So let’s deal with manufacturing the wrong things first. Capitalism is pretty dumb: price signalling is a very limited stream of data between buyers and sellers, and learning in capitalism is notoriously slow. If I see a bike on sale for $400 and I buy it, is that because I’m desperate for a bike RIGHT NOW, or because I look at the price and say “well, that’s a pretty good deal” and then get rid of my perfectly functional old one? Would I have paid $500 for a model with a slightly better seat and a better color than grey? Would I have paid $3000 for a carbon fibre model, were one available?

If all we’ve got is price signalling, the only way to move forward is to manufacture all the alternatives, advertise them widely and see what people buy. This is an evolutionary “bloom and prune” approach, and fields like market research which attempt to divine or anticipate buyers’ needs are often very inaccurate because people’s self-reporting about what they want is often very inaccurate. Just asking people what they want doesn’t cut it either. It is hard to fine-tune capitalism to manufacture what people want, and it is even harder when the advertising loop starts to take control of the process, not just telling people what is available, but actively trying to make them want things they did not previously want. Do you really want this thing, or do you want this thing because we made you want it? If we created the demand we are serving, are we helping anybody at all by meeting these imaginary needs?

That vortex, that infinite regress, has distorted the feedback systems inside of capitalism to the point where nobody knows what they want any more in any kind of solid, consistent, clear way. It’s created a huge and poisonous semantic fog which has taken away our ability to know ourselves, because the human mind was not made to reason clearly when fed 5000 ads per day. We evolved in a relatively slow moving, information poor environment without the written word. In a fast moving environment, dominated by marketing messages and skillfully composed advertising copy, and images produced by some of the most technically competent artists in the world, is it a wonder that we can’t think straight about what we want?

In fact, ironically, the only place statistical process control is applied to consumer behavior is targeted advertising, in which some of the best minds of our generation collude to gather vast portfolios of data about our personal lives, and use it to try and drive buying behavior without any fundamental model of people’s needs or wants, only their expressed preferences.

Is it a wonder that we’ve soaked up the entire capacity of the wish fulfilling tree of industrial mass production making fashionable junk that nobody needs, and still can’t seem to find a way to get everybody access to the drugs they need to stay alive, even basics like antidepressants or insulin?

We are squandering this plenty that statistical process control and quality control gave us, and it is wasting our lives, and killing the world.

Slow progress on optimizing the waste streams

Massive process engineering work has been done on the Production function of our society, over centuries. We have a name for it: the Industrial Revolution. Because it was a revolution. Quality control was also a revolution, but a quieter one.

In finance, something similar happened. The investment function we discussed earlier also absorbed statistical concepts to manage how money moves around. Over time this became known as Quantitative Finance, and started to hoover up a disproportionate and frightening number of the brightest minds in physics and math. Enormous efforts have gone into building these systems, and they are uniformly amazing. They’re competing head to head, so there are winners and losers, but the actual quality of the work in quantitative finance is phenomenal.

But what about the consumption and waste functions?

Start with waste. Has landfill gotten radically brighter and more efficient over the past 40 years? Maybe a little. But compare it to what has happened in manufacturing over the same period, and essentially our waste management is unchanged. There’s a lot of talk about recycling, and bins everywhere, but the actual reuse of that material in ways which prevent further raw materials being pulled out of the ground is a lot more complicated than people hoped when the recycling movement got started. It’s too early to call post-consumer recycling a failure, but all too often it just means dumping in poorer countries.

Recyclers simply do not have the tools or resources to combat the sheer scale and complexity of the waste. Although we have lots of incremental progress on pulling value out of industrial and post-consumer waste, are these systems really massively more efficient than what we had before? Do we measure, weed out variation, and make maps? Only here and there, and only in certain industries. Steel is pretty well recycled, plastic not so much.

But compared to the sophistication of the industrial processes that produced the plastic bottles we are throwing away, the recycling side is standing still in comparison.

