2019 Q4: Bitmark CEO’s Observations to our Investors

To: Bitmark Investors & Advisors
From: Sean Moss-Pultz

Note: This article series is taken from Sean’s quarterly letters to Bitmark investors. We share them publicly one quarter after they are written to give everyone a deeper, transparent look at Bitmark’s perspective of the world.

Dear Investors & Advisors

This will be a bit different than before. I want to explain where my head is now; as a reflection on 2019 and looking forward to 2020. To do this, I’m going to share three stories.

The first story is about the future of music.

Last April, deep in the weeds of music copyright discussion, KKBOX’s CEO Chris Lin, paused, turned to me and said, “How about we flip what we’re doing? Instead of focusing on the songs, let’s start with the beats.” It was one of those “aha” moments. We could get out of the legacy. We could go deep into the technicals of music. We could make the publishers allies instead of adversaries. I loved the idea.

Since the 1960s, music has been getting more and more decentralized. Every decade has broken down what exactly is a unit of musicians. Beethoven needed an orchestra. Now all you need is a laptop.

Chris has been chewing on a concept he calls “atomic labels” — the smallest but most explosive unit to make music. This concept came out of the question: “What is the future of music?” His thesis is that the music label will become software. The traditional ideas of music labels and groups are broken.

That the music industry is broken should not be a surprise. But it’s super hard to see where to fix it. Chris’ insight is as follows: When you look at the top 5 hits, both the youth and adults share the same taste. But after that, the youth (under 20) are listening to music that comes totally from outside the big labels. The musicians are coming up without labels — they are totally independent.

This means a different model is needed. New software and ownership models must be created to support these people more like entrepreneurs than artists. That’s the role of OurBeat with Bitmark. We can help accelerate the decentralization of the music industry and restore self-ownership to the artists. This is exciting on so many levels. And I’m thrilled we have a clear path to revenue. This is a rapidly growing market. And we have a partner that we already know and trust.

Getting to OurBeat with KKBOX was our best accomplishment in 2019. This was the cumulation of so much work that began with music royalties, went into limited editions of songs with Pochang’s “Omniscient,” and even a social music platform called OurSong. We finally figured out where we can uniquely contribute the most.

That’s music. In the health vertical, we are still in the grinding stages, working to find the right business model. I’m not sure what that will look like. But we made major improvements to the protocol already because of our health projects. More on this later in the letter.

My second story is about foundational narratives.

2019 was also a breakthrough year for me in how to tell the Bitmark story. Yet it started off — like so many breakthroughs — with a terrible struggle.

Back in May, while fundraising, a few potential investors didn’t see the need for digital property rights. I was taken aback. With the diverse set of verticals Bitmark has across health, music, and art, I thought the need was evident. Yet they said Bitmark was “a solution in search of a problem.” Others got the need for digital property rights only to ask, “But why blockchain?”

To answer, I tried to step back and explain that, for most of human history, the dominant form of property has been personal property. The functionality of personal property has not usually depended on trusted third parties. Today, an increasing share of our personal property is digital, and our rights depend on BigTech. That’s a big problem. Using a blockchain to record digital property rights gives us a way out of this mess.

July was the pivotal month. The Great Hack film came out and laid bare the carnage of the Facebook Cambridge Analytica scandal. Many of my friends were shocked and horrified to discover that their personal data had been used against them. Naturally, I was even further befuddled. How couldn’t they see that a lack of digital property rights was the root cause? Honestly, I felt so discouraged.

Then something clicked at DCG’s Annual Summit in October. Ken Liu, one of my favorite short story writers, spoke about “foundational narratives.” He said this is “how we explain who we are, how we are different, and it’s how we encode our values.” Foundational narratives are very important because “humans are incapable of understanding abstract concepts except through stories.”

That was it. The reason people understood the Facebook scandal but not digital property rights was because property rights are abstract. The pain and anger people feel from the absence of property rights is real.

Around the same time, Tim Chen was pushing me to understand my own roots. He thought I was missing a perspective that was crucial for a leader — being able to tell my own story. This was quite uncomfortable. I realized that simple, obvious questions like “Why am I in Taiwan?” were unanswered. Avoided.

After a lot of reflection and talks, I came to the conclusion that I have an explorer spirit. To feel fulfilled, I need to be exploring at the edge. This is why I learned surfing at such a young age. Why I studied physics. And why I continue to live far away from my birth city. Americans can’t go to the moon anymore. So I went to Asia instead.

Something else surprised me. The Web was behind most of my explorations. I grew up with the Web. It was how I connected with others and learned far ahead of my age. My first real money came from building websites. My love of design, coding, even Linux would have been out of reach if it wasn’t for the Web.

Openmoko, my previous startup, was founded to make a phone that was as rich and diverse as the Web. It might be hard to remember, but, before the iPhone and Android, the mobile ecosystem looked nothing like it does now. Handset makers shipped terrible software that could not be updated. Carriers had absolute control over what could be on their networks. Openmoko‘s mission was to “free your phone.” We used open-source software and a passionate community of amateurs to drive a wedge into those gatekeepers. Even though Openmoko wasn’t a financial success, it left a dent.

Fast forward to Bitmark. Clearly, our efforts should be seen as a continuation of that thread. Now, the Web, designed to be open and free, has been centralized and mass surveilled by Facebook.

How exactly did Facebook get so powerful? Before I would just say they built a fantastic team that executes shockingly fast. But after studying the origins of the Web, I realized they have been exploiting an engineering flaw.

