Worldcoin, the next big crypto?

Is Worldcoin, the next big crypto?

If it’s not already evident, the world is heading toward a single-world currency. The question is, which currency will it be? The answer to that question is a coin with several key attributes which we’ll discuss in this article.

The history of a single-world currency

As stated by investopedia.com, conversations about a single-world currency aren’t exactly new. In 1969, the International Monetary Fund (IMF) created the Special Drawing Rights (SDR) as a supplementary global reserve asset. The SDR’s value is based on a basket of five currencies: the U.S. dollar, the Euro, the British pound sterling, the Japanese yen, and the Chinese yuan.

While the SDR is not a currency in the classic sense, it does serve the purpose of supplementing member countries’ currency reserves and providing liquidity during times of economic distress. According to the IMF’s Articles of Agreement, the SDR was intended to be “the principal reserve asset in the international monetary system.” One of the most frequently cited backers of a single-world currency is the legendary economist, John Maynard Keynes. Many of Keynes’ ideas have moved in and out of favor over the past 70 years.

At that time, here were some of the pros and cons of a single-world currency.

Pros

• Currency conversion costs are eliminated – No more foreign exchange rates.
• Trade costs reduced – Selling products from one country to another becomes less expensive.
• Economically developing nations would become more stable – Countries with weaker economies are elevated to the economic strength of more developed countries.

Cons

• No monetary policy – For example, during the 2008 recession, the US lowered interest rates and increased money supply to stimulate economic growth. With a single-world currency, a country won’t be able to implement monetary policy.
• Printing and shipping costs will greatly increase – In 1969, the idea of a digital currency wasn’t in the conversation. Economists ran the math on manufacturing and shipping costs of paper money and metal coins and calculated those costs to be extremely high. This article highlights production costs below.

It was concluded that the costs to adopt a single-world currency were not economical and therefore never moved forward. That conversation changed when cryptocurrency became realized.

The costs of money production

What are the costs of manufacturing money?

• As stated in federalreserve.gov, the operating cost to manufacture paper money in the US in 2023 is about $931M. As stated in treasure.gov, the operating cost to manufacture coins in the US in 2022 was about $3.31B. Keep in mind, that these are costs to manufacture, not to ship around the US. And it is important to point out that other countries also have relatively high expenses to manufacture paper money and metal coins. This is a global cost issue.
• As stated by jleconsultants.com, the cost to produce one plastic credit card equipped with NFC (near-field communication) technology is about $2 to $2.50. Most credit cards are manufactured by CPI Card Group in Littleton, CO which makes about 1.2 billion cards per year. When you do the math, the cost to manufacture credit cards per year is between $2.4B and $3B. This doesn’t include the costs to ship cards around the globe.

Cryptocurrency History

How did cryptocurrency begin?

The 2008 Great Recession was a financial crisis that impacted not just the US stock market, but the entire global stock market. It was also a “wake-up call” for banks that provided mortgage loans and it also elevated the conversation regarding a single-world currency. In 2009, the UN started talking about the world moving towards a single-world currency backed by a “Global Reserve Bank.” Essentially, a digital decentralized currency the entire world can use. This means we would do away with fiat currencies including USD, EUR, CNY, etc.

In 2009, Bitcoin (BTC) was released and since its release, there are approximately 22,932 cryptocurrencies on the market. Some investors have made money while most investors have lost money due to the volatility of the asset class and the innate human behavior of buying high and selling low. Regardless of the returns, the technology for a single-world currency has arrived.

However, the main problem with cryptocurrencies has been energy costs. As stated in this article from nytimes.com, when Bitcoin first launched in 2009, mining a single coin required the power of a personal computer and cost basically nothing. Fast forward to 2023, as stated in this article from cointelegraph.com, the energy required to mine one coin is now approximately $17,000. Bitcoin mining has a negative environmental impact, which carries both ethical and reputational risks. The crypto industry has been subject to withering criticism for its carbon footprint. The New York Times equated the total power consumed by Bitcoin annually to what’s used by the country of Finland in one year. The energy consumption is caused by a mechanism for processing transactions.

Bitcoin uses what’s called Proof-of-Work. Under PoW, block creators are called “miners” who to solve for the hash, a cryptographic number, to verify transactions. In return for solving the hash, they are rewarded with a coin. Because this method ultimately relies on the collective power of thousands of computers, a cryptocurrency can remain secure and decentralized. Unfortunately with PoW, energy consumption is high. As more coins are mined, energy costs increase. This tells us that cryptocurrencies that use PoW are not scalable on a global level.

This is where Ethereum (ETH) is different. Ethereum was created in 2013 and started using the PoW model but in September of 2022, the cryptocurrency switched to a different model known as Proof-of-Stake or PoS. PoS doesn’t require the same extensive, decentralized network of miners to support its operations and is thus far less energy-intensive. Under PoS, block creators are called validators. A validator checks transactions, verifies activity, votes on outcomes, and maintains records. The PoS model reduces blockchain’s energy consumption by 99.84%.

Some have considered PoS to be less secure but that hasn’t proven to be the case. In order for a PoS cryptocurrency to be hacked, the person or entity hacking the cryptocurrency would need to own 51% of the cryptocurrency which would be very costly. As stated by investopedia.com, It’s very expensive to control 51% of a staked cryptocurrency. Under Ethereum’s PoS, if a 51% attack occurred, the honest validators in the network could vote to disregard the altered blockchain and burn the offender(s) stake in Ethereum. This incentivizes validators to act in good faith to benefit the cryptocurrency and the network.

