What is New in the World of Blockchain?
This is a transcript of the conversation between Vinay Gupta and David Orban on 11th February 2022. You can see the full recording of the live stream here.
David: Welcome to What is New in the World of Blockchain! My name is David Orban, I am Managing Advisor of Beyond Enterprises. We love bringing you thought leaders in this frontier of technology that — even though it is already 10 years old, and more — is still often misunderstood, both in what it stands for, how it aims to achieve its goals, and how it can benefit a diverse but inclusive set of people, organisations, enterprises, and which is so full of creativity and passion around people who come up with great new ideas, arguably often not picking the best acronyms or the best descriptors and labels for them. NFTs… I don’t even want to say what they stand for, for anyone who doesn’t already know, because saying that it stands for non-fungible tokens is just making things worse rather than making them better!
Today I am very happy to welcome our guest, because I have been following his work for many years. He has a diverse set of accomplishments, as well as current activities that have very interesting and potentially very important implications. So, let’s welcome Vinay Gupta!
Vinay: Hi, good to be here — good to talk to you again, David!
David: Thank you Vinay for being here with us! Rather than showing my name in the banners as an overlay, I am already showing your Twitter account, which is one of the best ways for people to get in touch with you. You have an active Twitter presence, with very interesting threads. As I was preparing for this episode, I just read the thread that you pinned to the top of your Twitter stream:
“It probably helps if I define it: here is my best short summary.
- The human race is currently running the world like a death camp for poor humans, and particularly for the other species we farm or drive into extinction.
- Fixing the situation is possible, but requires will.”
So, there you go, it’s an important starting point. What brought you to where you are? And in particular, what brought you into the world of blockchain?
Vinay: My history goes back to the 1990s. I was involved very heavily in the kind of cypherpunk movement in the ’90s. My first year where 100% of my salary went through crypto cash was 1999, so ‘99/2000 I got a full year of salary in crypto cash. Then I did a little bit of work in the defence world after 9/11, specifically on crypto projects, both in the US and in the UK, specifically looking at how we could protect biometric data from being abused, so biometric privacy stuff.
After that, in 2014 I got interested in Bitcoin and I spent a lot of time talking about Bitcoin, and I came to the conclusion that Bitcoin’s biggest threat wasn’t the state but it was competitors that were more technologically sophisticated. So I was getting kind of attuned to what’s out there, and then I saw Ethereum, and it was like, “Ah, smart contracts!”. And I had been part of the community that was very interested in smart contracts conceptually, 10 years before Bitcoin was launched, way back in the kind of Nick Szabo early days of figuring that stuff out. The e-rights guys, so Mark Miller’s team… I’d been around all of that stuff conceptually for ages and ages — knew the names, read the papers — so when I saw something that was doing smart contracts, I’m like “Okay, that’s my bus, I’m going to get on there.” I joined the Ethereum team, became the release coordinator for the Ethereum launch in 2015, did a lot of the early communications work.
And now I’m basically implementing a bunch of the core concepts from the cypherpunk era in the 1990s, and implementing a lot of those core concepts on the blockchain, to bring the kind of full power of the cypherpunk vision to bear on the present. Because the smart contract is only a small piece of the cypherpunk vision.
David: And when you talk to people who are cautious, because they know deeply how important the mission is, and they are not driven by the hype of the moment, or the bear market of whatever period, and we both went through both stages many, many times in the history of Bitcoin… If you ask them how are things going, they will reply “So far so good.”
So, what do you think? Is the Bitcoin experiment beyond certain stages, where the kind of attackers that you mentioned could threaten it? That’s one question. And the second question is: is Ethereum, which is an experiment, right? It’s code, we found a lot of bugs, important ones too… We had a furious debate in the community, and, forked, hard-forked, rewound the block even… And then here we are, after a few years, Ethereum seems to be going, so far so good. So, how do you feel about the maturity of these two big, important projects?
Vinay: So, both of these projects are really showing their age, yeah? Bitcoin has become more and more and more well-understood, more and more people are using it, but not much has happened which is new in quite a while. It’s very, very mature, it’s very, very dug-in, it’s very kind of institutional and blue chip and all the rest of that stuff, but Bitcoin is beginning to look a lot like legacy systems. It’s big, it’s standard, everybody is using it, but it can’t solve most of the problems that people want to solve with it, without very, very complex layer-2 infrastructure, and we still don’t really have all of that stuff worked out quite right.
I mean, the innovation has kind of moved past Bitcoin, because the next… like, when you go from… however many Bitcoin users we have now, maybe 100 million, something like that? If you go from 100 million to a billion, all of the technology which will be used to get that population using Bitcoin will not be Bitcoin technology. It’ll be layer-2 systems, it will be credit card integration, it will be integration with Shopify, there will be all kinds of buildouts around that core system, and it will have to address keeping the transaction costs low, which basically means things like Lightning Network or something better. You know, somebody will figure out how to take optimistic rollups and port them back to Bitcoin, or something — I don’t know what they’re going to do.
So, that thing of when a technology gets to be so mature that all of the next steps are not that technology, they’re things around that technology, that’s a real sign that something is becoming very, very mainstream and heading into legacy.
