Knowledge is Power — Object Omniscience and realising the full value of our assets.
By Vinay Gupta — CEO, Mattereum
This is Part 3 of the Mattereum Manifesto. Be sure to read Part 1: “Introducing the Mattereum Asset Passport”, and Part 2: “Engineering Consumption”.
Everything becomes significantly more valuable it can be immediately and unambiguously identified and assayed. Better information leads to more efficient markets, and higher prices for assets with higher resolution data. We need clear descriptions of what things are, and we need search for the physical world. Mattereum helps sellers get full value from their goods.
Resale and secondary markets are another answer to waste
The best way of getting rid of waste is preventing it in the first place; durable goods which find homes with owner after owner over time, and never wind up in landfill, is the best available option. But many objects — cars, bicycles, electronics — typically have a very rapid loss of value when they are resold. Even though eBay has put a lot of liquidity into second-hand markets, the transaction costs are still unacceptably high. Goods pile up or get thrown out (or dumped into charity shops, resulting in a really large loss of value and liquidity) rather than getting listed on eBay and resold to somebody who wants them. Selling things on eBay is hard, and half of that difficulty is the labour involved describing what you want to sell, and pricing it appropriately.
The other half of the difficulty is finding buyers — the asset liquidity problem — and that problem itself resolves down to search. If I’m looking for an item, and you call it “a great bass pedal” but do not list the actual model number, how am I to know if it’s what I am looking for? But, conversely, what if you list the model number, and I only know that I’m looking for a “great bass pedal”? Everybody is using their own words to describe things, and that semantic gap in itself reduces liquidity and, consequently, the value of the assets that are looking for new owners. People guess what potential buyers will search for, but this is all guesswork: why is that?
What we need here is clear and unambiguous records about what an object is, and for those records to be equally accessible to all parties dealing with that object: buyers, sellers, insurers, auctioneers, renters, repairers, scrappers, and everybody else involved could all use the same name for the thing and share their records. People measuring and offsetting CO2 emissions could use these same record keeping systems too.
We call this structure a Mattereum Asset Passport.
The Mattereum Asset Passport pulls together structured, semantic data about all aspects of an object’s existence from a variety of experts and observers. The claims made about the object are tied to financial compensation if they are inaccurate, protecting buyers/users and making sure that experts get paid and have skin in the game.
One expert could estimate the embodied CO2 emitted from a manufacturing an object, and another could show proof that these emissions had been offset by (for example) tree planting or regenerative agricultural practices. We can tie the environmental impact data directly into the same system which manages color matching or vouches for the mechanical strength of the thing: product data is product data.
Our core argument is that today everything is underpriced because buyers are constantly hedging against imperfect information.
Without these Asset Passports, the preventable information gap has an even more damaging form: the infamous “Lemon Market” which results when the sellers know more about items than the buyers. Without buyers having certainty about items, all markets are “lemon” markets.
A “lemon” is a term used to describe a car which appears fine on the surface but has hidden mechanical problems, rendering it worthless. The higher the likelihood of “lemons” appearing among genuine goods, the more consumers are likely to price in the risk of buying one in the amount they are willing to pay for all items in the market. All purchasing decisions are impacted by imperfect information, and consumers respond by paying less for things than they would if they had perfect information about the offer.This drives the value of the entire market down, and is still very bad for a consumer when they end up with a “lemon” and bad for the environment when it’s scrapped. When there is certainty as to an object’s functionality, history, and quality, the value which was previously depressed by the risk of buying a “lemon” is unlocked.
Even if the thing consumers buy is perfectly described, they can still be hurt by what they don’t know: there was a better one available, or a better one is due to be released next month. We are constantly trying to lowball our purchases to manage the risk of making mistakes based on imperfect information, and this badly hurts sellers who just want to get paid. This psychology applies as much to houses, cars, and industrial machinery as it does to consumer goods and trinkets. Fear-based behavior from buyers reduces overall economic efficiency in a number of ways.
For example, buyers will:
- Trade at a discount from perceived value (expensive things are cheap on eBay partly because buyers do not trust what they are buying will be what they receive, so prices are depressed)
- Hesitate (reducing liquidity and harming cash flows)
- Introduce expensive middle men to reduce risk (for example, multiple third parties in a real estate deal exist to certify facts about the house to the buyer, and all their fees reduce the price the seller can feasibly charge for the house)
- Increase “trade gravity” (people tend to trade with people they are culturally close to, rather than the ones it is economically most efficient to trade with if we ignore cultural factors because we imagine we have more control when dealing with neighbours)
- Buy from brands at a premium because they trust the brand on matters like quality assurance, design, and fitness for purpose (premium price behavior)
All of this is economic inefficiency which can be squeezed out of the global trade system if we can use technology to reduce the uncertainty of trade. Better product information lets you get full value for quality goods, and discriminates against garbage on the trash treadmill.
