed solution is to use $WLD as a form of Universal Basic Income (UBI) that would distribute funds to everyone, in equal amounts, on a regular basis.

This would be funded from the value created by AI.

Whether this is necessary (or smart) is highly debated.

In particular, there are various opinions on:

• How close we actually are to seeing AGI
• Whether a UBI system could ever work

Ultimately, only the future will tell…

Conclusion

This article is NOT a recommendation to purchase $WLD.

I think the project has massive potential:

• Solving a major problem
• Huge TAM
• Strong leadership

But it also must overcome major hurdles in terms of privacy, accessibility, security, etc…

As always, DYOR!

Note: This article is for entertainment purposes only and is not investment advice.