And Ethereum’s problem is very simple, which is it has promised scaling forever, and it hasn’t scaled yet, and that’s really problematic. Ethereum needs to be fast, and I keep hearing it’s going to be fast, and it’s not fast yet, and that’s making huge amounts of room for things like Avalanche to come along. And Avalanche is here now, and it works just like Ethereum, but it’s fast. Okay, now what, you know.
David: We will probably go back to this. Because as we talk about Mattereum and what the project is doing these days, what your latest milestones and achievements are, we will have the opportunity of asking ourselves gas prices, and all of these fun questions, and potentially composability across multiple chains… Let’s go back there hopefully.
But, why don’t you tell me about Mattereum. How did it come about? What drove you to found it? What is its mission?
Vinay: Mattereum makes smart contracts legally enforceable. You take an event that happens on-chain — I pay you for something, or we exchange some token for some other token, something along these kind of lines — and Mattereum makes that transaction visible as a legal event in 160 countries. Somebody does something on-chain, you say, “Now you owe me something,” I take the proof that you owe me that thing in the form of a contract to court, and that court recognises the blockchain as a source of evidence, recognises blockchain transactions as valid, makes a ruling, and that ruling is enforceable in literally all of the countries that signed up to the 1958 New York Convention, which at this point is well over 160 nations.
What we do with that legal enforcement capability is we make it possible to buy and sell physical assets on the blockchain: gold bars, fine art, collectibles… The biggest thing that we’ve done recently is we sold an antique ring for $65,000.
We’ve worked very closely with William Shatner, who is the actor who played Captain Kirk on Star Trek, there will be another collection from Mr Shatner coming up probably late Q1, early Q2… If you go to the News page on Mattereum.com, this is an asset passport for a Warhol print of Alexander the Great which is about to be sold… And these are NFTs for the physical goods: there is a vault, the picture of Alexander the Great is in the vault, it’s a Warhol print, and when you buy the NFT you get the legal right to take that object out of the vault and take it for your own. And you could potentially sell that NFT a number of times, before somebody decides that they want to take the physical delivery of that.
David: And how do you address what in the blockchain world is called the oracle problem? If the trust is in the smart contract, the trust stops where the smart contract ends, and interfaced with the physical world becomes the vulnerable attack surface.
Vinay: Yes. Let’s take a look at the warranties of the Warhol print. The way that our system works is there are legal warranties attached to each item. You and I are going to do a trade, you make a legal guarantee that the object in the vault is one kilogram of gold, or a Warhol print. That legal guarantee attaches to the owner of the NFT. I buy the NFT, and what comes with the NFT is your legal guarantee, and there is a direct legal and financial relationship between us at that point, so we can now enforce the promises that you made on the blockchain, in the real world, against your physical assets.
David: And in certain jurisdictions, common law jurisdictions, the proof of that is for a claim to be asserted against a broken warranty for example, right?
Vinay: Mm-hm.
David: Has this happened yet with a Mattereum claim?
Vinay: Not yet, no. We have tested it in moot. We’ve had a QC, which is the most senior class of lawyers in the UK — there are solicitors, barristers, and at the top of the pile are the QCs [Queen’s Counsel] — so we had a QC who chose to run a moot on a Mattereum contract and test the contract and make sure that it would work, and they did an enforceability check, and it is indeed enforceable.
We also worked very closely with the UK Jurisdiction Taskforce, which is a group constituted by the UK High Court and the UK Law Society in a partnership, and the UK Jurisdiction Taskforce has actually extended the roles of arbitration in the UK specifically for handling digital disputes under arbitration that involve blockchain property.
David: So these assessments raise the probability that were contract, the legal agreement broken, and the party suffering assert their claim in court, they would be able to win, they would be able to have the contract validated by the court.
Vinay: Yes. And remember that we’re going to private courts, not national courts. International arbitration is a convention, I mentioned this 1958 New York Convention. The international arbitration convention says that if you and I have a contract together, and we agree that if there is a dispute the judge will be a Swiss lawyer from one of the following five law firms, the 1958 Convention says that both of our countries will regard the resolution of that lawyer as if it had been made by a judge in our own country. What this gives is enormous legal force to these opt-in legal structures.
David: Jumping ahead 20 years… Because, once again, the trust ends at the court. Because if I have a judgement against another party, I have to be able to execute that judgement, right?
Vinay: Yes, absolutely.
David: So, are autonomous machines of some kind going to be triggered by court judgements, where for example the Swiss vault that holds the painting would open for me to pick it up?
Vinay: So, this is here now; this is not 20 years out. I mentioned that we had worked very closely with the UK Jurisdiction Taskforce on their new arbitration rules for digital assets. In Clause 11 of their guidance, it states that basically if the arbitrator of the case has the technical ability to make an award, so they can do something like take an escrow contract and decide which party will get the escrow, they’re legally empowered in the UK to do that.
So, when it comes to the process, both sides present the evidence, which is almost entirely or entirely on-chain. The arbitrator, who is a privately-appointed lawyer or barrister, who has excellent technical credentials as well as legal credentials, examines the evidence. They make a decision, and then they take the crypto key that they were given as part of they being kind of instantiated as the judge in this situation, and they use that crypto key to directly access the account which stores the value, and then they can award the escrow to one party or the other party. They can reissue an NFT, they can move the asset from one person to another person’s control, and they are fully legally insulated, you can’t sue them, because they’re acting under the Arbitration Act, which gives them legal indemnity, just like a judge.