All of these sources of friction and uncertainty can be removed or at least lessened. If you put yourself in the position of a purchaser: do you want to buy the goods with shoddy, inaccurate, vague information with no guarantees of accuracy, or do you want to pay a higher price for an iron-clad guarantee that you will get what you pay for? The premium for removing the risk from purchase transactions could be as high as 20% in some markets.
The problem, of course, is that the records describing what this stuff is were not passed on to us when we bought it the stuff. To sell it, we have to effectively recreate those records, and that labour is expensive. It’s hard to get motivated to tag things manually. What we need is for that data to be stored with the object, and transmitted seamlessly to all future users. Mattereum Asset Passports do this.
Mattereum’s system will aggregate expert opinions about objects for ease of consultation, too. We have a new mechanism for incentivizing these experts to put in the time and energy that it takes to express their opinions clearly.
If accomplished guitarists can weigh in with their assertion that a certain model of guitar is ideal for players with hands under a certain length, for example, consumers can wade through the advertising hype and get informed answers to the questions they’re really asking when deciding what to buy. Now we are paying people for real information, rather than to stand next to things and pose with them.
Everyone going out and buying their own stuff just to try out a new product or hobby is part of what got us into our current situation in the first place. If we think of our personal caches of underutilised goods as a sort of poorly organised matter network, of which our closets and garages are just one node, then we can begin to organise this network to make the best use of a wealth of untapped resources in each other’s own backyards. Look up the kit that is the best match for what you’re looking for, and then rent or buy it from your neighbour up the road who has one going spare.
If all of these goods were in the Mattereum ecosystem, then the groundwork is laid for both an efficient sharing economy as well as an agile market for second-hand goods. All of this is based on the same need for information tied to individual physical objects: what is this thing, and what is it really good for?
If we have the facts, we can design algorithms to optimize the allocation of capital (and goods) in our lives. It’s a straightforward big data problem.
This is good news not just for consumers, but for producers. If there is a robust, healthy, friction-free secondary market for guitars, cameras, bicycles, even cars, people are much more likely to buy the best they can afford knowing full-well they can easily resell it at a fair price as soon as a better model comes out (or when they no longer need it). Many professional photographers, for example, operate this way already. They use the best possible equipment and upgrade almost automatically when better gear comes out, because there’s good enough liquidity in the second-hand markets for good quality cameras that they are taking very little risk buying new, high quality equipment. Good for Nikon, good for Canon, good for Sony, and for the photographer and the people buying their photographs. Efficient secondary markets are nobody’s enemy: they just increase the average quality of goods available to everybody. Only the real trash gets pushed out of having value by efficient markets.
To make this vision come true, we need a new category of software.
We know this approach works, because 60 years ago VISA changed the world specifically by reducing buyer risk
VISA is an august institution. It is much older than most people think: it was started in 1958. VISA’s history is absolutely fascinating, and extremely clear, precise, and bold visions of the future powered VISA’s expansion and growth to world domination.
As an organization, VISA is probably the closest precursor to blockchain technology. It exists to enable trade, globally, and does so by mitigating a set of risks which make it harder for people to buy and sell across the world. While it did not have the explicit political vision of Bitcoin, the world that VISA seemed to be creating in the early days was much the same world: endlessly fluid, seamless, point to point transactions around the globe. That was the vision, anyway.
One of the key contributors to the success of VISA is their comprehensive strategy for reducing perceived consumer risk when using VISA to make payments. By providing risk mitigation for buyers living with uncertainty, VISA does succeed in facilitating global trade, particularly on the internet.
Because VISA charges such a high fee (2%+) and has massive market power, they can afford to provide dispute resolution to buyers, and enforce sanctions on sellers (the infamous chargeback), in essence acting as a global small claims court. Relative to small businesses who are dependent on being able to accept VISA cards to continue in business, VISA is parasovereign. Access to justice on even such a rough-and-ready basis as VISA’s customer service reduces a buyer’s perceived risk, so people will pay for goods online with credit cards knowing that if they are defrauded they can get their money back, with the entire system being governed and overseen by VISA, Mastercard, and their peers (at a B2B level, including SWIFT.)
