Welcome to The Node! This is Daniel Kuhn, here to take you through the latest in crypto news and why it matters. We’ll be off on Monday, May 29, 2023 for Memorial Day. See you next on Tuesday. In today’s newsletter:
The number of ether (ETH) on centralized exchanges (CEX) has hit a low not seen since July 2016 amid an uptick in staking. As of Thursday, 14.85% of all ETH was held in wallets connected to CEXes compared to the 25-26% level seen during the 2021 bull market. Low exchange balances are sometimes taken as a bullish indicator, as a lower circulating supply of a token potentially pressures its price to increase. Meanwhile, traders may be saddened to hear Digital Currency Group (DCG) is closing down its institution-focused trade execution and prime brokerage unit TradeBlock, citing crypto winter and regulatory uncertainties. The decision comes amid a financial crunch for the crypto conglomerate (which wholly owns CoinDesk). TradeBlock was acquired in 2020 by CoinDesk, and was later spun out as a standalone DCG subsidiary minus its data business, which was rebranded as CoinDesk Indices.
Big Brands
Helium miners making up the decentralized broadcast network of the same name can now connect to Amazon’s experimental, low-power communications system, Amazon Sidewalk, through a partnership between project stewards Helium Foundation and internet of things (IoT) startup Oxit. The so-called Oxtech Module aims to boost IoT connectivity by bridging the crypto-incentivized Helium network to the mesh net Amazon is trialing using devices like the voice assistant Echo. Meanwhile, a new Nike sneaker NFT collection surpassed $1 million in sales despite persistent technical issues on the company’s Polygon-based .SWOOSH platform. Over 66,000 tokens (priced at $19.82; a nod to the Air Force 1 sneaker release) have been sold since May 15, an amount the Nike team hinted was slower than expected (Nike’s physical sneaker releases often sell out in minutes). Finally, a Formula 1 ticketing provider will trial NFTs at the Monaco Grand Prix racing event while Binance has launched an NFT loan platform enabling users to pledge “blue chip” tokens like Bored Apes and Azukis for ETH on credit.
Suits, Pressed
Alex Grebnev, CEO of would-be Google Maps alternative Maps.me (MAPs) and semi-finished DeFi platform Oxygen (OXY) – so-called “samcoins” linked to FTX founder Sam Bankman-Fried – is being sued by Cointelegraph co-owner Gregory Fishman on allegations of fund misappropriation, in a little-noticed case filed in London late last year. Fishman claims Grebnev stole ideas from him when entering into a business relationship, which was later terminated after Sam Bankman-Fried, DCG and Multicoin Capital offered Grebnev funding. Elsewhere, New York-based Coinmint claimed California semiconductor company DX Corr and bitcoin technology firm Katena Computing set up an “elaborate deception” to lure the crypto miner into a $150 million purchase agreement, in a lawsuit seeking $23 million in damages.
The Takeaway: All Marketing?
Yesterday, the Sam Altman-fronted Worldcoin officially announced that it had raised $115 million dollars in venture capital. The raise looks like an atavistic last gasp for the kind of prestige-driven, slot-machine structured Silicon Valley fundraising fostered by a decade of cheap money. Because whether on ethical or financial grounds, there seems little rational explanation for supporting the project.
To review, Worldcoin’s pitch is essentially twofold. At its core is The Orb, a device that scans the retinas of users, so they can later confirm their identity online. The Worldcoin token, in turn, is intended to be distributed as a form of “universal basic income” (UBI) and is currently being offered as an incentive for early eyeball-scan volunteers.
In just one of many missing premises around Worldcoin, though, it is unclear how the Worldcoin token can be expected to have any value for recipients once it circulates. It is extremely difficult to imagine how what amounts to an Ethereum-based meme coin with no apparent tokenomic model is going to be exchangeable for essentials like food and shelter over the long term.
That makes it easy to deduce that the UBI element of the project is simply window dressing for its real goal: solving the problem of digital identity. But in fact, Worldcoin’s approach to that problem is equally terrible, presenting a dazzling array of privacy risks and moral entanglements.
This duality is just one example of the deviously incoherent mess of motte-and-bailey rhetoric being used to pitch Worldcoin. The company’s messaging goes to great lengths to depict both a charitable project and an opportunity for immense profits (a deeply troubling two-step Altman also pursued with OpenAI).
It is the apotheosis of Silicon Valley’s dangerous delusion that it can both get rich and make the world a better place through the mass harvesting of data.
Exploitation is generosity
The danger of that self-aggrandizing mindset has become more and more clear as Worldcoin goes from proposal to practice. Even in this early stage, it is planting the seeds of global havoc and mass exploitation, under the guise of Western generosity.
MIT Technology review interviewed dozens of participants in the early Worldcoin onboarding process going on right now in 24 countries, including 14 developing nations. Their findings were damning.
“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. These practices may violate the European Union’s General Data Protection Regulations (GDPR) – a likelihood that the company’s own data consent policy acknowledged and asked users to accept – as well as local laws.”
Meanwhile in China, a black market for biometric iris data has reportedly emerged among users hoping to join Worldcoin’s wallet app, and, it seems likely, collect Worldcoin rewards. According to sellers, the data comes from developing countries like Cambodia and Kenya. In other words, Worldcoin’s fundamental model is already incentivizing privacy harms.
This isn’t just a moral question, either: GDPR in particular is a very serious set of laws, with immense fines attached to violations. And while Worldcoin has downplayed the risks, their reliance on an army of Orb Handlers to onboard customers means manipulations will inevitably continue. That completely undermines Worldcoin’s promise to solve digital identity.
I’m reminded of a ‘70s-era cartoon from a Playboy Magazine clandestinely acquired in my antediluvian teenage years. The one-panel gag showed two lovers awkwardly entangled in hotel room bedsheets. Wedding rings on the nightstand imply they’re having an affair. The woman, whose exaggerated face conveys deep ennui, gets the punchline:
“Sam, darling – not only is this immoral, you’re doing it badly.”
The game is to be sold, not to be told
The $115 million fundraising round was led by a firm called Blockchain Capital. In conjunction with the announcement, Blockchain Capital general partner Spencer Bogart posted a short Twitter thread explaining the rationale for the investment.
The thread is cringingly vacuous and, intentionally or not, quite deceptive. Bogart opens by saying that he has “completely changed my mind” about his prior belief that “Worldcoin was some dystopian Orwellian nightmare” and a “noxious combination of hardware, biometrics, crypto and AI.”
But in the subsequent thread, Bogart offers absolutely zero rebuttal of those concerns. Instead, he simply argues that Worldcoin is “the most compelling solution we’ve seen to the decades-old [S]ybil problem” – that is, the digital world’s vulnerability to impersonation.
Given that he offers no reassurances about the downsides of this “compelling solution,” Bogart’s implicit argument is that putting the biometric information of disempowered people in the developing world at immense and fundamental risk is a worthwhile tradeoff for solving digital identity.
This is particularly regrettable because it seems to overlook a vastly superior set of identity solutions being pursued across the crypto ecosystem, by people far more genuinely focused on getting it right than Sam Altman appears to be. They include decentralized, privacy-preserving and user-controlled solutions that would lead to vastly better outcomes in the long run.
But they’re hard to explain, while Worldcoin’s pitch goes down easy – as long as you don’t think too hard about it.