So, what we’re attempting to do here is super-empower arbitrators. And arbitration law is the backbone of international business, it’s absolutely the backbone. Because if you are a French shipping company, and you’re commissioning repair work on one of your ships from a place in Vietnam, in all probability, neither party trusts the other country’s lawyer or the other country’s court, they’re always going to favour the person from their countries, so you pick a neutral third jurisdiction, which is usually London, and then the arbitration happens there. And that as an approach, it forms a kind of de-facto global jurisdiction in which commerce happens. And what we are doing is we are taking the de-facto global jurisdiction of the blockchain, and we’re attaching it to the de-facto global jurisdiction of the arbitration world, and connecting these two things together gives us a technologically-enhanced arbitration world, or it gives us a legally-enhanced blockchain world. It’s bringing two existing global systems together in a single unified whole.
David: Often the promise of blockchain is to lower the barriers to entry to some facet of the modern world, where too many people were excluded before, whether it is banking or international commerce, which are the traditional examples. And in this case, it would sound that rather than talking about a huge multinational shipping company on one side and a port of access worth billions of dollars on the other side having a dispute, there could be a lot of other things. And a lot of people, who would never have even thought about using arbitration as a process, now they will have access to it through the Mattereum platform potentially. Is that correct?
Vinay: Yeah, absolutely. Making arbitration cheap is dangerous, and it’s dangerous because unless the evidence is very strong, if you do cheap arbitration, you’re going to get kind of rapid decision-making on not-great cases. There are a lot of people out there that think that the objective is to make arbitration cheaper and cheaper and cheaper, and you do this by having less and less qualified people acting as judges… That kind of stuff eventually is just going to break the arbitration system, because the rulings will be of such low quality that the nation states will just change the rules and those people will no longer be allowed to arbitrate.
The only way that you could get cheap, high-quality arbitration is by having crystal-clear evidence-gathering every single step of the process, so that 99.9% of the time, you look at the data and you understand exactly what’s happening, and you know where to make the award. And to get there, we need a very deep, pervasive soaking of the blockchain into the transactional layer. When you ship a box by FedEx, FedEx isn’t publishing that data to chain. But in 20 years, when we talk about making these systems cheap, FedEx will put it into the chain. When you take a package from the door, there will be a blockchain transaction where you take legal custody of the package, and you’ll be able to open it right there in front of an app running on your phone, which will log the data directly to the chain in a way that makes it evidential. I open the package in front of my phone, my phone is running the court app, the court app records what happens when I open the box, and that’s seen as being legally-authoritative data-gathering. So, there’s a lot of infrastructure you have to build to get really high-quality evidence collection, before you can get into that kind of position.
David: 30 years ago my activities were already digital, but a little bit less digital than today, and I remember being fascinated by incoterms…
Vinay: Oh yes!
David: Which is the table of when the responsibility during a shipment goes from filling the ship, then getting to port, then unloading the goods, and really complex agreements around when one or the other party is responsible for the shipment. So, as you described, FedEx and my next-generation Alexa Ring doorbell documenting the on-chain custody and legal ownership of a good is supercharged, incontrovertible chain of evidence — that will be very, very interesting.
What role do custody or non-custody solutions play here? If I don’t hand over the private key, am I going to go to jail until I do? What’s going to be the solution for a non-custody system to be part of this?
Vinay: The answer to almost every question when it gets to crypto and the real world is escrow, escrow is where it’s at. Because, at the end of the day, we’re not going to see a world in which non-custodial wallets are accessible to court order, it’s never going to happen. So, if you and I are going to do a transaction, both parties have to have escrowed value bigger than the value of the transaction, and that value sits there, available for a litigator to come and claim, and when we both agree that the transaction was successfully done, then we release our escrows and everything opens up again. And it has to be an escrow on both ends of the deal. You can make the payment sit in escrow, but what if the damage done is greater than the payment? If you send me a part for my car and it blows up my engine, the part cost $200, and the engine damage is $6,800; we need to have the ability to have guarantees for more than the price of the payment going across.
So, you have $100,000 bond which sits there guaranteeing all of your trade, we do a bunch of transactions, I come along and say, “I want $6,800 of the settlement,” at that point immediately $6,800 is frozen. Then we go through the arbitration process, and at the end of that either the money is released, or it’s awarded to me. And I want to stress: that’s not 20 years out. The legal machinery for that came from the UK Jurisdiction Taskforce last year, we have implementations of the Mattereum system that use it, and we have physical assets issued on that platform right now.
David: What do you see as your next challenges around the Mattereum? What will make your dreams come true?
Vinay: We’re doing real estate, the next big piece of news is we’re going to do the first real estate transactions. And once you can move real estate around on an NFT, like… Welcome to the 21st century — we’re here now! I mean, imagine the difference between the existing real estate systems and an NFT-based real estate system: you buy the NFT, you call the estate agent, you tell them you’re the new owner of the NFT, and you’re coming to the office to pick up the keys.
David: Yeah. [laughs] Yes.
Vinay: And you’re like “Really?!” and it’s like “Yeah, really! Really really.” We can do that right now, we’re in the late stages of actually shipping projects to do that.
David: That is fantastic. What kind of new markets will develop around the frictionless transactions of asset classes that before were much less liquid?