This dispute resolution plus insurance package is extremely powerful for getting trade to happen where it otherwise would not, specifically because it protects buyers from a range of risks, including some classes of information inequality. VISA makes its living from sellers’ willingness to pay high transaction fees; increase in total transaction volume from accepting VISA more than compensates for them. This covers many inaccuracies in product descriptions; people can always say “goods were the wrong color, accept my product return or I will call VISA to arrange a chargeback.”
But if we could create the right kind of markets for truth about those facts, we could eliminate those errors, and correspondingly reduce global transactional friction. There’s no reason that objects should not ship with an accurate color measurement, and plenty of third parties with color testing gear exist. We should never be guessing about things like color matching or product sizing. We have the technology, we just don’t have developed markets to make the information cheaply available to the people that need it.
The power of the blockchain allows bundles of services like VISA’s to be disaggregated into marketplaces, leaving a decentralized, competitive marketplace where component services can be assembled into a system more efficient and powerful than the existing financial architecture has ever been. This is significantly beyond the scope of this article, but it’s news to nobody: including VISA.
VISA itself recognizes the potential transformative power of the blockchain. The new VISA B2B Connect service uses Hyperledger to make more efficient international payments a reality, in theory competing with SWIFT. But a reasonably well designed blockchain trade system need not differentiate between B2B, B2C and P2P users; the underlying technology is secure enough to handle all users on the same backbone, as is natural to the decentralized paradigm.
All of these technical trends converge on the same vanishing point: a world in which money flows around the world as easily as information. Mattereum thinks that model is likely to be broader: information, money, goods, and services will flow around the world as easily as information.
But to get there, it’s important to understand how VISA operates, and what lessons it has for us as we come to our core challenge: redesigning the global economy so we have a planet worth living on in a hundred years.
VISA and the blockchain
Now let’s look at VISA in more depth to understand how they have become such a massive global financial infrastructure player.
The VISA model bundles six services:
- Identity (for both buyer and seller)
- Credit
- Currency conversion
- Payment rail
- Dispute resolution
- Transaction insurance
The blockchain ecosystem is building out a service architecture which roughly parallels VISA’s categories of functions:
- Identity (Sovrin, uPort, Civic, Mattereum)
- Credit (MakerDAO, Ethlend)
- Currency conversion (exchanges, Bancor)
- Payment rail (Bitcoin, Ether, DAI from MakerDAO)
- Dispute resolution (Mattereum)
- Transaction insurance (Mattereum, Etherisc)
So the argument can be made here that the blockchain community are building out a “decentralized VISA.” Not an unworthy goal, as VISA and Mastercard equal upwards of $30 billion of revenue per year on more than $10 trillion of transactions. Additionally, given that blockchain payments are generally considered to be non-reversible, some businesses may greatly prefer blockchain payment solutions to address the problem of unreliable invoicing.
However, the credit card paradigm does not touch vast areas of payments; mortgages, B2B transactions (perhaps 4 times the size of the B2C economy), and larger payments in general are out of scope for the credit card. But the emerging DeFi (“decentralized finance”) model does not distinguish between B2B and B2C services, and fully supports P2P transactions on exactly the same basis. It’s all one. The new emerging architecture is scale-free: trade is trade is trade.
There’s another source of trouble in the existing system that the new system will fix: human error. High error rates, manual re-keying of invoice details, lack of any kind of meaningful “API economy” for automated provisioning of goods and services and so on adds up to a much larger opportunity than competing with the credit card in B2C financial transactions.The entire process of invoicing and processing large transactions is in desperate need of optimisation. SWIFT processes over $5 trillion per day, (at far lower margins than VISA, of course). But all of those transactions will be associated with labyrinthine internal bureaucracies, fundamentally ruled by the big four audit companies who make a living unpicking the natural errors — and occasional frauds — that occur when you have humans in the loop manually entering invoices into databases.
Imagine the transformation possible in this space as precise, clear, machine-readable descriptions of goods and services (backed by guarantees linked to escrowed funds, for example) reduce the error rates on these transactions to near-zero over time.
The trajectory for the blockchain industry has to be towards automating error-free B2B, B2C and P2P transactions, using triple entry bookkeeping concepts to unpick the invoicing maze and cleaning up the manual processes which exists at the boundary between almost all large organizations. Putting B2B, B2C, and P2P transactions on exactly the same backbones, and reducing the friction of operating over international boundaries to near zero is going to unlock genuinely world-changing amounts of wealth.
