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Why matter matters: how blockchain will bridge the gap between physical and digital

Why matter matters: how blockchain will bridge the gap between physical and digital

Published by Cloudbet, the original version of the article is part of the Cloudbet Blog’s series on big-picture blockchain stories. For more in-depth discussions on all things crypto, tune into their In the Cloud section and follow on Twitter.

For years mankind’s finest have been busy trying to digitize the physical world, but this has been no easy task. Can blockchain finally bridge this gap? Vinay Gupta, Ethereum’s former launch coordinator and CEO of Mattereum, believes it can.

“So, what problems are we going to solve? All of them. Just all of them.”

If there is one thing no one can accuse Vinay Gupta of, is of thinking small.

Why matter matters: how blockchain will bridge the gap between physical and digital
Not pictured: small thinking.

Small has no part in his business, that much is obvious from his extraordinary – if somewhat erratic – career. Or perhaps careers would be more appropriate, as he’s been all across the board, really: software engineer, open-source inventor, disaster relief consultant, futurist, global resilience guru, systems architect, speaker, venture capitalist, CEO. And he’s not showing any signs of stopping just yet.

From being born in rural Scotland in the early 1970s to taking up the world stage and being profiled by the likes of Forbes and Vice Magazine, his journey “has been long and, frankly, involved a lot of screwing up.”

Gupta began his career designing medical imaging systems and working on graphics for flight simulators, which are perhaps the closest things to “regular” jobs you would find on his resume.

From there he shifted his focus to energy policy and went on to invent Hexayurt (a kind of waste-free DYI tent made of cheap 2×4 plywood sheets), which has been time-tested and perfected in several editions of the Burning Man festival, in which Gupta was a regular. True to his principles, instead of patenting it, he open-sourced the whole project so anyone could build upon and improve the design.

Why matter matters: how blockchain will bridge the gap between physical and digital
Many Hexayurt variants that sprung up after Gupta’s initial design.

The Hexayurt’s low-footprint and sustainable design was a perfect fit for the festival’s zero tolerance for “MOOP”, a burn-ish term for “matter out of place”, meaning any refuse that doesn’t belong on the ecosystem and whose disposal should be avoided at all costs. The project has evolved as a cheaper and more readily available alternative for relief tents in disaster scenarios, and has attracted interest from big players such as the Red Cross and the US government.

This work led him to work for the US Department of Defense as a disaster relief consultant. There, his job was basically to anticipate and plan for the worst possible scenarios. Nuclear terrorism, genocide, pandemics, you name it: he’s planned for it all.

Why matter matters: how blockchain will bridge the gap between physical and digital
An Hexayurt being deployed in Haiti.

In his own words, he spent the early part of his career ”working only on problems that were directly relevant to human survival on earth, under the rule that I wouldn’t do something for money if I wasn’t willing to do it for free.”

However commendable, living by that motto is much easier said than done. And working at the margins, as Gupta found out, can limit the scope of the impact one can effect.

So, after 15 years of tackling some of the world’s most intractable problems from the bottom-up, from outside the “system” – and managing “to make it through the 1990s without making any money at all” – in 2014 he started to realize that perhaps a change in strategy was in order.

“In all my projects, from developing disaster-relief shelters to researching global system risks, the hardest question I have found is: “If this works, will it matter?” It is a question that haunts me, because I envision a world that works – for everybody. Can you see it? No starvation, not much fear, only very rare violent death. Vaccines. Proper management of pandemic risks. Clean energy, clean water. Stable climate. But I have to question whether all our efforts […] are delivering measurable progress.”

Capitalism and change

So in November 2014 he “sold his soul.” After a careful, if not outright painful, reflection on the fates of some of his heroes, such as Robert Anton Wilson and John Draper (AKA Captain Crunch), he figured he needed to change his approach if he was to scale his efforts. Policy alone was simply not fast enough, and it was increasingly clear to Vinay that technology was doing a much better job of bringing about a more sightly future.

“The engineers have been ready to deliver utopia for years […] But the policy side often seems to lag, or even hinder. Maybe if policy people and technologists worked together better we could change the world in ways that are congruent with the most critical human needs, and get a lid on our appalling environmental actions.”

