Altman, however, says that the system is secure and that the company will not be storing user data. Every picture of an iris will be converted into a digital code, called IrisHash, which will be stored in Worldcoin’s database to check against future IrisHashes and deny coins to known users; the pictures themselves will be erased from the database. “We take a picture of your irises, we don’t even store it, we calculate a code from it, the code is uploaded, but the the image never is,” Altman says. “We don’t know any more information about you than that image.”
Right now, in fact, Worldcoin is running a pilot, involving about 30 Orbs in various countries, and storing a lot of data, including images of peoples’ eyes, bodies, and faces and their three-dimensional scans, according to the company’s own promotion material. “Without it, we wouldn’t be able to fairly and inclusively give a share of Worldcoin to everyone on Earth. But we can’t wait to stop collecting it and we want to make it clear that it will never be our business to sell your personal data,” reads a blogpost titled “Privacy During Field Testing.” In what Worldcoin calls its “field testing phase,” these images are being collected in order to improve the fraud-detection algorithms powering the Orbs. This phase will likely continue until early 2022; the data collected up to that point will be deleted once the algorithms “are fully trained.”
Alex Blania, who cofounded the company alongside Altman and Max Novendstern, explains that the Orb system allows for beneficial “incentive-alignments.” Not only will people be enticed by the prospect of getting something for free, but an army of Orb Operators will be actively recruiting them in order to get their rewards. (And in turn, Worldcoin has been hiring people to recruit the Orb Operators, according to an ad posted on a Kenyan job bulletin).
Worldcoin itself will remain in charge of distributing the Orbs, and also of kicking out any operators that try to tamper with the devices in order to extract unwarranted rewards (for instance, by scanning someone twice). Could Orb Operators get their rewards by surreptitiously scanning the irises of clueless people who never heard about Worldcoin? Blania says the company is testing fraud detection systems, adding that he cannot be “extremely specific.” But, in theory, the company could use metrics such as whether the user has actually claimed the Worldcoin or carried out any transaction, in order to spot untoward behavior and root out sneaky Orb-ers.
Over the course of the pilot, more than 130,000 users have claimed their Worldcoins—60,000 in the past month. To date, the project has used 30 Orbs run by 25 entrepreneurs in various countries, including Chile, Kenya, Indonesia, Sudan, and France. Blania reckons that the production of new Orbs will be increased to 50,000 devices a year, a number on which the 1 billion users projection is based.
A launch date for the actual coin, which will be released as an ERC-20 token on the Ethereum blockchain, has not been released yet. A person familiar with the matter says a launch should happen in early 2022. For Altman, this will be just the start of a “wonderful, grand social experiment” about the power of networks, and also a dress rehearsal for future UBI ambitions. “One thing I believe is that you do an experiment, you do a first thing, and then you learn and you’ll discover all sorts of things about what works here and what we can improve,” he says. “There will be many answers to how something like this could become closer to a UBI.”
As El Salvador enters its bitcoin era, its sky will sparkle with the lights of a platoon of drones. “We are throwing an event,” says American cryptocurrency evangelist Brock Pierce. “They did a big one at Burning Man in the past. They did one during the Super Bowl. So we brought down the best drone crew in the world, and we’re going to be putting on quite a show in the sky.”
A former child actor, and current tech investor and notorious Burner, Pierce led a delegation of crypto entrepreneurs in June to the Central American country, following president Nayib Bukele’s announcement that El Salvador would adopt bitcoin as its legal tender, in addition to the US dollar, starting on September 7, 2021. Since then, Pierce has been in touch with government officials in El Salvador—“I just got off the phone with the president’s brother,” he says—and with businesspeople looking to establish a presence in the country to cater to its novel crypto needs. He is now back in El Salvador to attend the big day. “The rate at which they’ve been able to implement this is rather astounding,” he says. “Like all things, I’m assuming it’s going to be less than perfect at first. But perfection is the enemy of progress.”
The speed at which the Bukele government has brought about this experiment, kick-starting the country’s bitcoinization just 90 days after the parliament passed the law sanctioning the shift, is indeed eye-popping. To the point that one wonders whether the country, and its population, would have benefitted from a longer lead-up. Or, at least, from more transparency.