Where does Mattereum fit in?
Mattereum started to create a “supreme court of the internet” for hearing disputes related to the use of Ethereum and other smart contracts in real world trade. This business model uses the provisions of the 1958 New York Convention on Arbitration to establish a private court which users can opt in to for their dispute resolution by including simple boilerplate text in their contracts. We saw this (and still do!) as a vital missing component in getting world trade on to the blockchain platforms that are emerging.
Many such specialized courts already exist for industries like construction or ship-building, handling hundreds of billions of dollars of disputes every year, so why not for the blockchain space? Most of our innovations in this area relate to technical evidence handling, court procedures, and cost control. Importantly, the awards made by courts of this type are easily enforced internationally. But blockchain adoption in the real world has been slow, and the dispute volume to support such a court does not exist yet. We were a little early.
The Automated Custodian is the technical/legal machinery for doing instant property ownership transfer almost anywhere in the world: an atomic swap for property. We aren’t there yet, but we are working hard on it.
We then pivot Mattereum into its second phase: from the initial arbitration-centric model — which is well-suited to providing legally binding dispute resolution services for large volume commercial transactions — to the “smart property register”, in which we figured out how to apply these concepts to much smaller transactions by narrowing focus to a specific subset of disputes: those related to the authenticity or qualities of a physical object. Mattereum does this by taking a whole set of disputes about point-of-fact issues, and moves them out of litigation-style dispute resolution — adversarial, multiple parties, win-lose, complex burden of proof type decision-making, fault-finding etc. — to insurance claim style dispute resolution. We accept that insuring against the damage done by human error and occasional low-level fraud is necessary for function in the real world. Trade needs this. VISA proved that.
The Smart Property Register is for contract composability: it’s how you’d put your house into a pool for a Blockchain Airbnb based on sublease clauses in your rental contracts. Again, that’s over the horizon: the defi ecosystem has to mature a bit before that has genuine utility, although MakerDAO’s ecosystem is rapidly approaching the point where this functionality would be useful!
So that leaves our first product: The Mattereum Asset Passport, which is essentially a Self Sovereign Digital Identity for a physical object. It’s a domain name for physical matter. It is the abstraction required to connect ordinary physical matter to the internet, in the same way that domain names were the abstraction layer required to connect existing brands, concepts and information assets to the internet.
Mattereum Asset Passports help asset owners to get full value for their physical objects by removing all the doubt and friction associated with the buying and selling of material things. An Asset Passport will also usually include a Digital Twin of the object.
It is literally an Ethereum smart contract which serves to collect together all the relevant information for an object. This information is presented as a second series of smart contracts, which sell very specific indemnification contracts to verify that the information about the object is correct, and pay out if it is proven to be in error. The Mattereum Asset Passport is sort of like a microDAO surrounding an object: a plurality of people all make claims about an object and its provenance, and they can all stake their money on the accuracy of their claims. Anybody that wants to take them up on those promises pays for the privilege. The more people are relying on your data, the more money you get paid. But people can make claims, and invite people to rely on those claims, cooperatively or competitively. It is a market for facts about things; the necessary market infrastructure to effect a transformation in how we approach the material world. There are penalties for being wrong.
That paradigm applies at every level of trade, from Magic the Gathering cards up to oil tankers.
Our initial alpha relies on quite a few Old World fiat abstractions, but as time passes every level of this structure can be automated. Payments go from fiat-enforceable promises, to escrow accounts, to third party judicial release escrow accounts, up to proofs of insurance and reinsurance, over time. Likewise, we start by using fiat identity in the same manner as would be typical for KYC, but will upgrade to uPort, SOVRIN and other decentralized identity solutions as the technology matures.
In the medium term, it will be all on-chain.
An enormous number of disputes in the real world are about the attributes of objects purchased, including secondary situational factors like delivery time. But the basic dispute frameworks are that the thing was not as described, or thing was not fit for purpose and has to be returned or revalued. Accurate, truthful, complete information wipes out entire sets of disputes, bringing down the overall system costs for dispute resolution across all trade. It is like the difference between doing business in a clean vs. a corrupt economy: there’s a threshold past which things just get easy, and the economy really beings to fly. That’s what we envisage doing for the trade in physical assets.
The more we can get people to tell the truth about their offers, the more efficiently the overall economy runs. We have to reshape the incentive landscape to get full disclosure about products, and the Mattereum Asset Passport achieves this.
