Helium

A major reason that cryptocurrencies have become such a problem is that mainstream journalists normally just regurgitate the hype they are fed by people Talking Their Book. Kevin Roose is a New York Times "technology columnist" who is infatuated with cryptocurrencies. Last March he wrote The Latecomer's Guide to Crypto, which was so bad that Molly White assembled a group of experts to perform a devastating fact-check. Roose responded by justifying "talking his book" in a since-deleted tweet:

Crypto is pretty experiential compared to traditional finance, and it's going to get harder for journalists to report on this stuff if they're prohibited from touching it at all (especially as more activity moves into token-gated Discords, DAOs with ownership requirements, etc.)

He conveniently ignores that conflict of interest policies prevent journalists owning cryptocurrencies, not experiencing them using the paper's money.

A month earlier Roose had published another masterpiece of credulity entitled Maybe There’s a Use for Crypto After All whose subhead was:

Helium, a wireless network powered by cryptocurrency, hints at the practical promise of decentralized services.

Below the fold I compare reality with Roose's naive boosterism.

Roose provides some numbers:

The network is made up of devices called Helium hot spots, gadgets with antennas that can send small amounts of data over long distances using radio frequencies. These hot spots, which cost roughly $500 apiece
...
More than 500,000 Helium hot spots are in use around the world,
...
In the first few days after I plugged it into my Wi-Fi router, it generated about $7 worth of $HNT

Lets assume that a "few days" is a week. If Roose's hot-spot was representative of the network (he didn't check the sub-Reddit to see if it was) that would mean that the network was paying out $3.5M/week or $182M/year.

Mark Felt (Deep Throat)

Roose is in his mid-30s. I thought all aspiring journalists of his generation watched All The President's Men and heard Hal Holbrook as Deep Throat say "follow the money". So if the network was paying out $182M/year, and it was a sustainable business, it should have been taking in more than $182M/year from the kind of customers Roose described as:

companies like Lime (which has used Helium to keep tabs on its connected scooters) and the Victor mousetrap company (which uses it for a new line of internet-connected traps).

Source

Did he call up Lime and ask "how much are you paying Helium, and are you getting value for it?". Did he check the public blockchain to identify Helium's wallets and see how their HNT token was moving? Did he notice that by the time he wrote HNT had dropped from its peak on 11^th November 2021 of $51.20 to $30.00, and ask other Helium hot-spot owners how they felt about their income being cut 42%? As we shall see, he didn't.

Of course, money from these corporate customers was not the only money flowing into Helium. Six months earlier, Joanna Ossinger reported that Andreessen-Backed 5G Blockchain Network Raises $111 Million:

The Helium Network, a decentralized peer-to-peer 5G wireless network, has raised $111 million in a token sale led by Andreessen Horowitz.

The transaction was structured as a purchase of Helium’s native token, HNT, and included participation from Ribbit Capital, 10T, Alameda Research and Multicoin Capital, according to a statement.

Source

At that date HNT was trading at $16.46. Had Roose been paying attention to the fortunes of tokens issued by A16Z-backed companies, he might have noticed that HNT's price history was not unusual. Chia, another A16Z-backed company, had a similar trajectory, without HNT's early history. He might even have read Fais Khan's "You Don't Own Web3": A Coinbase Curse and How VCs Sell Crypto to Retail, published three weeks earlier. Khan shows that, after an initial pop, the longer a VC-backed coin has been on Coinbase, the worse it performs relative to BTC and ETH, and:

A16z’s returns are much worse than Coinbase’s listings overall! This to me smells of insider selling. These should be the best coins there are, given a16z’s access, but instead 100% of those older than 12 months and 90% older than 6 months lag Ethereum.

Of course, VC money coming in is good, but a sustainable business can't survive on it. Another source of money coming in is the $500 for each of the hot-spots. They are LoRa gateways, and he could have searched on Amazon to find how much other LoRa gateways cost. I just did, and right now the cheapest I found is $52.99, and a professional one is $193.99. So each hot-spot is generating at least $300 over retail. That's $150M right there, but it isn't a sustainable cash flow either.

