What's Behind the Hype: The Real Problems of WorldCoin (WLD)
Date: 2023-07-30 Author: Karina Ziganova Categories: IN WORLD
OpenAI CEO Sam Altman is one of the most prominent figures in the tech world, which is why his recent entry into the cryptocurrency market with WorldCoin (WLD) has caught everyone's attention.
The launch of the controversial WorldCoin token has aroused increased interest among investors around the world. However, the tokenomics of the project, the way of doing business and its potential risks raise many questions.
Market makers control 95% of WLD
The WorldCoin project was designed as a digital identity platform to distinguish real people from bots or artificial intelligence (AI) algorithms. Its main tool - Orb - is a device for scanning the iris, which should confirm the uniqueness of the personality of each user on the Internet.
However, such an innovative idea is fraught with certain difficulties by default. Some of them may even border on "gray areas" of an ethical and practical nature.
One of the first problems that arose after the launch concerned the tokenomics of the project. At the time of launch, the number of WorldCoin tokens in circulation was 143 million, which included 43 million WLD allocated for the airdrop, and 100 million WLD loaned for three months to non-US market makers.
"The WLD token starts with a relatively small circulating supply of no more than 143 [million] WLD (i.e. 1.43% of the initial total supply). This is due to the goal of creating a network that unites as many people as possible, and to achieve this goal, the bulk of WLD tokens will be transferred to new and existing users over the coming years," WorldCoin said in its technical documentation.
A closer look at the data reveals that at the start, market makers controlled 95% of the total number of tokens in circulation, which led to an initial market imbalance.
While the strike price was set at $2.8, market makers had an incentive to accelerate it above the FDV value of $28 billion. As a result, the growth of WLD was really not long in coming, and at the opening the FDV figure exceeded $30 billion. According to Matt Batsinelas, general partner of Triblock, this is reminiscent of the stories of such sensational tokens in the past as Filecoin (FIL) and Internet Computer (ICP).
WorldCoin threatens privacy
In addition to technical subtleties, the method of registering users in WorldCoin also caused alarm. The project team often mentioned its extensive user base, which in itself is not a problem.
However, the active discussion of the potentially exploitative methods used by the company in developing countries paints a disturbing picture. According to a blockchain investigator under the pseudonym @zachxbt, Worldcoin was actively expanding its user base at the expense of children in Kenya and Chile. The analyst also reported on the emergence of a "black market" for WorldCoin accounts, where prices for one account on platforms such as Telegram could be as low as $1.
The real subject of controversy is the very fact of scanning the iris. Although the WorldCoin team insists that iris images are removed after scanning and only the uniqueness of the pattern is preserved, critics argue that this carries significant risks.
"We want to make it clear that Worldcoin is not a data processing company and our business model does not involve the use or sale of users' personal data. Worldcoin is not interested in the identity of the user, but only in his uniqueness, i.e. that he has not registered with Worldcoin before, "the company said in a 25-page response to a request from MIT Technology Review.
However, privacy remains at the top of the list of concerns for users. How will the platform be able to ensure that the extensive database of iris scans is not susceptible to hacking or misuse?
These fears are reinforced by comments from well-known personalities such as Ethereum founder Vitalik Buterin. Recently, he listed several key risk factors inherent in the project. In particular, he attributed to them the risk of misuse or leakage of information related to user identification, as well as problems with accessibility and centralization.
At the same time, he added, even if the software layer is decentralized, the Orb will remain a hardware device:
"We have no way to verify that it is designed correctly and does not have a backdoor. Thus, even if the software layer is perfect and completely decentralized, the WorldCoin Foundation still has the ability to inject a backdoor into the system that allows you to create an arbitrary number of fake human identities.
Now, even the UK's Information Control Authority (ICO) is concerned about WorldCoin's eye-scanning activities in London. He announced that the company was being audited to see if it had a "clear legal basis" for processing personal data.
According to a spokesman for the Office, the processing of biometric data in a special category can lead to a high risk. If such risks are identified, consultations with the ICO are necessary.
Real people in the age of AI. But at what cost?
From a broader perspective, a key goal of the WorldCoin initiative is to create a "global financial and identity network based on proof of identity." The goal is undoubtedly noble. However, achieving it without compromising user trust, security, and privacy is a major challenge.
Although WorldCoin assures users that it is not a data processing company and does not intend to use users' personal data, its method of registration, especially in developing regions, suggests otherwise.
Also featured in WorldCoin's early funding round is the persona of Sam Bankman-Fried, the founder of the infamous cryptocurrency exchange FTX. This further underlines the controversial nature of the project.
Although it is too early to draw conclusions, the first steps of the project indicate that its activities are fraught with both ethical and operational problems.
"Worldcoin takes full advantage of the fact that the vast majority of people are complete idiots who are not able to critically comprehend why they shouldn't exchange retinal scans for a few dollars," said Chris Black, crypto influencer and founder of analytics platform DeFi Watch.
WorldCoin, like many other innovative technologies, teeters on a fine line between the digital identity revolution and potential mistakes. Only time will tell whether the project will be able to organically combine promises and ambitions, on the one hand, and trust and security, on the other.
