83. ChatGPT Founder Launches Own Cryptocurrency, WorldCoin. Why You Should Steer Clear.

Wellcoin is one of the most controversial launches that's happened. What you need to do is literally give up the most sensitive personal data in exchange for cryptocurrency. What's made so much hype around this token is that the founder is the same creator as OpenAI, the popular product called ChatGPT. They raised $100 million at a $3 billion valuation. You're relying and trusting that a startup with unaudited technology knows how to protect your data. If anyone else was doing this, World Coin would be already be dead. Welcome back to another episode of the Ben and Bergs Podcast. I'm Ben, your favorite high school dropout and CEO of Collective Shift. Alongside me is Bergs, your favorite MBA and COO of Collective Shift, Australia's leading crypto portfolio insights company, providing professional analysis and portfolio strategies for crypto investors like you. We are a unique blend of the established and the self made and we're here to break down crypto business and personal growth. But we don't just talk shit, we we're giving you the insights you need to make better investments, build successful businesses and level up your life. And today we are talking well, COIN lessons and a word of caution from the World Coin controversial launch. Burgess has been in the news a lot man, so we thought we just maybe give our opinion on this because on the surface this looks kind of cool and it's doing some cool things, but from an investment perspective there is some questionable things we need to debrief.

I agree mate and listeners, this might get a little bit spicy.

Perks is going to drop the hammer.

So worldcoin is probably one of the most controversial launches that's happened, you know, in a long, long time. And there's a few lessons that we're going to walk you through today as to why you need to approach it really cautiously. Now put it simply, worldcoin is creating a system where humans can prove their human. And it does this through biometric data where you actually go into a physical location and you have your eyeball or your iris scanned to verify that you're human. This data will then be encrypted inside a worldcoin ID and it's then native token. If you prove you're human, you are then distributed the worldcoin token which is the WLD ticker. The end goal of Worldcoin is to have a network of digital IDs embedded into Worldcoins network of financial services. And ultimately what they're trying to do is build a universal basic income where anywhere in the World can actually be paid and distributed money by verifying their human, something that's never been done before. Now the controversy, contra, how do you say controversy lies with biometrics. People are basically what you need to do is literally give up the most sensitive personal data for you in exchange for cryptocurrency. And basically what you're doing is you're relying and trusting that a startup with unaudited technology knows how to protect your data, which is kind of scary. Now what's made so much hype around this token is that the founder is a very well known guy. He's the same creator as open AI, the popular product called ChatGPT. And it's basically the, the same team running Worldcoin. Now if anyone else was doing this, Worldcoin would probably already be dead. But the fact that Sam Altman, the founder of OpenAI is doing this is giving it so much lease and so much momentum. Now the idea, although quite dystopian, isn't necessarily wrong. They are tackling a real problem and attempting to create the widest possible distribution system of money in cryptocurrency. It's an extraordinarily massive, you know, mission and at a core level, you know, the idea of banking the unbanked is why we love Bitcoin and it's why, you know, I, I fell in love with Bitcoin and why most people do. But there are trade offs in what they're trying to do and really the biggest one is around who actually gets to gatekeep our digital identities. And Jack, the founder of Twitter Tweeted, he shared WorldCoin launch and he tweeted at no time should a corporation or state own any part of the global financial system. And that's the backing of World Coin. So the difference here between WorldCoin is that World Coin is a, it's a company, it's an institution. Bitcoin is the opposite of that. It's decentralized. No one owns that, that asset. Now Ethereum co founder Vitalik Buterin came out and summarized the trade off in, in a tweet as well. He said the pro, the concept of proof of personhood in principle seems very valuable. And while the various implementations have their risks, not having any proof of personhood at all has its risks too. A world with no proof of personhood seems more likely to be a world dominated by centralized identity solutions, money and small closed communities or some combination of all three. So it's at a, at a, I don't know what it is philosophical level burg this is a big, big question. You know, the idea of an individual company owning our data at a global level, you know, is kind of scary. That's why we like Bitcoin. Right? Any, any initial thoughts before I get into the investment side of things?

I just got three words, mate. Fuck this noise. Seriously, mate. Okay. You've got a startup coming in, Sam Altman, he's a big UBI fan. He talks about it to kind of no end, wants to somehow do it. Raises a bunch of VC money, scans people, people's irises, puts it in a database that a startup has God knows what security they have, what they could do with that data. Governments can then compel them to release that data. All the things that you can give up. I remember there were ICOs ones was. I think it was polkadot, where I was in there early and it's great. They're going to release a token and it was like a year. Then all of a sudden we need your passport details, we need your kyc. And I was like, no, I'm not trading all that for a couple of grand. That just doesn't make sense. And they are just my government IDs. And the whole world is moving from.