Vinay: Well, so here let’s talk about how to save the world with crypto. Because we know that the world’s main problem is environmental, and also poverty, these are the two big challenges. What we say is capitalism is extractive at one end and polluting on the other. So, what would it take to dramatically increase the efficiency at which goods circulate in society, to the point where we can hugely expand the amount of human welfare that we can create, for every unit of environmental damage that we do by existing?
I’ll give you an example: I have on my desk a pair of binoculars. Now, I have more than one pair of binoculars in my house, and only the pair on my desk ever really gets used. So if I had a liquid market for the other pair of binoculars that I own, I can immediately just take those binoculars, drop them into a box outside of my front door, and somebody would put some money in my bank account and I’d be set, and that would be one less pair of binoculars that the world has to manufacture. I can take the pair that I actually use to go and watch the deer in the backyard, and these are my binoculars; the other binoculars, they can just go roaming around and somebody else could buy them, and five or six other people could buy them, if the goods have liquidity.
The problem is that if I want to sell the other binoculars, as long as I don’t use them… If I want to sell them, it’s 10 times more work to sell them than the economic benefit to me getting a pair of binoculars sold for $16. Right? It just doesn’t help.
David: I remember being in love with the concept of eBay, and hating to use eBay.
Vinay: Exactly! So, let me find these guys…
David: I actually tried to convince my children, who were young at the time, that they should Tom-Sawyer-like use eBay, because it was so much fun! But they called my bluff, and they always refused! [laughter] I couldn’t incentivise them enough! They would still say, “Nah, it’s too much work!” [laughs]
Vinay: Exactly, exactly — there’s your problem!
So, here we have some Mattereum tags, and each one of these tags is a wallet on-chain. There is a cryptographic secret key on this tag, and when you beep it against your phone, it does a cryptographic signature to prove that this key is on this chip, but you can’t get the secret key off the chip. If I stick one of these tags onto the binoculars, now the binoculars have a digital ID, and we can take everything we know about these binoculars — manufacturer, brand, all the rest of that information — we can tie all of that stuff together, and immediately at that point we’ve got a digital identity. And when we come to sell this thing, we don’t have to go and take pictures of the thing and all the rest of that stuff; all we need is a third party to look at the binoculars, look at the asset passport that describes them, and says, “They still match the asset passport.” And then that third party puts the claim that these two things match into the asset passport as a new claim, and then at that point they’re free, they can be sold immediately. It’s literally somebody holds them up, checks they match, looks through them, beeps the tag, says, “Yeah, they’re exactly the same thing. I verify that all of this is still true,” and boom, you can now sell them.
David: Well, it sounds really, really wonderful. And, as you said, very healthy for the environment, very much towards accelerating the speed of money in the system, and without uselessly creating new gizmos or gadgets that we don’t need.
Vinay: And this is here today. This sounds like science fiction, but it’s not science fiction. I mean, we’ve got the tags right there, we literally just stick them onto things, and off you go.
So, that as an approach… Imagine what happens to the world when we’ve got correct specifications for everything! Because this asset passport thing has a bunch of machine-readable data in it! Remember all of that semantic Web stuff?
David: Well, Tim Berners-Lee used to call Web 3.0 something that is completely different from what Web 3.0 means today… But yeah, that was the semantic Web.
Vinay: Right, that was the semantic Web. So, instead of semantic Web [we have] semantic blockchain: we take the semantic Web data, we embed it in the asset passport, the asset passport is tied to the NFT, and the NFT is tied to the chip. And now, we scan the chip and we get semantic Web, machine-readable data about what the object is! Can you imagine what this is going to do to the world?!
David: Fantastic. One of the beautiful consequences of technology is that the way it develops is allowing groups of people and groups of companies or countries or continents to leapfrog. There was some industry report in the ’80s, saying that Africa will never have cell phones, because there isn’t enough copper in the world to lay down the cables. And obviously with smartphones, or mobile phones first, you stopped needing the cables, and Africa and India and China have phones aplenty.
Where do you think the leapfrogging opportunities are coming here? Because it would sound like the low-hanging fruit is in the UK, as you mentioned. And of course one of the largest real estate markets is New York, so why don’t we do real estate transactions with Mattereum on the blockchain in New York? But [I see] two problems, one is that, yes, it would sound easy, but actually incumbent interests will raise the bar against execution. [Problem number] two, the benefit accrues to establish the structures rather than spreading out more widely. So, do you have any examples where this kind of leapfrogging could uplift 100 million people here, 200 million people there, providing a wider spreading of the benefit of these technologies?
Vinay: I think that we can roughly quadruple the efficiency of global capitalism. I think we can take the cost per unit of human benefit… I think we can quarter the cost per unit of human benefit. Now, that’s a bold claim. But, how many owners should a thing have over its lifetime? One, two, three, four? If it’s four owners, then capitalism is now four times more efficient. Now, that doesn’t cover energy, it doesn’t cover services, but I’ll give you an example: I seem to have too many USB batteries. How did I wind up with too many? You kind of lose them when you’re on a trip, and you discover that they were still in your bag, but you’d already ordered another one, and that happens two or three times over five years, and now you’ve got like a swarm of the damn things! Somebody out there is buying a new one of these right now, even though this thing has probably been used less than 200 times. If we could certify how much volume is still left in this battery, I could sell this thing tomorrow morning.