So just by using arithmetic and the Internet, Roose could have rapidly found enough information to cast doubt on Helium's sustainability. But he wasn't alone in believing the hype. Seven weeks later, Hannah Miller reported that Crypto Wireless Company Helium Hits Unicorn Status:

Helium Inc., the creator of a blockchain that powers a decentralized wireless network, raised $200 million in a funding round led by Tiger Global Management and Andreessen Horowitz. The startup, valued at $1.2 billion with the latest funding, also said Wednesday that it is changing its name to Nova Labs Inc.

At that date, 30^th March 2022, HNT was $24.98, down 51% from its peak. Of course, A16Z probably sold around the peak. Even if they had HODL-ed they'd be up 52% but anyone who bought after 10^th October 2021 would be under water. On 17^th May A16Z published Introducing the 2022 State of Crypto Report describing Helium as:

a grassroots wireless network, is posing the first legitimate, decentralized challenge to entrenched telecom giants.

This was impeccable timing. One week earlier, Terra/Luna had collapsed, setting off the "crypto winter". HNT dropped to $8.70, 83% down from the peak. As I write it is $9.30. Amy Castor read A16Z's report and posted A16z’s ‘State of Crypto’ report: A rehash of bad crypto market pitches:

Helium is a utility token ICO scam where you mine HNT to pay for long-range/low-bandwidth wireless connectivity. To start mining, you have to buy $80 worth of gear from a Helium-approved vendor marked up to $600. Some miners report making less than $1 per day. HNT has lost 85% of its value since November.

But it doesn't appear that anyone actually followed the money until 26^th July, when Liron Shapira's thread (unroll) went viral. He starts with the TL;DR:

.@Helium, often cited as one of the best examples of a Web3 use case, has received $365M of investment led by @a16z.

Regular folks have also been convinced to spend $250M buying hotspot nodes, in hopes of earning passive income.

The result? Helium's total revenue is $6.5k/month

The Generalist explains:

To use Helium’s IoT network, customers burn HNT in exchange for Data Credits (DC). This has a deflationary effect on the price of HNT. Data credits maintain a steady value of 1 DC equalling $0.00001. Companies spend Data Credits by transferring data via LongFi and making transactions on the Helium blockchain.
...
Data Credits are used when onboarding a hotspot, asserting a location, and processing a payment. Onboarding hotspots, in particular, is intensive from a Data Credit perspective. Since Helium is onboarding so many new hotspots, this skews results, suggesting greater customer activity than is actually present. Data from The Decentralized Wireless Alliance removes these three uses, demonstrating the size of the Helium economy’s customer demand. By this measure, DC usage was just $6,561 in June.

Inspired by Shapira's tweet, actual journalists started asking the questions that Roose couldn't be bothered with. First out of the gate was Matt Binder with Web3 darling Helium has bragged about Lime being a client for years. Lime says it isn't true.:

Since 2019, the decentralized wireless network service, which bills itself as a peer-to-peer network for the Internet of Things, has touted rideshare company Lime as one of its marquee clients, claiming the company uses its service to geolocate rentable escooters. There are numerous mentions of this partnership on its website, along with the presence of Lime's company logo, and in press coverage with various news outlets.

There's just one problem: That partnership never really existed.

"Beyond an initial test of its product in 2019, Lime has not had, and does not currently have, a relationship with Helium." Lime senior director for corporate communications Russell Murphy said to Mashable.

According to Murphy, there was a "brief test of [Helium's] product that didn’t last beyond a month or two" in the summer of 2019. ... Murphy says that, as a condition of the trial, Lime had requested that its name not be used by Helium in promotional material.
...
According to Lime, The New York Times did not reach out to the company to confirm the partnership.

Closely followed by Mitchell Clark with Helium says its crypto mesh network is used by Lime and Salesforce — it isn’t:

Now, Salesforce, whose logo appeared on Helium’s website right next to Lime’s, says that it also doesn’t use the technology. “Helium is not a Salesforce partner,” Salesforce spokesperson Ashley Eliasoph told The Verge in an email.