Like when we. Let's talk about security, passwords, those kind of things. At the moment we have two factor authentication. So we've got a password and we have a little device. So in terms of security that's know something, I know my password and have something which is the two factor authentication, which is quite good. Like there's a separation there and it's, it's decent security. We're kind of moving towards B something. So it can just be my eye, it can be my fingerprint, it can be my voice. All of these do have their risks. And Vitalik's kind of comment there, where our identity is tied up within governments. Yes, it is the majority of the world that works and that's good. And it's kind of what you want when you talk about your government IDs. You want some other mug to look after it. You want to have a passport office, you want to send in some paperwork and your passport comes in. You want those things to work. But then on the other end you also want simpler things like my phone. I don't want to remember a password, I don't want a government id. I just want a fingerprint. And we need to work out on that spectrum where we're actually going. And to Jack's point, man, oh man, about a private company doing ubi, I don't agree with that. But at the same time, I think a private company will have to start ubiquitous. They'll have to model it. So it pushes the government to get serious about UBI consider it and start rolling it out. Because if you're a government, you kind of already have universal basic income for the lower socioeconomic people that are unemployed, that can't work, that don't make enough money. But what if we expand that just a little bit and the government's not going to expand that, so they need private corporations to do that and then the government will look bad and it forces their hand and their people will start to demand it.

It's a huge undertaking they're trying to do. And back to your point, Burgs, yeah, they raised back in March 2022, they raised $100 million at a $3 billion valuation. There's a lot of big backers on this. Now, as we go down from a philosophical level, we look at, from an investment perspective, this is where caution really needs to remain. So there is some. Our analysts are basically taking a look at this and this is Nick's comments. There is some extremely dubious token economics and token launch. And Bergs and I went through this prior to the, to the podcast that they had. Now I've, I don't, I can't remember anything like this. Burg. This is pretty, pretty ridiculous. I don't remember a coin coming out and doing anything like this. So WorldCoins fully diluted value, or FDV, basically means the total value, assuming all tokens are in circulation is extreme. Now, we need to remember the difference here. In cryptocurrencies, you have a supply of tokens, right? Which is the fully diluted value. That's the amount of tokens will be in circulations. For example, Bitcoin has 21 million and then you've got the amount that's actually in circulation. So, for example, with bitcoin, right now there's about 19 and a half million in circulation, right? There's about, whatever that is, 1.5 million still to go. Now, the amount of that bitcoin coming into circulation, we know it's quite slow. It's going to take about 100 years to come in. So there's not going to be a lot of new supply coming in, which means that, you know, theoretically there's less to buy and you got the supply and demand dynamics. But with worldcoin, it is extreme at a, at a fully diluted value. They're assuming that the company right now is valued at nearly $25 billion, making it a top seven cryptocurrency at launch and larger than some of the leading cryptocurrencies like Solana and Arbitrum. And this is where it gets even crazier. The maximum supply of wall coin is 10 billion, but only 143 million or 1.4% of the coin is currently circulating, which is wild, 1.4% of the supplies in circulation. And they're valuing themselves at $25 billion on Launchbergs.

Exactly. And you got to remember they're not valuing the company at $25 billion. The valuing, the value accruing to the token is 25 billion. The company has more value to it from what the VCs have put into it. And we've seen this game before, Ben. VCs fund a business. You look at the token economics. They release some to the market, it gains popularity, people make a bit of money, they start talking about it. VCs potentially have a lockup phase and they get the tokens and they dump it on other regional. That's the strategy.

And it's so fun.

The reason VCs do this is because in traditional VC investing, we invest in generally tech startups or science does, whatever it may be. It's a seven to ten year payoff period. It takes seven to ten years for that company to have an exit. So they'll go through series, you know, see Angel Seed, abcdef. Eventually they'll get listed and that's the big money. And they'll exit. Now they want to shorten that cycle to less than a year. So what do you do? You invest in a crypto company, you fund them, you get some good people behind it, you build up heaps and heaps of hype. You release the tokens as soon as they're released, they're immediately liquid. Right. And I actually haven't gone deep enough into the token allocation. I don't even know if it's been released. But 1.4% is extremely lean.

Well, here's the even crazier thing. So out of the 143 so. And what they do with the token, just to be clear, the token is given to people who verify themselves and then the the world token is then rewarded to those users who sign up. Right. But the utility is quite questionable. What's crazy here is out of the 143 million world tokens that are already distributed, only 43 million of those actually went to those who verified with the orb during the testing phase. And those Users were mainly from Asia and Africa. So out of the 1.43% only what's that? Somewhere between 0.4, 0.5% actually went to people who verified. The other hundred million tokens were loaned to five non US based market makers on a three month term to help with the liquidity and price discovery.

There it is mate, there it is. So let's, let's explain that in simple terms for people. So when you have a market you need a buy side and a sell side. So if you go in and you're in Africa and you get your eyes scanned, you get a token. Great. Who do you sell it to? No one's there. So they either create a liquidity pool or they create buying demand. Because you're in Africa, you want to sell that, you want to convert it into your local currency so you can buy whatever you need, food, clothes for the day. So they have then allocated, so they've given 43 million to people that have scanned their irises, they've got 100 million for those people. So those funds slosh around and whatever you want to sell, there's someone there waiting to buy, but they've been funded and they're waiting to buy.