Resale and secondary markets are another answer to waste

Everything becomes significantly more valuable it can be immediately and unambiguously identified and assayed.

The best way of getting rid of waste is preventing it in the first place; durable goods which find homes with owner after owner after owner over time and never wind up in landfill are 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 thence the value of the assets that are looking for new owners. People guess what the people they are trying to sell to 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 and 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.

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. 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.

Better product information lets you get full value for quality goods, and discriminates against garbage on the trash treadmill.

Targeted advertising isn’t much help on consumption

Consumption is hardly better. Yes, there has been progress, but most of that progress is on selling people things they don’t need, ever more efficiently. The level of consumption has outstripped all imaginable process improvements in making that consumption efficient. Let’s talk about some of the measures taken, and the impact they have (not) had.

So the first question is how do we know what we want. You know the general theme: your entire click stream is used to model who you are, so that advertisers can compete at auction to show you signals to control your behavior. And because we are not evolved to deal with these kinds of cognitive attacks (yet!) they are partially effective, enough to pay for progress and improvement in the fundamental techniques. They are still getting better at this.

And let’s not forget, targeted advertising is something like 90% of the profit at Google and Facebook, and also a contributor to Amazon’s revenue stream. How do they know what to recommend to you? A huge part of the economy of the internet is using statistical methods to understand and change consumption patterns, but in the crudest and least-effective possible way. “You get what you measure” remains the dominant fact of life, and measuring click streams and credit card purchases only measures one step of a four step process. We have optimized only half way through investment, production, consumption, and waste, and no further. We should not be surprised that there are problems. We should be measuring consumer satisfaction and environmental impact, too. Then we would get a better world.

But, ugly and adversarial as the advertising attention-parasitism game is, and dangerous as these information dossiers on us all are, it is still an attempt to apply statistical process control to the consumption system, and it is happening on a truly enormous scale. It takes exactly the same kind of reasoning which was used to make the manufacturing system efficient, and applies it to the consumption system, it just doesn’t push far enough into the consumption system to measure “consumer satisfaction per unit of environmental impact” which is really the sort of thing we ought to be using all this fabulous machinery to measure. And it does not push into the waste system at all. Odious as it is, it may turn out to be the right approach, just applied with too-shallow insight into the problem domain.

The targeted advertising system does what it does with a very partial model of the system it is trying to optimise, and only the most crude and short-term definition of its goals (evolutionary in the worst possible way, non-cognitive at the lowest level). But it does sell product, and it’s paying for the creation of enormous datasets about people and what we think they might want. It just doesn’t ask those all important questions: “Are you still using that thing you bought? Do you like it?” Nor does it know what the thing is made of.

This ad targeting system is a relic: it’s 1960s Mainframe era ideas about production and consumption, running in the 21st century.

Of course the problem is that it measures the wrong thing: measure spending, get spending. Measure satisfaction, measure progress towards our stated life goals, and maybe get those things instead. Price in environmental damage, and get another thing again, a green economy. The problem is that spending is irrational, and behavioral economics factors thwart the eudaemonic potential to turn large scale datasets about people into the common welfare. We have made computers just smart enough to feed on us like attention parasites, but not smart enough to be good and faithful companions like dogs or horses. I cannot yet meaningfully say to Google “find me a good book to read, but make it a little outside of my norm, the last few suggestions have been a trifle timid” and get any useful intelligible response, but the damn thing won’t stop showing me adverts for books it wants me to read. The stupid system is incapable of partnership, it only knows how to hustle and distract us. We have not gone far enough to get positive results, only negative ones. The system is building momentum, but it is still below the threshold of revolutionary change.

Let’s look at other areas where we have large-scale successful attempts to use statistical process control to optimise consumption. Uber tries to put cars where it anticipates there will be riders. It uses price signalling to encourage drivers to turn up during periods when it expects things to be busy. Uber plays the game. Still they seem to have wound up in the same trap as (for example) Apple hardware manufacturing: a truly great service for some people, at the expense of the labour rights of others. The algorithms optimized resource allocation in the pursuit of everyday low prices (or good quality goods which defy our expectations about what phones and tablets can be like, year after year after year). But these systems still wind up treating human beings like machines at every level, and this trend has to be identified and banished before we wind up in Marshall Brain’s vision of dystopia.