Overall, the lower energy demands of PoS cryptocurrencies make it easier and more cost-effective for those blockchains to support the next generation of crypto applications like smart contracts, non-fungible tokens, and decentralized finance. Aside from Ethereum, some of the most popular PoS coins include Cardano (ADA), Solana (SOL), and Tron (TRX).

How payments will be completed

Aside from the growing popularity of cryptocurrency as a way to buy a sell, it’s also important to point out HOW transactions are made.

• This article from cnbc.com talks about a Swedish company called Epicenter that created a microchip that inserts in your hand which is used for digital payments. The microchip uses NFC technology, the same tech used in contactless credit cards and mobile payments. A person will be able to simply waive their hand to make payments which avoid the need to carry around paper money, metal coins, or plastic credit cards.
• This article from bbc.com talks about a British-Polish company called Walletmor, which created a chip that weighs less than 1 gram that’s inserted between your thumb and index finger and is used for digital payments. The total cost to have the chip implanted is about $200 (USD).
• This article from cnbc.com talks about Mastercard releasing technology that allows consumers to make purchases with facial recognition or with their right hand. As stated in the article, about 1.4 billion people are expected to use facial recognition for payments by the year 2025.

Attributes of a single-world currency

From a logical standpoint, a single-world currency should have the following attributes:

1. Digital – The single-world currency won’t be paper money or metal coins because of production and shipping costs. In other words, printing and shipping a physical currency around the globe would be astronomically expensive. This means a digital currency is more likely.
2. Scalable – The world would need to use a digital cryptocurrency that can increase without energy costs dramatically increasing. This tells us the PoS method will be used.
3. Trackable – A single-world currency should be easily tracked, otherwise, it simply behaves like a fiat currency without borders. There are people in the US states that like to make transactions with cash because it can’t be tracked or taxed. A global currency will most likely be very trackable.
4. Scannable – The convenience of carrying plastic credit cards to make purchases is nice but what’s even better is not carrying anything at all. This means scanning needs to take place on the human body and the most obvious unique identifiers are the face, eyes, and hands.

Attributes of Worldcoin

Based on the attributes of a single-world currency, Worldcoin appears to check those boxes.

1. Digital – Worldcoin is described as a digital passport to prove that its holder is a human and not an AI bot.
2. Scalable – Worldcoin token is a Layer 2 Ethereum-based cryptocurrency that leverages the security of the Ethereum blockchain while having its own economy. In other words, Worldcoin uses the PoS method.
3. Trackable – As stated in forbes.com and according to Worldcoin, advances in artificial intelligence have made it increasingly difficult to tell whether online activity, written text, digital artwork, or really anything that exists on the internet came from real humans or AI. The company proposes to help resolve this confusion by deploying a sort of digital passport, based on what it calls “proof of personhood.” In other words, Worldcoin is trackable.
4. Scannable – It will function with hardware that scans your eyes to confirm you’re a human. The scanning technology (an orb the size of a bowling ball) is currently launching in about 35 cities in 20 countries.

For context, Sam Altman, the CEO of OpenAI, is the creator of Worldcoin (WLD) and the cryptocurrency already has over 2 million users. See a real-time update of usage here. And people can sign up for Worldcoin and earn 25 coins which are currently equal to about $50 (USD).

As quoted on worldcoin.org “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 (universal basic income).”

What are other people saying?

This article from coindesk.com states that Worldcoin could distribute crypto more widely than Bitcoin. “One of the core propositions of Worldcoin is to build a system that can create a distribution of a cryptocurrency that’s even wider around the world than Bitcoin is today,”

Morning Brew newsletter stated that Worldcoin is not a big hit with government privacy watchdogs: Kenya recently suspended scans, while regulators in France, Germany, and the UK have opened probes. Meanwhile, there are plans to let governments and businesses use Worldcoin’s ID verification tech. The project is not currently operating in the US due to the questionable legal status of crypto.

Jack Dorsey, the founder of Twitter and Block, recently stated on Twitter “Visit the Orb or the Orb will visit you.” His sarcasm hinted at his reservations about Worldcoin.

The Bavarian State Office for Data Protection Supervision started investigating Worldcoin in 2022 because the project seems to process sensitive data at a large scale. As stated by Michael Will, the state regulator’s president, “These technologies are at first sight neither established nor well analyzed for the specific core purpose of the processing in the field of transferring financial information.”

Is Worldcoin the new single-world currency?

Only time will tell but here is my personal opinion broken up into two parts.

• Part 1 – Digital: The Worldcoin digital technology does indeed check all the boxes to be a single world currency. It has the ability to scale to a global level.
• Part 2 – Hardware: As for the Orb hardware, which feels like a device created in a 1985 science fiction movie, I don’t believe it has the ability to scale at a global level. If everyone must use the orb, this means that every location that processes payment transactions in person would need to buy an orb. The manufacturing and supply chain demands on that project would be astronomically expensive and by the time some people receive the orb, a new version will be manufactured which starts the supply chain process over.

I believe a single-world currency will be able to integrate with camera technology that is already in place. In other words, the cryptocurrency will integrate with our iPhone, Android device, iPad, MacBook Pro, PC Laptop, Ring Door Bell, Google Nest Camera, etc. Today, we can use facial scanning technology on both our iPhone, iPad, Galaxy phone, and Galaxy tablet.

To step back for a moment, a single-world currency may be a scary thought for some and an exciting sign for others. This doesn’t mean we should freak out. Keep working, keep investing, and keep providing value to others.

Personally, I plan on monitoring Worldcoin from a distance but I do not plan on signing up or investing.

As mentioned in the Tykr onboarding, be careful with crypto. If you invest, try to invest 5% of your net worth or less, and be prepared for a rollercoaster ride as the volatility is high!

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