Now, what happens to the world when every single thing that a rich person in America or Europe doesn’t need is sold on to somebody who’s less wealthy? What happens is we take the existing pool of goods, which currently covers about two billion rich people who are kind of in the stuff world. Then there’s another four-five billion people that aren’t really in the stuff world, they have barely enough stuff, and two billion people have too much stuff. So we’re just going to stick a price tag on every single thing that a person in the rich world no longer needs, and then we’re going to sell that. Some of that stuff is going to be sold to other people in the rich world, most of it is going to be sold to people in the developing world.
David: An alternative could be that rather than imitating uselessly the wasteful models that have been adopted in the developed world, communities will become wealthier through a different model, more along the lines of faster sharing of goods, and more effective and efficient sharing of goods, enabled by this technology.
Vinay: Yeah. You’ve been to India, right?
David: Yes.
Vinay: In India, practically everything that can be made out of stainless steel is made of stainless steel: caps, saucers, plates, trays… You know the stuff I’m talking about, this kind of stainless steel…
David: Yeah, yeah.
Vinay: How long does stainless steel last? Centuries. None of that stuff is ever going to be manufactured again, those things are permanently here. A stainless steel cup never wears out, and nobody throws it in the trash — it just lasts forever. This we call permafacture: we make things to last forever, because they’re going to be sold and sold and sold and sold. And the rule is this: the rule is a human being never buys anything they don’t intend to sell again. And if I buy something with the intention of selling it, I will take good care of it, I will buy good quality, I will make sure that it lasts, I’ll make sure that it can be repaired, I’ll make sure that it’s easy to test to verify that it functions, and a set of other attributes. And this permafacture approach, where you make sure that everything you buy you intend to sell again, means that whenever you stop using a thing, you execute the sale plan that you had when you bought it originally, and you get rid of it.
David: I am not very much into luxury goods, but one of my favourite advertisements in The Economist is a black-and-white photo of a father with a kid sailing, and you see the watch on the father, and the tagline says, “You never really own this watch; you just preserve it for the next generation.”
Vinay: And like that for everything that we manufacture!
David: [nods] Very good. We have someone following us from Kenya, David de Weerdt, and he actually refers to a meeting that he had with the Maasai elders, in Kenya and Tanzania, which of course have a deep, deep culture that deserves not only to be preserved but to be… Well, neither monetising and securitising, none of these labels are appropriate, but to… [to be] made an instrument of empowerment for that culture, that today is not sufficiently able to leverage it. And through the examples and the technologies of NFTs and others, they really could achieve recognition beyond what is happening today.
Vinay: Oh yeah. Let’s take an example: if I want to buy let’s say a Maasai stool, I want some Maasai furniture in my house, I want a Maasai stool, I’m going to buy one. The biggest obstacle I have is that if I try and buy a Maasai stool on eBay, what I’m going to get is a cheap knock-off that was made in some other country, by somebody in a furniture factory.
David: Yep, yep. And actually David is writing exactly that, he said, “Global brands make money using their [Maasai] cultural objects, knocking them off.”
Vinay: Right. This inability for those people to prove that they manufactured something, so that I only buy a genuine object made by a specific craftsman… We get back to these good old digital tags here. If the Maasai have these things and cell phones, you make an object, you embed this in the object at manufacturing, you scan the tag and verify the identity of the object before it goes into the sales pipe, and I buy the NFT, which means that I own the object, and now you ship it to me. And that as a process…
I mean, I can’t overstress how the shadow of fraud reduces our willingness to trade directly with people in the developing world. Because you don’t know when you buy something that you’re going to get something that was really made by the Maasai, you don’t know that you’re going to get something which works, you don’t know whether you’re going to be sold a knock-off… It breaks down the possibility of global peer-to-peer trade, because we don’t have global peer-to-peer trust. And if we have this global peer-to-peer trust, because the tags work, the object identification works, the payments work, the justice system works, you could get this trade sorted out… Anybody that has something to sell, and has cultural value to sell with that something, has the ability to do that successfully. And it sounds kind of dumb, but a good example of this is music: do you know the kind of Bedouin guitar bands that have come out of the Maghreb?
David: Yes, yes. Not deeply, but I have a friend of Tunisian origin, and he always shares that kind of music with me.
Vinay: Now, that musical genre is kind of right now understood to be the best guitar music in the world, that’s like… [These people are] musicians’ musicians, these people are fantastic! And they’ve managed to make enough of a jump to the world of copyright and branding and distribution that they’re doing tours, their music is on Spotify, their music is on YouTube, they’re making a living doing this stuff, because there is a strong-enough connection for copyrighted material to link it up at one end to their bank accounts, and link it at the other end to the media distribution machinery. As a result, that stuff has become an industry, they’re getting paid. They’re not getting paid as much as they should, no musician is getting paid what they should, but they’re getting paid.
That’s not happening for manufacturing. It’s not happening for clothing, it’s not happening for food, it’s not happening for furniture…
David: So, there are these waves of attention, and there are movements and labels, fair trade, and you go and buy fair trade coffee beans and fair trade trinkets of whatever kind. Even those are unable to deliver the value to the producers to the degree that they should?