Since when probed, Helium's customers seem to evaporate, it isn't suprising that the system's actual revenue from customers is so low. Shapira writes:

Members of the r/helium subreddit have been increasingly vocal about seeing poor Helium returns.

On average, they spent $400-800 to buy a hotspot. They were expecting $100/month, enough to recoup their costs and enjoy passive income.

Then their earnings dropped to only $20/mo.

These folks maintain false hope of positive ROI. They still don’t realize their share of data-usage revenue isn’t actually $20/month; it’s $0.01/month.

The other $19.99 is a temporary subsidy from investment in growing the network, and speculation on the value of the $HNT token.

Meanwhile, according to Helium network rules, $300M (30M $HNT) per year gets siphoned off by @novalabs_, the corporation behind Helium.

So a reasonably skeptical journalist should have discovered that Helium was a typical Web3 company, peddling lies and hype in order to enrich insiders and A16Z.

But there's more. A diligent "technology columnist" might have been expected to make at least these four important observations:

1. The economics of running a Helium hot-spot are analogous to those of Proof-of-Work mining. In the long term they are both low-margin businesses. There is a limited suopply of rewards for mining blocks or carrying traffic. There is nothing to stop competitors joining in and eroding your margins. PoW mining is profitable only when it takes time for competitors to enter; when the currency is proceeding moon-wards and/or when the supply of mining hardware is restricted. Neither is guaranteed. When they aren't, the lowest-margin miners are forced out. The same will happen to Helium hot-spots.
   
2. Hot-spots compete for the available traffic in their area of coverage. In areas of high hot-spot density, typically urban areas, each will get a small share of the traffic, although if Helium were ever to have a lot of customers there might be quite a bit of it. In rural areas the hot-spot density will be low, so each will get a big share of the available traffic. But there won't be much of it, because there won't be a lot of Things in the Internet there, and because the low hot-spot density will cause gaps in coverage, discouraging use of the network in rural areas.
   
3. Helium hot-spots are often described (not by Helium itself) as forming a mesh network. How does a mesh network deliver traffic? Devices connect to a mesh router. Wikipedia explains what they do:
   

   Mesh routers forward traffic to and from the gateways, which may or may not be connected to the Internet

   In other words, packets hop from node to node until they arrive at their destination or a gateway that can forward them onto the Internet. That isn't how Helium works. Each hot-spot (router) is a gateway, so data packets never need to hop between nodes. This makes sense because Helium uses LoRaWAN radio protocols:
   

   Together, LoRa and LoRaWAN define a Low Power, Wide Area (LPWA) networking protocol ... The LoRaWAN data rate ranges from 0.3 kbit/s to 50 kbit/s per channel.

   If packets took multiple hops at this low bandwidth, the network performance would be miserable. They don't; after the first hop to the hot-spot they use the much higher bandwidth of the hot-spot owner's ISP's broadband link. Clearly, a maximum of 50K bit/s wouldn't significantly load this link.
   

4. 

   Source

   One thing Helium constantly stresses is "5G":
   

   Helium 5G will be the second major wireless network that the Helium Network supports. If you have a phone that supports 5G, such as an iPhone or Samsung Galaxy, you will soon be able to connect through Hotspots that are powered by the People — you may be getting 5G from your neighbor!

   5G cellular networks deliver serious bandwidth:
   

   5G speeds will range from ~50 Mbit/s to over 1,000 Mbit/s (1 Gbit/s).

   Assuming Helium eventually gets a lot of customers, the impact of connecting a LoRa router to the median US broadband with 150M bit/s down and 20M bit/s up will not be noticeable. But connecting a 5G router will have a big impact on anyone lacking my superb 1G bit/s symmetrical fiber from Sonic (best ISP ever!). Because they don't have a lot of customers, the impact will initially be negligible. But just as competition and the drop in HNT's value led over time to a lot of unhappy hot-spot owners, success with 5G would lead to similar unhappiness.

It really should be the job of mainstream journalists to apply skepticism to technology hype, not to depend upon tweeters and bloggers to ask the obvious questions.