The Web did not address information ownership and control as an “end-to-end” internet protocol. That lets companies like Facebook insert themselves into the middle of our communications, vacuuming up our data and selling it in a perpetual auction to the highest bidder. Facebook was not unique in exploiting this engineering flaw. They were simply the best.

The need for end-to-end protocols, by the way, is what I talked about in the Q3 update. To refresh your memory here, an end-to-end protocol will guarantee something happens, even when the underlying network itself does not provide it.

The Bitmark protocol is an end-to-end protocol that secures data provenance. I like to think of information as processed data. If the provenance of the data is secure, then information can be built such that authentication is trivial and doesn’t require a trusted third party. That’s what we do. That’s why KKBOX worked with us for recording song rights, and it’s why Pfizer worked with us on a method for clinical trial matching.

By using a public blockchain, we can also enforce a set of rules for how data can be held, used, and exchanged. These rules are exactly what is needed to counteract the man-in-the-middle attacks and hold companies like Facebook accountable.

But that description is bottoms-up and abstract. We need to start from the foundational narrative.

Facebook’s attack, when understood through the history of the Internet and my own narrative, is a strong story. People need an escape hatch to leave Facebook. That’s why we are making SPRING. It’s the sharpest path to showcase the Bitmark Protocol.

History has shown that revolutions come after the creation of property rights. Land ownership enabled the Agricultural Revolution. Intellectual property rights enabled the Industrial Revolution. When the provenance of data is secured, information can be trustworthy again, and individuals can have digital property rights — that’s the future we want.

My third story is about historians.

To date, the Bitmark Protocol has focused exclusively on the control of data. That was because, in the verticals we have seen, the place where data is stored isn’t up for discussion. Regulation, for example, mandates that patient health data never leaves the country. (In extreme cases it can’t even leave the hospital.)

The consumer internet is totally different. BigTech literally holds all our personal data. This got me thinking. What if data brokers never held data in the first place? Data could instead be held by a trust or bank that specializes in keeping it safe. In addition, we could ensure data never left its storage facility. Instead of data buyers receiving a copy of the data, they could be asked to bring their algorithms to the database. It’s the technological equivalent of bringing a historian to the archives, rather than handing a copy of the archives to the historian.

Valuable data emerges from networks and derives its value from network effects. This is why there are more interests in data than just privacy. I know of at least three:

  1. Privacy
  2. Financial
  3. Control

It’s critical to understand that 2 and 3 can be infringed even when privacy is not. This is why social networks are at the heart of the tech-lash. Even without data breaches, people still sense that something is deeply wrong. Mainstream media, unfortunately, only seem interested in privacy. There is a much larger story here that needs to be told.

When people leave Facebook, they will need other ways to connect. SPRING can help with that. But the Bitmark Protocol is needed to make sure people stay in control. This is where my head is going into 2020. Yes, we need a movement of people possessing their data and understanding how it caused damage. But equally important, when an alternative network emerges, we need to make sure that digital property rights are baked in from the beginning.

From our work with Pfizer and clinical trials, we developed a software stack to handle the extreme data requirements of clinical trials. I like to think of clinical trials as private, siloed groups. On the other side of the spectrum is public, open communities. Those are groups, too. What we built in 2019 was the prototype of rights and privileges for groups. Building this into the Bitmark Protocol directly is our challenge for 2020.

It’s a daunting challenge. At Facebook-scale, even small cohorts escaping are hugely problematic for public blockchains. A new architecture is needed. This is why we are working with Blockchain Commons. From my talks with Christopher, I have come to understand property rights as analogous to “Capabilities” — an alternative security model proposed in the late 70s for access control.

Without getting too deep into the weeds here, when a system such as an OS or website is presented with a request for a resource (data, device driver, service, …), it needs to decide if it should actually do what is being asked. The method it uses to decide is called “access control.” The Bitmark Protocol does this for data. Other people have written smart contracts to do similar things, using non-fungible tokens.

The big idea here is that to do access control right what people really need is a new form of a digital bearer asset. Think of a property title with capabilities for the asset embedded in the title. Like car keys in your registration certificate.

These cryptographic objects could be atomically swapped for other objects in and of themselves (including other digital currency and/or other digital assets) to allow the bearer access or right to update or append to data stores, to prove to others the provenance and rights to access data, and finally to be potentially “spent” and never used again.

This architecture would be radically new, and the implications are huge. It makes it possible for data itself to stay under user control, using strong cryptography. Instead of data users/buyers receiving a copy of the data, they could be asked to bring their algorithms to the datastore. The protocol itself would enforce the rights and privileges across algorithms, across the full spectrum of possible groups.

Again, this is what we want. We want the technological equivalent of bringing a historian to the archives, rather than handing a copy of the archives to the historian.

This type of architecture, I should add, also means we can bring digital property rights to other blockchains. But let me not go into the implications of that now — it’s still very early. Most people don’t realize blockchain-based assets will need property rights, too.

That’s where my head is now. We have a clear path to revenue with OurBeat. The foundational narrative is set so the depth of our brand can finally come through. And our core product — the Bitmark Protocol — has a roadmap that has never been more exciting.

Thank you all very much for your support.

Best,
Sean

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Our end-to-end Internet protocol secures the provenance of data. This makes it possible to have verifiable information, digital property rights, and safe sharing of personal data — without the need for trusted third parties.

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