Vinay: Well, it’s just a digital question. I mean, if you have an analogue fair trade system that was designed 40 years ago… You know, they do it for a category of goods: this thing was fair trade, okay, but there are, like, 4,000 of them. And I know fair trade as a standard, but I don’t know whether the standard is enforced properly… I have some doubts.
[But] if I can see a video of the person making the thing… I got the workshop, I got the camera, the camera films me making the thing, and then at the end of that process there’s a tag on the thing, and I beep it against the camera and it registers that video as the video of the thing being manufactured… Fair trade is my money goes directly into the digital wallet of the person that I just watched making the thing that I have in my house! You see what I’m saying? Radical transparency all the way down the manufacturing supply chain is possible now, we have the technology to do it, and this is how we clean up the enormous sort of environmental and social footprint of capitalism, is by making sure that people can see the consequences, right down to the original mining of the goods and the manufacturing of the goods — total transparency.
David: Let’s flip it around. Many countries need to upgrade their social contracts, and in this I include Western countries too, and there is a large difficulty in doing that. In some countries the work is even harder, it is not even “Oh, our representative democracy is broken, we must repair it,” [but rather] it is “Well, we have a dictatorship that kills people.” And for those of us who are active in blockchain, the issue of a self-sovereign identity, and a strong ability for privacy — at least pseudonymously, but in some circumstances anonymously — is seen as being crucial for supporting the kind of radical change that is needed in certain circumstances. And I’m not even talking about becoming or being a revolutionary; I am maybe even talking about something as simple as being gay, in a country where it is punished by death being gay. And those who have listened to us until now had this vision of everything being tagged, of everything being tracked, of every merchant having their reputation on-chain, every buyer having their reputation on chain… How do you see this world coexisting with the need for strong privacy, or even anonymity?
Vinay: Mm — good question, excellent question. The first thing is I absolutely do not believe in reputation systems in any form, at all. Surveillance capitalism doesn’t get better run as a network of 100 million cottages compared to a single big factory. Reputation is terrible, the core concept of reputation is terrible — it’s literally just prejudice as a service!
David: [laughs]
Vinay: Right? Because think of this situation: you are a black Uber driver in a racist suburb of a right-wing American city. The reputation system is constantly going to be used to punish you for being black, and nobody is ever going to be accountable, because they’re just marking you down — half a star, half a star, half a star, half a star — until you’re driven off the platform. Reputation is literally just prejudice as a service. We should never use reputation in any situation that we can possibly avoid it, and that’s almost everything.
What we do want is restitution.
David: I just googled “prejudice as a service”, and I don’t remember now what you call the result, when you search something and you only have one result…
Vinay: Oh wow!
David: Almost — six [results]!
Vinay: Six — goodness gracious!
David: Prejudice as a service has six results in Google!
Vinay: Wow! Well, it should be more popular now, because now people will know it!
So, prejudices… We don’t want that, right? What we want is not reputation; we want restitution. “I took a ride in this Uber, and the guy got totally lost, he wasn’t paying attention to the map on the screen, he thought he knew where he should go himself. As a result, I missed my flight and it cost me $1,200.” Restitution: somebody has to pay for the damage that I took, because somebody didn’t do their damn job. And that as a model… You and I engage in trade, there are funds set aside for restitution — on an insurance contract, drawn on an insurer — if something goes wrong in our transaction, if I claim on your insurance rather than claiming on your identity, I can take the money from your insurer without ever having to know who you are.
David: What is I think very interesting, and I will have to think about this more, is that the way that you describe this system, which creates a distance between the individual and the behaviour or the outcome, is a better basis for redeemable events, or the evolution of behaviours that are nudged towards desirable forms, than the current assumption, especially in social justice warrior circles, that once you failed their bar, you are irredeemable forever, there is no way that you will be able to do whatever — if you’re a comedian being cancelled, then it’s over.
Vinay: Yeah, yeah.
David: So, it is interesting, and I will have to think about it a little bit, but I will take this alternative of a restitution system rather than a reputation system — very good, thank you, thank you very much.
Vinay: And the critical thing about reputation and restitution is restitution doesn’t have to come from the person that screwed up. You’re my Uber driver, you get lost and I miss my flight and it’s a disaster, and you were doing something… It’s not like we hit traffic; you were ignoring the instructions from the robot, because you thought you knew better. Okay, we agree this is a problem. I claim restitution from Uber. “I bought this service from you, you’re going to pay me.” Now, at that point I never knew who you were: I don’t have your name, I don’t have your address, I don’t know anything about you. And your business relationship with Uber might be affected, but it might just be that you paid your insurance fees, because you put $6/month into a bucket, and that bucket is there to cover claims against drivers when something goes wrong. And that ability to think of this as being about restitution and being about insurance… As long as I know who your insurer is, I don’t need to know who you are. You give me a digital proof of insurance, and I can verify that you are insured… At that point, I’m much less worried about who you are, because I know if something goes wrong, the transaction is insured.
So, it’s not that we just take the existing systems of trade and we slap a layer of cryptography on top, and now we’ve got anonymous, unaccountable black markets, and everybody is running around causing trouble, and we have no way of catching anybody, and it’s a disaster. That’s not what we do. We change from reputation-based to restitution-based, we use digital proofs of insurance rather than digital proofs of identity, and we create a society which is fully accountable and also deeply anonymous.
David: Very good. As people go and visit Mattereum, ideally what kind of enquiries, or what kind of potential partnerships or customers or investors would you like to come banging on your digital door?
