Why our New Era Needs an Innovation Currency?

By Raj Malhotra, CEO — RiteCoin & InvenTrust

We are now squarely in the grasp of a New Era: the Era of Intangibles. Intangible assets (such as Brand, IP, and Reputation) now massively overwhelm tangible assets (such as Plant, Machinery, and Property) as determinants of Net Worth.

Here are some notable examples of this megatrend:

1. Ocean Tomo, a consultancy for buying and selling IP assets, estimates that S&P 500 companies’ intangibles as a percent of market value have grown from 15% to 85% in the 40 years from 1975 to 2015. According to Fundstrat, intangible assets account for over 90% of the market value of FANG stocks.
2. Contemporary art has become its own currency. Values continue to touch stratospheric heights as buyers and sellers operate in an economy that operates from its own sets of rules. Living artists such as Jeff Koons whose Balloon Dog fetched over $50M some years ago may provoke controversy about what makes a balloon dog worth that much but the underlying mechanism is of wealth being “stored” in assets where prices are set through subjective mechanisms. These mechanisms are subject to great volatility so that an artist whose work is being feted for tens of millions today can become relegated to a “has been” where value plummets as other artists emerge into the limelight.
3. Cryptocurrencies are another step in the long march to greater value being attributed to ‘trust’-based assets like intangibles. Crypto-currencies available in the market today have values that depend on ‘belief’ systems that are often not anchored in real-world assets or on centralized systems of fractional reserve banking. Although the underlying technologies for such currencies are in their early stages of evolution, they already mark a radical departure from past forms of value generation.

Such examples make us wonder about the very basis of value in a digitally interconnected world. How do we ‘rationally’ value human enterprise when the conventional basis for value has shifted so dramatically?

Those valuing early stage innovations are familiar with the problems of ambiguity and uncertainty. A biotech innovation may command a very different value after clinical trials than when it is a pre-patented disclosure. As another example, it is hard for an innovator with a new battery technology design to monetize it since the mechanisms of action may not be straightforward to manufacture.

Still, this is an era where innovation velocity continues to increase. As a result, even companies with entrenched, not-invented-here cultures are being forced to look outside their folds to keep up with the pace of change. The result is that it is becoming increasingly important to reliably access and value early stage innovation in technology areas which are moving the fastest! This means that many leading corporations are now increasingly under pressure to build technology pipelines in precisely those areas where the basis for value creation is shifting unpredictably. A large company has its work cut out for it when managing such pipelines, whether it’s a large multinational that is seeking to riff on CRISPR Cas 9 based genomics or a telecoms major who wants to acquire next generation IoT or 5G technologies. Not only do they need to get at ‘undiscovered’ IP and expertise, they also need to find compelling ways to value, incentivize, and cross-pollinate know-how that originated outside their corporate folds and for which their rivals are also keen to acquire an edge.

Within this friction prone dynamic, an innovation currency that generates incentive mechanisms to mobilize an ecosystem of technology and human agency around both seekers and holders of innovation know-how could be revolutionary. Many prior attempts at IP and technology marketplaces floundered precisely because they could never generate adequate liquidity around both search and transaction processes.

Now, as we hurtle toward Web 3.0, imagine a new browser element that learns and tracks each user’s creations and underlying know-how. When I pen a short story or develop a molecule or take an image or compose a song, this new IP-savvy browser layers that creation into an enormous, drop-box like reservoir of know-how. Scouts — who may be AI-augmented bots or POHs [plain-old-humans] — respond to rich incentives to scour the world for know-how that can be connected to demand for particular music, art, technology, and design. As an example, a scout for pharmaceutical companies sifts through bot-generated “libraries” of molecules designed by PhD students from a set of chosen universities. When she senses a match with needs articulated by particular pharma “clients”, she facilitates a connection by offering a research student team an advance payment to share their design. A community of valuation expertise and tools springs up around this developing dialogue to offer guidance on pricing and deal terms.

In another part of this altered Universe, a columnist for a newsroom in Nakuru, Kenya has come across compelling footage from a new charitable mission that is training disabled kids to use computers. He is approached by a syndicate with an offer to license his images and human-interest stories and accepts payment in a new crypto currency with which he is unfamiliar on the premise that he has reams of such footage and wants his work to gain exposure with larger audiences. To his surprise, that currency continues to increase in value over the following 6 months and allows him to get over 2x what he would otherwise have been expecting.

Incubation hubs in such a world would function quite differently than in our current environment. Because search and transaction processes would become much more efficient through currency that substantially changes the incentives around sharing IP and related rights, the balance of negotiating power would shift toward the innovators. We are seeing the first signs of this already in the early proponents of blockchain IP models that we, at RiteCoin, have have been following and profiling as we built our own plans for an IP transaction layer for Web 3.0.

Most of these models are in effect building and operating at the application (dApp) layer and seeking to impact a particular domain of IP-related interests: for content rights, gaming characters, science and technology patents, art, music, and so on. Examples include Kodak — which is developing a blockchain-based environment to record imaging rights, and Nper — which is seeking to re-distribute royalties from content and gaming rights. A few enterprises — such as Po.et (funded through a token sale) and Knowbella (in the process of fund raising) are aiming to aggregate networks that can in turn be useful to dApps. These models illustrate the power of collaborative networks to help mobilize industry change and galvanize resources. Fewer organizations have staked out protocol-based strategies for driving the body of research and knowledge around key enabling technologies and setting a protocol development pathway that can deliver upgrades to ecosystem members who adopt their protocols.

However, with few exceptions, almost none of these initial entrants have framed their tokens as new forms of currency tailored to the cause of innovation. Innovation needs a currency that proposes and reinforces new rules of behavior among innovators and various agencies and consumers of innovation. For centuries, the world has relied on systems of regulation, law, and finance to manage and profit from innovation. Now, given the exponential increases in innovation velocity and new forms of decentralization that are now becoming germane to the innovation economy, those older incentive and regulatory mechanisms are floundering.

Few markets are available for transferring the billions of dollars represented by under-utilized patent rights. For the first time in economic history, the lifetime of patents now exceeds the lifetime of the companies that had filed those same patents. On average, the median lifetime of tech companies (who originate the majority of patented innovation) is now less than 13 years and continues to shrink further. Given that patents expire in 17 years, this means that an enormous number of patent originators will need to transfer their rights during the lifetime of their enterprises.

An innovation-linked currency is a bid idea whose time has come, not only to better utilize innovation rights but also to expand the pool of rights in the market. Currently, many innovators question the time, expense, and effort required to register, prosecute, and enforce innovation rights. Industry IP experts have questioned whether new durations of patent lifetimes may be more appropriate in certain industries or for certain applications.[1]The pricing of an innovation right encoded as currency could adapt dynamically to ever-growing demand for innovation of all types.

Join us on Telegram https://t.me/RiteCoin

[1]Richard A. Posner, “Why are there too many Patents in America.” The Atlantic Monthly, July 12, 2012.