Crucial details regarding how the adoption of bitcoin will play out in practice are still unclear or have only been disclosed in recent days. A government regulation issued on August 27 established that Salvadoran banks will have to offer the exchange of bitcoin for dollars and vice versa—when carried out through a government-backed wallet—without charging commissions; the regulation also requires that all companies providing bitcoin-related services register with a government body, and adopt anti-money-laundering measures. (It is not clear what the penalties would be for failing to do so.)
“This was done a week and a half before September 7,” says Mario Aguiluz, chief sales officer of IBEX Mercado, a Guatemalan firm that sells bitcoin exchange and payment solutions, which also operates in El Salvador. “You really have to ask whether the government is ready. It’s a mixed bag.”
There is also a dearth of information about the government’s own bitcoin wallet, called Chivo. It’s known that it will work in concert with 200 Chivo ATM machines where users would be able to exchange their bitcoin for cash, free of commissions (a recent Economist story reports a 5 percent fee being charged when converting dollars into bitcoins, although the publication must have used a third-party wallet), and that each Chivo wallet will come complete with $30 worth of bitcoin as a government freebie. What we do not know is who exactly has developed the wallet or the ATM machines and what technology will underpin it.
According to Chris Hunter, cofounder of bitcoin firm Galoy, such plans are changing “almost hour-by-hour.” Hunter, whose bitcoin payment service in the Salvadoran coastal village of El Zonte reportedly inspired the nationwide project, says that the situation was still “very fluid” as of early September. As recently as last week, he was convinced that Chivo would not be able to use the lightning network, a system that dramatically speeds up bitcoin transactions, which would otherwise take several minutes to be confirmed. “Now, it seems pretty clear to me—if you asked me to make a wager—that it will be enabled as of Tuesday,” Hunter says. El Salvador’s government did not reply to a request for comment.
Big Crypto has arrived. On August 10, following days of wrangling and furious tweeting, cryptocurrency enthusiasts, advocates, and entrepreneurs watched in horror as the US Senate approved a $1 trillion infrastructure bill, complete with an article that many fear might jeopardize the whole American crypto sector beyond repair. The controversial rule would require that “brokers” of transactions in digital assets—i.e., cryptocurrencies—report their customers to the Internal Revenue Service so they can be taxed.
The crypto crowd griped that the bill’s definition of “broker” was so broad it would potentially encompass miners, validators, and developers of decentralized applications—all of which, while playing pivotal roles in the functioning of a blockchain ecosystem, have no way of identifying their anonymous users.
Initially, it had looked like the bill’s language might be tweaked to exempt those categories, as a trio of senators put forth an amendment clarifying the “broker” term. Then a White House-backed amendment appeared, pushing for a less lenient clarification, exempting proof-of-work miners—which use an energy-intensive process to secure blockchains such as Bitcoin or Ethereum—but not many other categories, such as proof-of-stake validators, which carry out the same function without the energy burning. Just as a compromise position was being worked out, the Senate decided to pass the bill unamended. Any change will have to happen at a later stage—and it likely will, given the patent unenforceability of the bill as is.
On the face of it, it’s a drubbing for American crypto. But the narrative that has been doing the rounds is quite different: The infrastructure bill is a watershed moment in the history of cryptocurrency. The technology—at its core a crypto-anarchist, anti-bank, borderline anti-government manifesto disguised as code—has finally acquired that great marker of prestige: a lobby. The fact that some senators were ready to fight in crypto’s corner appears to show that the cryptocurrency industry is more than a gaggle of Twitter accounts and some blue-sky venture capitalists. Whatever the reason, it has influence, and—after the infrastructure bill saga—it will be ready to wield it even more deftly.
“We’re seeing the formalization, the maturing, of the crypto lobby, and this was the first coordinated effort that brought that to bear,” says Alex Brammer, vice president of business development at Luxor Tech, a bitcoin mining company. “Organizations like the Blockchain Association, the Texas Blockchain Council, or the Chamber of Digital Commerce are certainly going to continue their work.”