For a while then, another one of his heroes, Elon Musk, had been showing the world that it was possible to work within capitalism to create positive impact in a sustainable – even profitable – way. The successes of Tesla, SpaceX and Solar City – enterprises created by Musk with the stated aim of improving human survivability – have finally helped tip Gupta in favor of adopting the very system he’d spent years resisting.

Why matter matters: how blockchain will bridge the gap between physical and digital
“To the Moon”: now Musk is doing it right.

Perhaps in a stroke of luck, by that time a young developer called Vitalik Buterin was about to unleash Ethereum unto the world. Having been part of the cypherpunk mailing list years before and being no stranger to cryptography, Vinay saw the tremendous potential behind the project, which promised to do for computing what bitcoin was doing for money. So he jumped at the chance, and went on to coordinate Ethereum’s hugely successful launch in 2015.

“So I took a day job, doing something that I wouldn’t necessarily do for free. Ethereum was pretty exciting, but […] it was definitely something where I was stepping back from the stuff I was willing to do for free, like the refugee work, and taking a step into something that was actually market capitalism. But it worked well enough, I sort of adapted myself into capitalism.”

And during all this time, he kept on writing. And tweeting. And giving talks, interviews and debating. He wrote passionately and incessantly on all kinds of big topics, and on a myriad media. Vinay poured down his thoughts, polished and raw, submitting ideas to the ruthless jury of Twitter trolls, taking flak from Reddit haters and skeptical journalists, but also collecting precious feedback from all corners of the internet.

Why matter matters: how blockchain will bridge the gap between physical and digital
One of his many talks.
Why matter matters

For all his intensity, which sometimes draw as much criticism as it commands praise, Vinay is exceptionally pragmatic. Even as he invites readers/listeners to dreamy utopian visions of the future, or visits to the most catastrophic apocalyptic scenarios, his reasoning is always grounded in facts and in a deep knowledge of his subject matter’s context. He seems to be that rare breed of humans who are more interested in making things work rather than making them look good.

This is perhaps Vinay’s most notable skill: to put everything in perspective, zooming out from the micro and into the macro level, without ever losing track of the original subject. This skill, no doubt perfected during his time as a disaster consultant, allows him to see the big picture in ways that people who are too close to the subject can’t, and to see the unique opportunities that are opening ahead.

His time with Ethereum has cemented Gupta’s conviction on the power of decentralization to effect real change. And in the process, he honed his ideas and build his own version of the future, and of his role in steering the world towards it. While taking a shot at creating a VC fund – dubbed Hexayurt Capital – he lay the bedrock for his vision on his Hexayurt Capital thesis:

“Changing the world in ways that are really substantial and significant is not easy, and it’s only really going to get done if we can figure out how to allocate capital to things that really have the potential to make a difference. And I don’t mean this is a kind of narrow social change, bottom-billion kind of a sense, which is what you might expect from me, but we have to innovate at both ends. We have to innovate at the high end because that’s where you get the cell phone technology that eventually scales globally, and the high end is a place where you polish ideas until they really work for human beings.”

In Ethereum he saw the enormous potential of an ecosystem of digitally native assets, traded freely and in a permissionless fashion, governed by self-executing smart contracts that might one day do away with much of the inefficiencies that plague our economy today. From there he went into Consensys, a venture production studio focused on scaling and promoting decentralized technology, particularly Ethereum.

He then “spent a year figuring out how to get Consensys to be more directly transformative – they’ve got very indirect projects, and I was aiming for something that was more meat and potatoes.”

Bridging the digital gap

While blockchain platforms are doing wonders for the liquidity of digitally native assets, such as financial instruments, software, and crypto-native utility tokens, Gupta understood that this was just part of the picture. The fledgling crypto economy was still fundamentally isolated from the material world.

So Vinay set his sights at the trillions of dollars in illiquid physical assets whose value remains, for the time being, still out of reach of the blockchain revolution. That, he believes, is where the missing piece of the puzzle lies.

The main problem is that there is a schism between the two realms, with each being governed by a different set of rules.

Why matter matters: how blockchain will bridge the gap between physical and digital
Vinay explains Mattereum.