Vinay: Okay, let’s talk about investors first. We are about to do an A round. The objective is to raise $30–50 million, and what we will deliver for that — fingers-crossed, with a little bit of luck, this is not investment advice — is a company which is basically 10 times the size of Visa, and which is the large-scale guardian of global trade in the areas where we need reliable purchases, and we need accountability for all parties.
We’ve got the technology, we’ve figured out the hardware, we’ve figured out the software, we’ve figured out the legals, we’ve figured out the business arrangements, we’ve figured out the insurance, we have all of the parts of the machinery there, and we’re going to scale it. And we’re going to be throwing around real estate, we can already do gold bars up to $750,000 bars, we’ve worked with celebrities, we’ve done all kinds of different asset classes to demonstrate capability… We are about to turn the blockchain into the thing that everybody thought it was five years ago.
David: And is this an equity round or a token round?
Vinay: Equity and tokens. Accredited investors only, obviously.
David: And the vehicle is UK vehicle or US vehicle?
Vinay: UK vehicle.
David: It’s a UK vehicle. That’s great. So, what are you going to do with all that money?
Vinay: We’re going to build scale. We’re going to take the existing systems we have, we’re going to automate everything that we possibly can to get transaction costs down, and we’re just going to bring on more and more and more stuff to be bought and sold as NFTs.
David: And what are the key markets that you will be concentrating on, or you will tackle first? You mentioned real estate. Is arts an important one, or it was more like an example?
Vinay: There are two big drivers for what we do. There are markets where the things are very expensive, and there are markets where there’s lots of uncertainty in the purchase. High value and high uncertainty is where we add most value. Because this system that I described with the warranties… You could take the risk on buying a house, and you could have 15 or 20 warranties from different people. “I’m the guy that did the roof, I’m the guy that did the plumbing, I’m the guy that installed the kitchen, I’m the person that manufactured the stove, I’m the person that did the bathroom…” All of those different people take legal responsibility for their part of the process, all of them carry insurance. When I buy the NFT for the house, when I move in, if anything is not as described in the house specification, I can make a claim. Imagine what that’s going to do to the real estate industry! Suddenly houses have specifications, and when something isn’t in spec you can get your money! So, there’s that.
Wine is a huge asset class. Wine is huge, because there’s two trillion dollars of wine in cellars right now. $400 billion of wine transactions in a year, and somewhere between 8–30% of the wine is fake, 8% at the bottom and 30% at the top. So, maybe $400 billion of fake wine?
David: Wow.
Vinay: Oh yeah. I mean, fake wine per year is tens of billions of dollars, it might even be $100 billion, so wine is huge.
Art is huge, and art is… The main place for art is actually new works. Imagine if every artist currently working had those kind of tags on everything that they manufacture — game-changing! No more fraud in art! Everything has been born… Right at the beginning of the process, it’s born digital, it’s tracked all the way through, we know exactly what’s happening… All the stuff about privacy of ownership by the way, this is where the zk-SNARKs come in. We are probably not going to build SNARK-based systems ourself, because we think the SNARK technology belongs in the platform rather than in the application. We might get dragged into it, but I’m not keen to get dragged into it… But I think SNARKs at the application layer is going to be fragile, SNARKs at the platform layer is going to be robust, so we really want to use platforms that have SNARKs for the identity layers.
So, I mentioned real estate, wine… Gold, we’re very interested in doing digital gold. We’ve done a little, and we’re going to do a lot more. Here’s the reason on digital gold: right now there’s about $200 billion in stablecoins, but stablecoin just means dollar coin, and dollar coin now means “you’re losing 5–8% of your money every year” coin. So the stablecoins have gone from being stable, to gradually, gradually shrinking and shrinking and shrinking and shrinking… There are no stablecoins now.
David: Yeah, they should be called dollar-pegged coins rather than stable.
Vinay: Right. And stable relative to the dollar was okay when the dollar had zero inflation; the dollar now has a lot of inflation. So, where do you go if you want a stable transaction that isn’t the dollar? The answer is not euros, the answer is not yen… The answer is gold. Because if you have a mix in your portfolio between Bitcoin and gold — or if you’re really paranoid, Bitcoin, dollars, and gold — at that point you can adjust your risk profile just by changing the ratio of dollars to gold to Bitcoin in your portfolio. And really, if you’re a purist, you don’t need dollars at all; you can just do gold and Bitcoin. But dollars, gold and Bitcoin… that gives you a tripod, and you just adjust your balance between those three things to get something that looks pretty stable to you. Well, at this point most of the people in crypto have dollars and Bitcoin; very few of them have gold. So we’re going to do an enormous amount of gold, to basically fill the gap opened up by dollar inflation in the crypto market. And the way that we do gold is very specific: to give excellent claims on specific gold bars with numbers on them, rather than just “grams of gold” in an account. Because how do you know the gold is there?
David: Are you a platform in the sense that can a developer interface with Mattereum, integrating it in their system and taking advantage of your infrastructure?