Amazon is optimizing what is in the warehouses closest to you, based on the ability to get most of what you order to you same day or next day. This is a fantastic example of using statistical process control to optimize outcomes and serve people’s needs: whatever it is you bought, it’s more valuable to you if it arrives quickly. This is an unmitigated good, again extracted at a very heavy social cost: Amazon warehouses really have picked up the reputation of treating people like a cheaper version of machines. Amazon would certainly automate all the way, if they could.

And that’s basically it for using statistical process control and quality control to optimise consumption. We haven’t made any strides on the scale of the industrial revolution in the consumption system. Not even close. We need this to happen.

Production is already pretty lean, at least for many of our bigger systems. But making consumption lean? The work has not even begun yet.

How might we begin to make consumption processes as efficient as production processes?

Consider the quantity of stuff we buy in the course of our lives for what amounts to experimenting with our identity — goods we purchase to understand ourselves better, or to foment personal growth. We may want to take up the guitar, try your hand at fly fishing, or start learning Tae Kwon Do. As beginners, we often have no idea what the best kit is to start off. So we end up spending large amounts of time tracking down reviews and recommendations, many of which are contradictory. We wind up either getting the most expensive equipment presuming that price equals quality, or the cheapest with the best overall reviews, knowing the goods will have to be upgraded it if the hobby sticks and becomes part of our identity over the long run. All we want to do the experiment. What we don’t want is to be left lugging around the gear if we don’t like the results.

This process of experimenting with identity is entirely natural. But make no mistake, this process leaves residue: each of us has that stash of stuff sitting unused in closets, attics, and garages; the remnants of hobbies and identities which didn’t quite fit, and were set aside. We may manage to move some of it along by selling it online or at a yard sale, but for the most part it all just sits there. Old clothes. Ice skates. A helmet or two. Silk paints. Did I ever really wear this much tweed? Apparently so.

The transaction costs of getting rid of this stuff are too large for us to take action: the stress of making the decision to sacrifice a slab of our investment and just sell the damn clutter, the time it takes to list on an auction site, the physical logistics of posting it to a new owner, and managing the customer service overheads involved in the entire process often leave the goods (and therefore the capital they represent) stranded.

The other approach, just writing them off and throwing them in the dump, seems wrong — both a waste of money, and of the materials embedded in the objects. So instead of doing the rational thing and getting rid of it, we wind up using nearly every square inch of the Boomer generation’s basements, attics, and closets as a sort of informally specified, unsearchable, distributed warehousing solution as the massive superabundant flow of goods from our hyper-optimised production system hits the analogue slackness of our consumption systems, and simply pools in a huge lake of underutilized or obsolete things. There are tens of millions of metric tons of this kind of waste in America, and it all has value — if only we can find it.

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 that data stored with the object, and transmitted seamlessly to all future users. Mattereum Asset Passports do this, of course.

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 opinions of how a particular guitar fares as a beginner’s instrument, 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.

But everyone going out and buying their own stuff just to try out is just 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.

We need clear descriptions of what things are, and we need search for the physical world.

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. It all bedrocks on to 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 straight forwards big data problem.

And 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 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 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.

EAP: Enterprise Resource Planning for the People

The production systems of the world run on Enterprise Resource Planning (ERP) systems, of which SAP and Oracle are probably the two best-known examples. Similar systems exist in the world of finance to manage capital inside of banks, and to allocate resources in private equity firms. This is the software which runs civilization’s arteries and veins, its digestive system and its lungs. It’s the nervous system of industrial capitalism, and without it, we would almost all be destitute.