 

Physical goods are controlled by the legal system in the same way that things like bitcoin are controlled by cryptography. What makes a physical good into a property is the system’s law that surrounds it and provides the mechanisms of property transfers. So without law there’s no property, there’s just stuff. 

Since being able to quickly change and adapt to technological change isn’t one of the top features of legal systems, any short- or medium-term solution to bringing physical and digital worlds closer together needs to be functional within both systems. Being technically viable is not enough; it must also overcome the legal challenges that such transformation requires to be able to fully integrate with our current system, lest it risks turning into another exhibition in history’s menagerie of broken dreams.

Mattereum

Enter Mattereum, the brainchild of Vinay Gupta, Rob Knight, Chris Wray and Ian Grigg designed to do just that.

Wray, described by Gupta simply as “a genius”, came up with the legal framework behind the project. Grigg is the renowned inventor of such legal innovations as the Ricardian Contract and the practical application of triple-entry accounting enabled by blockchain technology, while Knight is an accomplished software engineer behind significant parts of BBC iPlayer and the UK Post Office tracking system. Finally, Gupta himself serves as CEO and in-house visionary for the startup, which has recently been dubbed “one of the world’s weirdest and most daring” by Techcrunch.

The idea behind Mattereum is deceivingly simple. For a given physical asset,

“An automated custodian becomes an asset’s legal owner and registrar, maintaining the authoritative register of interests in the asset. This enables the unbundling of legal ownership, financial beneficial interest, and possession or use of the asset. The tokenized beneficial interest in the asset becomes tradable, and use becomes licensable using smart contracts or utility tokens.”

The stroke of genius lies in the fact that the custodian, being an existing legal entity, requires little to no drafting of new legislation in order to function across existing legal systems. However, instead of a web of paper contracts and painfully slow and complex enforcement, you get automated governance via smart contract – all that in a way that is completely in line with existing laws.

Governance of the underlying assets is defined when the asset is onboarded, with conditions being set by the original owner as the asset is brought into the digital-legal realm. The custodian, who also doubles as a registrar, creates or updates an Asset Passport – basically a container with all information about ownership and rights.

By the protocol rules, these registrars must identify which assets it owns, and all rights and obligations associated with each one. The collection of all passports within all registrars form the protocol’s Smart Property Register. One of the many problems that such an entity solves is the double spend of material stuff. Say an asset is offered as a collateral for a loan. By simply checking that asset’s passport, the lender can be sure that asset has no other claims or financial obligations, thus reducing diligence and insurance costs.

The Mattereum whitepaper, released in October 2018, describes the mechanism in further details, and we highly recommend a read-through.

Why does it matter?

Even though our productive networks (including financial, supply chain and professional) are a lot more efficient today than in any other point in history, there is still a lot of friction in the machine. While we live 21st-century lives, a surprising amount of processes that govern our systems were designed in the 19th century or even earlier, and have not undergone any significant upgrades since. Think stuff like invoicing or notary services.

In the global level, where trillions of dollars are moved every year, even relatively small improvements would be enough to unlock unfathomable value, which could then be fed right back into the loop. But we’re not talking small, here. According to Gupta,

“Right now, 20% of the world’s assets are wasted. In some areas like food, it’s 50%. In other areas like industrial and manufacturing, there is something like 10% to 15% disuse rate for manufacturing equipment. Everywhere in the world, there are assets that are effectively unable to effectively be capitalized and put under productive use. […] All those kinds of things are even more severe in poorer countries where there’s less liquidity and less access to capital. Being able to effectively identify these resources and bring them back into the market is inherently good for everybody. […] The main thing is trade in developing countries. Managing liquidity is a very very hard problem. Managing legal obligations in poor countries is extremely difficult.”

Mattereum is initially catered for B2B transactions, as the commercial infrastructure for large assets, such as boats and real estate, are already in place. For now, they’re “not shooting for individual users moving around bags of rice and hammers, that stuff will come in time, but that could be five or ten years from now.”

“Right now we’re at the early stages of the internet becoming the fundamental mechanism that the world uses to communicate and exchange goods. We see it gets very good penetration in things like social media, things like Youtube and Netflix, it’s making rapid inroads in a lot of different directions, but thus far, the B2B stuff has lagged far behind consumer adoption.”