Essentially, we want a paradigm where, when something goes wrong, people do the equivalent of swapping insurer information, and moving on with their day. We want a situation in which the normal accidents of everyday trade can be covered at a financial level, without requiring complex dispute resolution procedures in cases without contentious dispute. Ideally such a system should punish attempted fraud, rather than reward it — and for that to work, the burden of proof must be very precisely positioned not to create pathological incentives. We feel our design achieves this.
Mattereum’s business model depends on the research, development, and service design we did during this phase. The arbitration model we built to provide relatively affordable global dispute resolution for smart contracts also backs up the dispute resolution mechanisms used in the smart property register. Small disputes are handled using an insurance-type model, and larger disputes or problematic misrepresentations are escalated to our other dispute resolution forums. Without this model, disputes about blockchain smart contracts and oracles would have to be handled in regular courts, which would be unfeasibly slow and expensive.
Justice has to be fast and economical if it is going to support a low transaction cost blockchain economy.
High resolution information and fine-grained property rights will transform how markets work
One critical area of uncertainty, which adds friction to trade, is uncertainty about product specifications, both for newly manufactured goods and especially for secondary markets like eBay.
We have accumulated near-infinite data about people and their behavior in the past 20 years; far, far more than is really safe, necessary, or appropriate. However, we have singularly failed to make a similar accumulation of data about products; neither Amazon nor eBay currently permit me to shop for a laptop by a specific port configuration (“full sized HDMI port, two USB 3.1 ports, ethernet port”) never mind by the force-distance profile of the laptop keys to tell how it will feel to type on it. We still can’t buy clothes online that fit.
The benefits of high resolution product information will be combinatorial. Why should I have to guess whether a TV will fit in the back of a car before I physically pick it up and try? The data exists: every one of these objects had a digital representation that it was manufactured from, but the data disconnects in the economy just cause massive inefficiencies at every hand and turn, because I can’t get to that data without massive efforts. Why?
Why can’t I tell Uber the size of the TV set I want to move, and have their software automatically provision the right car for me? And if that kind of data is good for consumers, what about for freight haulers? What about for people packing aeroplanes?
The “Digital Twin” paradigm will become the standard to which everything is produced. We should always be able to access a high resolution digital copy of our property — size, shape, materials, functional properties, and so on — so that we can always access complete information about what we own. That information combines with other information to offer new, radical, exciting services. It will be like GPS all over again, or like Mobile itself. Exhilarating, expansive changes in how the world works, right in our hands.
Mattereum will establish the new market paradigm to get those digital twins built, bottom-up and grass roots style where necessary. Once we have the digital twins, we can start automatically searching for synergies in matter: what fits with what, what interoperates with what, what will match what. Color, size, shape, fit, technical standards, you name it. Matter is worth more once it is searchable, and computers can figure out its affordances for us. “Yes, this TV will fit in the back of your car.” I’d pay to know that before I picked it up. So would you. We do this kind of stuff for cars, we do it for aeroplanes and aeroplane parts. We know it can work in some markets, and increased computer power and better software allow us to do it for a much broader range of things than previously.
We can find the metadata for all the world’s objects, and put it online. The rest is details, really.
Better information means better decisions, lower friction, and reduced risk. It means more efficient rental and second-hand markets, efficient enough that they may explode into a whole new kind of utility (think Uber and AirBnb), and all this adds up to a more efficient fundamental economy. There is no reason for archaic property rights norms, established in the medieval or pre-medieval period to serve a struggling 21st century society properly. We need to make matter work more like information.
We need a vastly more liquid system of property rights. Not simply tokenization and securitization of the ownership of assets, but a transformed relationship with matter: automated scheduling and provisioning, open options (“I need a sewing machine for two days any time in the next six weeks”) and so on.
We can stretch existing capital assets to serve many, many more people. This serves both commercial and ecological imperatives.
That’s the core goal. We use information markets to reach it. We get the matter under computer control so that we can use algorithms to efficiently allocate it where people need it most: markets, but fully informed transparent markets. Optimal markets.
Be sure to read the other two instalments of the Mattereum Manifesto: “Engineering Consumption” and “Introducing the Mattereum Asset Passport”.
If you would like read more about Mattereum’s near-term plans, please read about our upcoming project with William Shatner to do authentication and provenance for the collectibles market.
Thank you for reading, and we hope you enjoyed the ride! Want to know more? Here are our whitepaper and our Telegram group.
