Introducing Orchid, The Privacy Network

VeradiVerdict - Issue #62

  • Privacy is an incredibly important concern for tons of Internet users in the modern day. Data capture and analysis by major corporations, governments, and other organizations have demonstrated the need for a better way for users to engage with the Internet.

  • Virtual private networks (VPNs) are essentially private networks overlaid on public networks to prevent the provider of the public network from accessing the user’s transmitted data. VPNs are popular for a diversity of use cases, but users still hold concerns with how VPN providers build their systems and what data they can capture.

  • Orchid is the first incentivized, peer-to-peer privacy network that connects VPN users with VPN providers. Orchid offers an ERC-20 token called OXT. Providers stake OXT to gain share in the Orchid network; the number of customers they have grows proportionately with their stake. Users then purchase OXT tokens to access VPN bandwidth from a provider. 

  • The system incentivizes providers to uphold progressive standards on user privacy and ownership because they are in natural competition with other providers on the Orchid marketplace. 

  • The entire solution scales well with the use of nanopayments, or probabilistic payments that take advantage of the way data is shared across the Ethereum blockchain to improve operational speeds.

  • Orchid is looking at an early-December launch with 5-7 providers. Given demands for privacy and the various VPN use cases, it’s likely to see significant traction early on. It represents a huge step in (1) translating the technological innovations of cryptocurrency to other spheres and (2) advancing user privacy, helping the Internet realize the dream of Web 3.0.

On the Need for Real Privacy

Privacy is one of the most hotly discussed aspects of technology in the modern age. With the growth of custom ad-based business models like those of Google and Facebook and increasingly personalized electronic experiences, companies, organizations, and governments are becoming more and more aggressive about collecting users’ data and analyzing it to optimize for their goals –– whether it be profit, research, censorship, etc.

This broad concern around privacy specifically within the financial sector is much of what spurred the development of Bitcoin and the entire market of cryptocurrencies; users wanted a system where they maintained complete control over their assets and could not be tracked back to their transactions because of data-tracking on a centralized server or system. Still, much of the technological innovations with blockchain technology have been overtly focused on the financial sector –– despite a potential diversity of other applications.

So, what’s Orchid?

Orchid is the first incentivized, peer-to-peer privacy network that operates by securely and efficiently provisioning virtual private networks (VPNs). Orchid leverages the developments in blockchain technology for asset control and applies it to the sphere of internet security. It essentially provides a decentralized, secure, and completely private marketplace for users to obtain VPN bandwidth and for providers to offer that VPN bandwidth, utilizing smart contracts, token staking, and algorithmic provisioning.

What’s a VPN?

Generally, when a computer connects to a network (the Internet), the network is public. This means that the agency that provides the network often can see certain information about what information is sent and transmitted over the network. The degree of data collection depends on the specific network provider, but some servers even track all communications. Naturally, this raises a concern with privacy because users don’t want to share their data over networks where other parties might have access to their private data.

That’s where a VPN comes in. A VPN is essentially a private network overlaid over the public network built to preserve a user’s privacy. When a user accesses resources or transmits data over a VPN, the VPN often can shield the communications from the public network, ensuring that the user maintains total privacy. VPNs are often encrypted and are also often used to dub or move IP addresses to access resources in other parts of the world. A fairly traditional example of VPN usage is when some travels to China and has to use a VPN to access restricted resources like Facebook.

How do VPN providers stake on (participate in) Orchid?

The crux of the Orchid system is the ERC-20 OXT token and proof-of-stake. This token essentially equates to a certain amount of bandwidth from a given provider. To participate in the system, providers stake OXT tokens on the Ethereum blockchain representing VPN bandwidth that they can offer users. Proof-of-stake, as opposed to the more orthodox proof-of-work, guarantees more efficiency and fewer attack costs for providers and the network. Orchid utilizes a stake-weighting model, where the more stake a provider puts on the Orchid network, the more traffic (and revenue) they get through their VPNs. Thus, providers are incentivized to stake tokens as more tokens translates to a larger user base and more revenue. To implement this staking model, Orchid uses an on-chain binary weighted tree where each node in the tree is a stake from a provider. This allows the system to efficiently allocate nodes to customers, proportional to a provider’s stake in the network.

On the user side, users stake currency in the network to purchase OXT tokens. Users can then purchase these tokens (which equivalently purchases bandwidth access) and add it to their wallets to maintain VPN access. The genius of the OXT token is that its amount is directly proportional to the consumption of bandwidth by a user on a network and that it creates an easily exchangeable marketplace for providers and users alike. When users randomly select a node to provide them with bandwidth, the probability that they select a certain provider is the same as the provider’s stake in the network. The system uses a random selection model that incentivizes providers to offer more stake in the network, while maintaining user customizability across things like VPNs’ geolocations, latency, pricing, and more. The entire protocol is peer-to-peer and automated via smart contracts, validated by ConsenSys diligence and the open-source community.

What’s all this stuff about nanopayments?

Nanopayments are essentially Orchid’s way of speeding up transactions in the marketplace. One common problem with blockchain system is that the entire idea of consensus creates a huge problem of delayed and slow transactions –– layer 2 solutions solve this to some degree, but still scale pretty poorly in terms of latency.

Nanopayments are essentially a probabilistic way of counteracting that problem. The system’s specific mechanics aren’t super critical for the average user to understand, but essentially users send payments in miniscule amounts (fractions of the real cost they’ll pay for bandwidth) until a certain payment is “accepted” by the network. The rare “accepted payment” is the only payment to go on-chain –– which means only a fraction of the user payments have to be cross-validated across the entire blockchain, significantly improving efficiency. The heuristics for being accepted and such have been architected so that the expected value of the user’s collective payments matches the actual value of the bandwidth they receive. Selling smaller miniscule payments takes advantage of how the Ethereum blockchain (and a ton of other systems) send data over packets; the probabilistic nature of nanopayments makes this much faster.

Why is this better than a regular VPN model?

The idea here is again to eliminate the control that providers have over the network. Even with modern VPNs, providers still can access tons of user data that are transmitted over their networks. Orchid leverages the incentives and power of blockchain and staking to ensure that users have an open marketplace where they can choose from a plethora of VPN providers. VPN providers are incentivized to maintain user’s privacy, keep up fast service, and generally create a positive experience for users so that users continue to engage with them on the Orchid system. Orchid essentially aggregates VPN providers and provides a regulatory control to ensure that users’ and providers’ incentives are aligned.

What’s next for Orchid?

After raising nearly $48 million, Orchid is planning an early-December launch of its technology. The initial launch will be piloted with 5-7 VPN providers. Some critics are wary of Orchid’s capability to onboard users, specifically because of its native token which represents a higher barrier to entry than ideal. Still, given the general demand for better privacy and the diversity of use cases in the VPN world, it’s likely many customers will be excited to join the Orchid platform as users.

Final Thoughts

Ultimately, Orchid, as a privacy network, presents an incredible channel that connects users and VPN providers in way that upholds users’ concerns around privacy and centralization as well as providers’ profit-centric incentivizes. More broadly however, Orchid represents an important step towards Web 3.0, where users can maintain complete privacy and control over all of their electronic interactions. Cryptocurrency was an important first step in realizing this dream, and Orchid does a fantastic job of transferring some of the technology and thought leadership to the VPN space –– this has huge promise for future developments around privacy and ownership.


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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.

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