Vinay: So, it’s pretty much… You as an issuer of the NFT, you want to sell physical things, you come to us, we build the NFTs with you, we hand you the NFTs, and you take them to market. At that point it’s an ERC-721, it’s on OpenSea: you can plug it into DeFi, you can move it around, you could put it in escrow contracts, you could do all of the normal crypto stuff with it, because functionally it’s an ERC-721; it’s just connected to this enormous legal machinery behind it. So you kind of move around this little kind of ERC-721 thing, and what’s dragged behind it is this enormous legal machinery that makes it into this fully-enforceable magic widget.
David: What is the cost of the tags?
Vinay: The tags are dollars. The chip shortage has made them a little more expensive than they were, but… I mean, we’ve had quotes as low as $3–4/tag, but in very large quantity, with slightly less security than these guys [on his desk]; these guys are kind of unobtainum, because, frankly, we bought most of the world’s supply that was available when we got a chance, like we just… It was an emergency, and we just grabbed all the chips that we could at that window, so we’ve got a bunch of tags. But by the time the supply chain for those has settled down, it won’t be very expensive. And it’s only going to get cheaper every year.
David: Yes. You mentioned India, and of course you are… I don’t know, were you born in India?
Vinay: No, I was born in Scotland! So yeah, I’m Scottish. My father was a medical researcher who came across to study rats in the 1970s.
David: But obviously you recognise, and hopefully I hope cherish your Indian roots…
Vinay: Oh yeah, yeah — I’m a massive hippy! [laughter]
David: Have you kept an eye on the recent announcement of India recognising cryptocurrencies, and… well, taxing them at 30%…
Vinay: Yeah! [laughs]
David: Which to me says that now more than a billion people, and the government behind them, is extremely interested in the success of crypto, because it will become their largest source of income.
Vinay: “Bring us your tax dollars,” yeah. I mean, to be honest… The delicate thing with India is that it has so much scale, and such an ability to make a mess when it does the wrong thing. They rolled out this biometric system for payment of all of the welfare benefits and so on, and it’s been a privacy disaster! Because the state has sovereign authority over 1.4 billion people, and they’re pretty good at scaling things across their entire territory, and when they get it right it’s fantastic, and when they get it wrong it’s a disaster.
And India has such terrible problems with corruption. All of the places that were ruled by empires, corruption becomes a civic duty. If you are in a country, and you’re colonised and they’re extracting wealth from your country, everything which operates by the book and everything which is honest serves the imperial masters, and everything which is decadent and corrupt and hides money and steals from the tax man and so on, all of that stuff, while you were still under occupation, is a civic duty. And you see this in all of the countries which were heavily colonised.
David: And is there a time by which this habit that has been evidently ingrained and adopted… One would expect it has a half-life, or it kind of wanes, or it doesn’t?
Vinay: I mean, the Indians have had independence since, what was it, ’48?
David: Yeah.
Vinay: Still one of the world’s most corrupt societies… Ireland has independence since… I don’t know when the Irish independence was — I want to say it was about the same time, maybe a little earlier [5] — ’28 maybe for Ireland… I should know this… Apologies to the Irish people, I should know it but I don’t! Ireland is still fabulously corrupt. Greece? Fabulously corrupt. South America? Fabulously corrupt.
David: And is the blockchain going to help with that at all.
Vinay: Well, this is the question. If the Indian adoption, and the general global adoption for blockchain takes the areas where things are reasonably clean, and gradually expands them in size, there’s a decent chance that it will be an anti-corruption technology. But if it’s taken too large too quickly, so that the blockchain penetrates the society faster than the society can become less corrupt, the prospect is that what we get is the blockchain is used as a fuel for corruption rather than as a cure for corruption. And that, to be fair, really kind of worries me. Because if you take a corrupt system and you just inject blockchain into it, now you have a corrupt system with a blockchain. Whereas if you take a relatively clean system, and you use the blockchain to clean it the rest of the way, and then gradually you scale it, maybe it’s possible to kind of widen the circle of light, until you’ve got quite a well-established sort of social contract, that this part of the system is not corrupt.
And this is the hope for Mattereum. I mean, we have a world-class anti-modern-slavery expert on board, we have a very good environmental leader, we’re currently in the process of onboarding a friend of mine who is going to take Elinor Ostrom’s work on the commons, and start figuring out how we apply Ostrom’s work… She won a Nobel Prize for commons management stuff. So we’re going to start applying Ostrom’s work to handle the circular economy aspect. We take the thing with the sticker, and it’s being sold, and it’s being moved around and around and around… This thing is now in some sense in a commons. And we take Ostrom’s work on governing commons, and we apply that to the circular economy, because how else would you run a circular economy?
David: Yes. Dominic is helping out: Ireland gained independence in 1922 — thank you Dominic! [5]
Vinay: ’22, ’22 — I lived in Ireland for a year, I ought to know that!
David: Vinay, this was really wonderful. And really, good luck with Mattereum! Even though you have already achieved a lot, the mission is so ambitious that still you have exponentially more in front of you…
Vinay: [slaps the battery and tags together] Practical solutions, practical solutions!
David: That’s right, that’s right — very good, very good! Your thinking of course is very deep as well, so I hope you will join us sometime in the future, to give us both an update on what is going on with Mattereum, as well as in the various implications. Because you are, as well as I, very much looking forward to see how blockchain delivers its promise to build a better world.
Vinay: Yeah.
David: Thank you, thank you very much for being with us today!
Vinay: Thank you David, and thank you everyone for watching!
David: Thank you for watching today’s episode of What is New in the World of Blockchain.