Cryptocurrency is usually, and lazily, described as a Wild West, but as a matter of fact the established businesses operating in the sector—from big mining enterprises to Wall Street–listed giants such as Coinbase—tend to crave regulation to define the boundaries of what is acceptable and what might get them into trouble. “Sophisticated players in this space welcome intelligent regulation. It provides clarity and predictability for large operations,” Brammer says. “It provides a set of rules of the road that allow large, publicly traded companies to make sure that they’re doing everything they can to be as viable and as profitable as possible going forward.”
But where does that leave the smaller, less established, less corporate players? Bitcoin—an asset owned and lionized by billionaires such as Mark Cuban and Elon Musk—has been growing since 2009 into an industry that carries heft and brand recognition. (Even Ted Cruz is waxing lyrical about it).
The much-contested amendment approved by the White House would have saved bitcoin while throwing much of crypto under the bus. Granted, when that plan emerged, the crypto lobby—or, at least, crypto-Twitter—rose as one against it. Jerry Brito, executive director of cryptocurrency trade group Coin Center thundered against the Senate’s attempt to pick “winners and losers,” while venture capitalist and crypto-ideologue Balaji Srinivasan said that the amendment would eventually open the door to a full-blown bitcoin ban. But it is worth wondering whether, in the long run, a rift might open between a Big Crypto clamoring for clear regulation to achieve peace of mind and the smaller actors of the cryptocurrency community, who might be less well equipped to meet the requirements that regulation would impose.
Alex Brammer, vice president of business development at US cryptocurrency company Luxor Tech, recounts being bombarded by calls coming from Chinese miners within hours of the May 21 speech. “We were fielding calls from very large miners trying to find collocation space power throughout North America,” he says. “We were having calls and the questions being asked were, ‘Can you house 20,000 machines in 14 days?’ for example. The tone in the industry was just very frantic.”
“Anecdotally, I would say that many, many [miners] will be leaving China, within the next 30 to 60 or 90 days,” Brammer adds.
Non-Chinese entrepreneurs might be the first to up sticks, Kaboomracks’ Van Kirk says. “We have clients that are hosted in China, but are Western, who are wanting to find capacity outside of China,” he says. “They’re looking for something in the United States or Canada.”
It is not only North America to be sought after as a prospective destination. Parts of northern Europe and Latin America are also being considered; in general, Brammer says, some Chinese individuals want to move their business to a place “that is politically stable, that has strong property rights, that has some type of an existing and somewhat stable regulatory framework.” But the US, which is already the world’s second country for bitcoin mining, might prove to be particularly attractive.
That is not to say that a move will be simple. Logistically, Brammer says, it is quite a nightmare to move tens of thousands of machines from China to the US, especially amid a global pandemic that has triggered a shortage in shipping containers, and a latent trade war that will require any company seeking to move goods from China to the US to pay a 25 percent tariff. Even once the mining machines are unloaded from the private cargo planes or container ships, setting up a new mining operation in North America is going to take some time. “Some of these [Chinese miners] are coming in and they’re saying, ‘We’d like to buy 500 megawatts of capacity,’ and you’ve got these North American power generation facilities and mining farms that go ‘We just don’t have that,’” says Brammer. He estimates the timeframe for building a large mining farm from scratch at around 12 to 24 months.
Edward Evenson, director of business development at bitcoin mining company Braiins, is more sanguine. He says that most larger miners will just be shipping new machines from manufacturers based out of China, and that they will have the resources to pull that off relatively quickly. “Smaller miners may not have the resources or connections, so they will probably have to sell off their machines,” Evenson says. “But the larger operations will simply move their machines to more stable environments for mining.”
The big question, however, is whether the panicked calls will lead to a true exodus. As a matter of fact, right now most Chinese miners are waiting for the government’s next move. “Chinese miners, who have higher risk tolerance than Western miners in our observation, are largely taking a wait and see approach,” says Ian Wittkopp, vice president of Beijing-based venture capital firm Sino Global Capital. “Most Chinese miners have experienced similar cycles of news in the past. The cost of migrating to a new location can be high, we expect most miners to wait for more regulatory clarity before relocating.”
This is not the first time China has been waving its fist at bitcoin; but that harsh posturing has never really sunk the country’s thriving bitcoin industry. “Whenever the price of bitcoin shoots up, and there’s a lot of speculative mania around it, the government makes one of these announcements,” Evenson says. “They’ve done it essentially every year or about every other year since 2013.”