CoinFund’s Investment Thesis For Worldcoin

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Austin Barack

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The CoinFund Blog

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Solving the Identity Problem is the Key Unlock for Onboarding the First Billion Users to the Crypto Economy

by Austin Barack and Jake Brukhman

Blockchain technology has opened the door to entirely new applications, use cases, and forms of global coordination. Bitcoin was launched in 2009 creating the foundation for Web3 today. Bitcoin was and is open to anyone to either purchase or earn through proof of work mining, and introduced digital, non sovereign, censorship resistant money to the world for the first time. Ethereum launched in 2015, and brought programmability to blockchain interactions via the use of smart contracts, ultimately catalyzing the development of DeFi, NFTs, resource networks, stablecoins, payment applications, onchain gaming, DAOs, and more. However, despite all of these incredible innovations, two more pieces were needed to complete the puzzle. Provable human uniqueness and a means of globally fair distribution of network ownership, which in many respects are interconnected. Those two reasons are why we were so intrigued by Worldcoin and the unique vision of its founders. Worldcoin solves one of the most fundamental problems of decentralization technology by preventing Sybil attacks, and all of their negative externalities (to be discussed more below). CoinFund first invested in February 2021 as one of Worldcoin’s earliest backers, and we continue to have the same high level of conviction that the innovations of the Worldcoin network will be transformative for global digital coordination and financial inclusion, and the onboarding of billions of people to the crypto economy.

Worldcoin was started with the question, how do we prove human uniqueness in a digital context, and do so while retaining anonymity and privacy? There are a number of reasons for this question, but one that truly spurred the need was how to disambiguate AI from humans as AI improved over time. The answer quickly became obvious, it was both a hardware problem and network level problem. A device was needed to onboard a user (sign them up to a non custodial wallet and distribute the network asset), but also ensure that each user can only sign up once. And it had to be 100%, without compromise, privacy preserving. From this idea, a state of the art hardware device was developed entirely from scratch that can determine human uniqueness via the only truly reliable mechanism, iris biometrics. The Worldcoin Orb, in less than 30 seconds, onboards a user by taking a grid of their individual and unique iris pattern, uses neural nets to turn the pattern into a hash (iris code), and then permanently deletes the raw biometric data (user iris images). The iris code is not linked to any personal information of the user (nor the user wallet), and is only used to prevent a user from trying to sign up again, since a repeat sign up would generate the same iris code. From this novel onboarding mechanism, privacy preserving unique proof of personhood was created.

Why Is Unique Proof of Personhood So Impactful?

In a purely digital context, the ability to demonstrate that a user is 1) human and not a bot, 2) only participating once and not via multiple wallets/accounts, and 3) can do so without needing the user to share a government ID or other form of private and personally identifiable information, expands the surface area of digitally native interaction by orders of magnitude. Here are some of the immediate applications, with many more beyond this:

One person, one vote in a DAO instead of voting weighted by token ownership. Unique proof of personhood prevents sybil attacks where a user could try to vote from many different wallet addresses. Practical result: token supplies can have fair democratic voting and need not in all cases be controlled or subverted by whales.
Privacy preserving verification of users for social media applications. This would prevent users from creating spam social media accounts without the social media company needing the user to verify with their phone number or other personally identifiable information. Obvious application: get rid of bots on Twitter.
Equitable airdrops. Allows for sybil resistance when crypto networks distribute network governance assets to their early users, and prevents unfair airdrop farming. Practical outcome: customer acquisition becomes more efficient for networks, as they retain more genuine users.
Efficiently distribute value on a global scale, not confined to the borders of one country, and do so while maintaining user privacy (their proof of personhood ID is not tied to their real world identity or personal information).

For the above use cases, and many more to come, unique privacy preserving proof of personhood is a fundamental innovation and something that resonated with us at CoinFund and something we felt was critical to support. There are other similar type solutions but it was clear to us that Worldcoin’s hardware approach has by far the least error rate of such approaches.

Fair Distribution of a Network Asset on a Global Scale

With the Worldcoin Orb and World ID delivering privacy preserving unique proof of personhood, truly equitable distribution of a digital asset on a global scale becomes possible. Crypto assets have traditionally been accumulated by buying the asset and/or earning it through network participation. The result is that those who bought earlier when prices were lower, or had more capital to purchase more of the asset, were able to accumulate a much larger percentage of the network than later users. This dynamic disincentives subsequent users as they feel like they are “late” and instead constantly search for the next network to be early to, instead of necessarily participating in the networks with the most utility. With proof of personhood and the Orb as an onboarding mechanism, each Worldcoin user can get approximately equivalent amounts of WLD tokens, regardless of when they signed up. This means every user is “early” and all users can have a similar impact on the network development and governance. Furthermore, this applies not just to WLD but as a platform Worldcoin can serve as a distribution network for other assets as well. With this fair launch dynamic, the free distribution of the network governance token helping to incentivize sign up, and the powerful identity utility of WorldID, we believe Worldcoin has an opportunity to bring billions of users to crypto, and the benefits of financial inclusion and global connectivity that come with it.

It’s been more than two and half years since we bought into Worldcoin’s broad and ambitious vision. While Worldcoin has already signed up more than two million users (2,060,888 and counting as of July 23, 2023), we very much feel like this is just the beginning. Worldcoin’s real world utility has the potential to onboard the first billion users and beyond to crypto, and we think it will. Privacy preserving proof of personhood is a fundamentally transformative innovation, along with the fair distribution of a network asset at global scale, and we can’t wait to see what the future holds.

Disclaimer: The views expressed here are those of the individual CoinFund Management LLC (“CoinFund”) personnel quoted and are not the views of CoinFund or its affiliates. Certain information contained herein has been obtained from third-party sources, which may include portfolio companies of funds managed by CoinFund. While taken from sources believed to be reliable, CoinFund has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by CoinFund. An offer to invest in a CoinFund fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by CoinFund, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by CoinFund (excluding investments for which the issuer has not provided permission for CoinFund to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://www.coinfund.io/portfolio.

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