And while blockchain-based platforms are already opening a myriad of new roads in the digital realm, their application in the physical world is still limited, to say the least. Gupta believes that bridging this gap is pivotal to fulfilling its promise:

It’s very obvious that the effectiveness of the blockchain in the long run requires Mattereum to exist. And it’s also apparent once you see the gap that Mattereum is filling, clearly, why is it the blockchain has stalled. This is the missing component to get the entire show back on the road again.

What lies ahead

Vinay believes it’s inevitable that the next 20 years will see a complete rollover, with the vast majority of transactions moving online, and Mattereum is just part of this long-term trend. How big a part? Well, as he sees it, about “ten times the size of VISA. On the one hand it sounds kind of like a joke, but on the other hand, we envision a future in which all transfers and goods will go over the internet rather than the crappy old systems that we use now.”

“If you think about the promise that the blockchain has, the objective is to make the promise real. All that great stuff that you were talking about how the world was never going to be the same again and bitcoin was going to change everything, yes, that would be nice. But if you can’t buy and sell real-world stuff on-chain. Where are we? 

The challenges facing Mattereum are far from trivial, though.

In the technical side, there are key management and custody problems, which are a recurrent theme for all blockchain-based projects, for which no single solution has been found satisfactory. If one loses their private key to an asset (or worse, that key gets stolen), what happens? Blockchains being immutable, how can ownership be restored? And if restoring it is as easy as revoking the stolen token, then how can the system be decentralized, or censorship-resistant?

Scaling is also a substantial challenge. Core scaling issues include raising money to build custodian networks, or setting up schemes that allow people to do that, and developing a viable commercial strategy to expand it to a global level is far from easy.

Then there are jurisdiction problems. Consumer protection laws and legal requirements for custodians vary throughout countries, and that in itself requires a case-by-case approach and a lot of groundwork: “as we move forward, the legal work becomes roughly equivalent to the technical work. Now we have this legal breakthrough and have to go jurisdiction by jurisdiction integrating it.”

But then again, these are the kinds of big-scale quandaries where Vinay seems to thrive the most.  After so many years anticipating how things can go wrong, his challenge now is to think exactly what needs to go right so that the promises of blockchain can be fulfilled and the world takes another small step towards his vision. Baby steps.

As Mattereum gets ready to onboard its first assets in Q1 2019, starting in the UK, his sights are already trained in the future. And what a future that is:

“We’re not done digitizing things. We just needed new approaches to software before we could efficiently digitize stuff like that couch. And you know, what I see in the future is, that couch will have a machine-readable tag in it – an RFID, a barcode stuck in there somewhere. You scan the tag, it pulls up all the property rights associated with a couch, so I know where it was manufactured, I know who owns it, I know when they were going to sell it, I know what it would cost to get a replacement if I’ve accidentally destroyed it somehow, I know whether I could rent it for a weekend, and just the ability to pull that information out of the environment.”

Why matter matters: how blockchain will bridge the gap between physical and digital
Perhaps Fight Club was right after all.

“You are going to have search engines for material stuff – I need a charger for my phone handed to me in this Starbucks in the next 20 minutes. How much would it cost me? Go. So the agent software goes out and it puts together the deal for you, and it comes back. That’s the kind of consumer story. Imagine what that looks like in the B2B sector, and what it would do to industry if we had that kind of liquidity for all matter in the industrial supply chain. It would do for matter what we did for information in the last 30 years. Unimaginable transformation – literally unimaginable. I’m not even going to try.”

Whether all that future materializes or not is anyone’s guess. It may seem like science fiction now, but then again blogs spent years as the laughing stock for the “mainstream” media, and only a while ago bitcoin was shrugged off as just some “internet nerd money.”

From his early Burning Man days, with hexayurt as his contribution towards a less-wasteful world, things appear to have gone full circle for Gupta. Today, Mattereum just might be his solution to the old festival adage: no more MOOP. Matter seems to finally have found its place in the blockchain.

Published by Cloudbet, the original version of the article is part of the Cloudbet Blog’s series on big-picture blockchain stories. For more in-depth discussions on all things crypto, tune into their In the Cloud section and follow on Twitter.

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