And thanks to that burgs Ari Paul tweeted here, this is a nice little tweet. So basically he's saying he here's the basic crypto market manipulation model that produces the 10 billion dollar plus valuations for startups. So grant founders and investors, the cap table, they lock up that airdrop a tiny percent, in this case 1.43% to float to the retail investors, give some of that to the market makers at a multiple of that and incentivize them to set a price floor with options. So basically manipulating the price on launch, giving the initial investors basically guaranteed multiple launch into retail investors who know none the wiser. And the outcome is basically that lots of uneducated investors will then book a massive loss once the supply enters the circulation. Yeah, because the price will fall due to increased sell side pressure and then the initial investors can come in and sell that.

It reminds me of a Joe Button wrap where he's like F company. I buy in that because you'll sell them to the stores that you buy it back. Like back when you had cities back in the day, they'd put them all in the stores and then they have a marketing budget that buy them all back. Look, this is selling so well. My wild. Only, only in crypto this, this actually happens a lot in you know, like even to Be an Amazon bestseller. You only need to sell 5,000 books and you're on the bestseller list. So imagine that if you had it in your marketing budget, you wrote a book, you could buy 5,000. You always need to know who is on which side of this. And to be fair, to be fair, whenever you start anything, there is zero liquidity. You need to fund a liquidity pool because there's just no, no one wants to buy this. If someone had worldcoin and they came up to you, Ben, saying I've scammed Iris, I've got worldcoin, will you buy it? No, no one wants to buy this thing. So when it first starts, you need a market maker and I understand that. But when you're investing in something or looking at something or wanting to give up your iris scan, understand how that market works, who is buying and if it's really going to be a thing.

Yeah. And in the ultimate thing here, which we're trying to get across, guys, is the guys and girls is the token economics.

Right.

This is important. Many people don't look at the fundamentals when investing in a cryptocurrency. Right. And also what the utility of that token does, like Berg said, just because you're buying the token doesn't mean you actually have ownership of the company. And for, for, for many cryptocurrency, we, we very rarely actually look at the fully diluted value value because it has like a material, and never really has a material sort of influence. But because of this token economics is such an extreme levels, you know, that alone is, is a, is a good enough reason for us not to invest.

Absolutely. It's, it's extremely unproven. There's dominance by VCs. And you have to remember when you raise this amount of money VCs will have, they'll form a board. They'll literally sit with your company and they will direct you on what to do because they have a lot of their rich people's capital. They're accountable to the rich people, then they give it to the company. The company is accountable to the people that invested. They will have a board seat and they will set the tone and direction for the company.

Yeah, yeah. Building shareholders. So, you know, is this a helpful innovation or a dystopian nightmare? Up to you wherever you sit on that. For some, an effective proof of personal system does outweigh the privacy and security risks. But for many, the centralized or dentist identity solutions aren't the answer. And WorldCoin certainly isn't either. So look, I think the ultimate lesson here for everyone is, you know, understanding the token supply, understanding the importance of that. And just because a token has a great idea, you need to look a little bit deeper. And 1% of, of a circulation in token in, in the tokens, limited supply is fair to remain skeptical. And I think, you know, more ultimately, the way they've done this is going to result in a lot of uneducated investors losing a shitload of money. So please be educated before barreling into tokens.

That's exactly right. And look, let's sum this up. The one key thing you mentioned was the 43 million tokens have gone to people in Asia and Africa. If you are in an emerging nation and you need money, hell, I'd get my RS scanned to give me a hundred bucks. Sure, let's go. Like, I need that money.

Right.

And that makes sense. But then you come across, you've raised a bunch of money from VCs, you've gone and done an activity. You've got these centers where you can get your scan, you've got databases, you've got things you have to look after, you've got security. And now you've given this token out, then you give out 100 million of the token to then go to the other side and create a liquidity pool. So you're spending money. Where is the value accruing? What are you actually creating? What is the asset? And then if you're going to give out more tokens, how does that result in real dollars? Where does the proper sell side, proper buy side come from? And how do people convert that into dollars? Does this scale or is it just going to raise more money, put more money in? What is the end result here? How, how does it actually produce cash flow?

Yeah, I don't know how this actually generates any value, like obviously societal value of giving people money. Yes, but where's the money coming from?

It's coming from. Yeah, they're funding it with VCs, and then eventually they're going to fund it with people that haven't listened to this podcast. Because they're the people that are going to buy in. They'll be on the buy side and the VCs and the people that scan their irises will be on the sell side.

Exactly. And people think it's great. They hear about it, they think they're saving the world. They won't go to this level of depth and analysis and they will be giving up their money. Thousand dollars at a time, 2,500 here, and it'll fund this thing. We've seen it time and time again.

Right, let's wrap there. That's been a good little deep dive. Thank you so much for listening, everyone. If you have a friend or someone in crypto that you think will find valuable in this, they might be thinking about buying Worldcoin. They've heard of it. Please, we'd love for you to send this to them to get the actual breakdown to know exactly what's going on. It's what we do full time here at Collective Shift. Breaking down the world of crypto so you can upgrade your portfolio and not make all the bad decisions most people do.

And please don't scan your iris unless you're absolutely destitute.

Let's wrap it there, guys. Thanks so much for listening. Thank you, Bergs.

Thanks, champions.