OSAKA, Japan—Orchid Labs is building a decentralized VPN to provide a new and potentially better way of accessing the Internet anonymously. It’s the first product in a suite of products, that will create a new privacy layer on the Internet, using blockchain technology. And if the plan works, its technology could help replumb and improve the entire Internet.

The startup raised $48 million in 2017 through two SAFT token sales to accredited investors, including Andreessen Horowitz, Blockchain Capital, Polychain Capital and Sequoia. Its stated mission is to, “build open source software that keeps the Internet open and accessible—a natural resource for everyone, everywhere.” That was a hot topic at Devcon 5 this year, with Bitcoin Cash booster Roger Ver name-dropping Orchid’s VPN as an example of how we can reclaim the Internet.

“We’re combining some real hardcore network security with blockchain. Folding these two things together,” Orchid CEO Steven Waterhouse told Decrypt.

Solving the privacy problem

Blockchain + anything has become a bit of a joke of late. There are so many things that the technology is not good for. But it turns out to be just the thing to ensure unbreakable anonymity.

Orchid comes, in part, as a reaction to the growing erosion of privacy on the Internet. As the Internet has become more centralized, service providers and major infrastructure providers have become hubs that governments can lean on. Last year, free speech social network Gab briefly shut down when it was mass deplatformed, and it ended up decentralizing to survive.

Its technology relies on good, old-fashioned VPN technology—but with a twist.

Virtual private networks were designed to create a safe way for employees to connect remotely to their companies’ sensitive computer networks. But the problem with VPNs from a privacy, anonymity standpoint, Waterhouse explains, is that most of them are run by companies that can see who’s using it, and what for.

And for people who use VPNs for privacy for their private use, there’s even less privacy. VPN providers tend to operate within certain IP address ranges, the network provider can see your packet data and people typically pay with credit cards.


Orchid’s approach

Orchid’s VPN is paid for with Orchid’s own cryptocurrency, the Ethereum-based OXT token. Using OXT,  they’re not paying anything to Orchid, but to the computers that are routing its traffic. That will create a kind of marketplace of bandwidth, enabling anyone to become an internet provider.

“In most VPNs you have a series of VPN servers that are either in one location, or multiple locations. But in our system you can route traffic between different VPN servers in a network or choose between multiple VPN servers. This makes for a much more flexible system, adding extra security and increased privacy,” Waterhouse said.

It’s the first step towards a paid-for internet. At the moment we pay for access to the internet, but the actual information itself is passed around for free. Instead, Orchid hopes to see monetary incentives used to keep it decentralized, rather than relying on for-profit companies providing free services, a dangerous combination for ensuring online privacy. For example, you might pay a website itself every time you access it, rather than the money going to your internet service provider. This would give a new stream of income for people who own websites. While some might see this as a less open system, Waterhouse argued that there are multiple benefits.

“You could argue a lot of the bad things about the internet are because things are free. Spam, right? If you had to pay to send emails, spam wouldn’t be necessary,” said Waterhouse.

The challenge of using cryptocurrencies

There’s an obvious problem with this approach, however. Namely, transactions on most public blockchains are transparent. That could potentially reveal the websites a user was visiting, among other things.

Jake Cannell, a researcher at Orchid said the problem could be ultimately averted by privacy coins, but they’re not ready for prime time yet. On top of that, cryptocurrency fees are way too high for nanopayments—the fees would be orders of magnitude higher than the payments. Instead, Orchid has a cunning solution, solving both problems, that involves “nanopayments.”

The system works like a lottery. Rather than getting paid $0.02 for performing a service, you get entered into a lottery. The lottery has a one in 100 chance of paying you an amount that’s 100 times greater. So, 99 times, you’ll get nothing, and once in every 100 times, you’ll get $2.

If you do just one transaction, it’s a terrible idea. You’ll come away with nothing. But, doing this for millions of transactions, it works really well. You’ll end up with the same amount of money but will only have paid a handful of transaction fees.


Cannell said, “It allows you to scale up to an enormously high transaction throughput. ”

Not only will it save on fees, but it solves the privacy issue too. Since only one in 100 (that’s our example numbers, it may be much higher) transactions result in an actual blockchain-based transaction, that means that far fewer payments will be on the blockchain. This will mean there’s much less data available about who’s paying how much to whom.

“We’re building a marketplace of bandwidth using the Ethereum blockchain and a new token OXT. We figured out how to scale transactions and specifically payments to data networking speeds, and our first application of this is a decentralized VPN,” Waterhouse said.

To maximize its incentive mechanism, Orchid built a rating system for computers providing the routing services (not the end users). The more OXT they stake (lock up as collateral), the more traffic gets directed to their computers.

The end game

The decentralized VPN technology and its underpinnings is just the start.

Orchid plans to expand its technology stack of privacy tools, enabling a more private and secure Internet on the back of Web3 technology. That would be the first step toward a paid-for, decentralized Internet, that restores users’ anonymity and privacy.

To Waterhouse, that’s the burning issue of our time, thanks to the issues with Facebook and “before the dear leaders of the US and the UK were elected,” he said. But now, issues of privacy and anonymity “seem less wacky to me all the time. I think it’s generational. The statistics and the awareness [of online privacy] is much higher than any other generation.”

“We want to see the Greta Thunberg moment of privacy at the moment but we don’t have one. Nobody’s screaming about this,” he said.


Daily Debrief Newsletter

Start every day with the top news stories right now, plus original features, a podcast, videos and more.