But these systems are corporate, intimately tied to the investment and production phases of society, but only very weakly tied to consumption and waste management. They are, essentially, direct descendants of the mainframe paradigm: one big computer that rules the whole organization.

And these systems interoperate only with great reluctance; the world is not run by a big, interwoven, interoperable mesh of big ERP systems seamlessly talking to each-other to make optimal decisions. It’s all still largely stuck in the mainframe phase, on arcane standards that are impossible to parse, and worse to debug. In short, these systems are due for an upgrade.

What we need is ERP for the People.

We need smaller, more flexible software systems to help individuals manage the same kinds of tasks that ERP systems handle: physical assets, time, money, commitments and more, as integrated systems. We would all really benefit from having tools that bring the power of knowing what you’ve got, where you have it, what you paid for it, and what it’s worth to somebody else right now. Imagine how much it would change if it was all at our fingertips in a series of dapps which help us optimize our personal relationship with matter itself, mediated by the marketplaces we all participate in, plus new marketplaces for information about the quality, provenance and value of physical objects.

Our working title for this model is Effective Abundance Platforms: platforms which help us manage our relationship to the abundance that industrial capitalism produces, while optimising the hell out of the inefficient capital allocation mechanisms which are represented by error-prone purchasing and reselling behavior among consumers. It’s clean, it’s green, and we think, with Mattereum in the lead, it could be extremely profitable as a new class of businesses.

Mattereum helps sellers get full value from their goods

Our core argument is that today everything is underpriced because buyers are constantly hedging against imperfect information.

All purchasing decisions are impacted by imperfect informtion: in short, that all markets are “lemon markets” and consumers respond by paying less for things than they would if they had perfect information about the offer. 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 for making stuff.

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 information leads to more efficient markets, and higher prices for assets with higher resolution data.

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.

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.

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.

VISA, as an organization, 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, still 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; their increase in total transaction volume from accepting VISA more than compensates for the transaction fees VISA charges on those transactions. 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.

VISA facilitates global trade by reducing the risk of international transaction

VISA, and all other money transmission systems that offer bundled services, makes a living by getting trade to happen where trade would otherwise not. It provides a bundle of services to make this happen. 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 for 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.

And we need to squeeze every last grain of efficiency that we can out of the global economy, because people are still hungry, and structural waste on a finite planet is the enemy of everything that lives. If the internet has a purpose, if the blockchain has a purpose, this has to be part of it: we aren’t just fighting against authoritarianism, we are also fighting against entropy.

Food rotting in the back of the warehouses does not have to happen. We just need efficient systems to connect hunger to food, and at least half of that problem is just bad software which harms the sellers as much as the hungry buyers.

We are all on the same side against waste, and bad software. It’s all of us, against entropy.

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.

We then pivot Mattereum into its second phase: the initial arbitration-centric “supreme court of the internet” model, which is well-suited to providing legally binding dispute resolution services for large volume commercial transactions, pivots to become 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: disputes about 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.

We then narrow focus further to the first component of the Smart Property Register: the Mattereum Asset Passport, which is essentially a Self Sovereign Digital Identity for a physical object. An Asset Passport will usually include a Digital Twin of the object.

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 that fit, online.

These 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 those 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. 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.

More than ever we have to stretch global resources: more people with more demands for more things, on a planet that is already creaking from ecological strain. 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.

Instead, 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.

Introducing the Mattereum Asset Passport

So, when all is said and done, all theory aside, what does it do?

The Mattereum process is three parts: Asset Passports, Automated Custodians, and the Smart Property Register.

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. 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 the Mattereum Asset Passport, our first product.

What is the Mattereum Asset Passport? It’s a domain name for physical matter. Is 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.

It is literally an Ethereum smart contract which serves to collect together all the relevant identification 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.

So, finally, we present you with an example Mattereum Asset Passport. Our Head of Ontology, Dr James Hester, spends quality time on WW1 battlefields in uniform, reliving the past, and coming to grips with it. This is when he is not in medieval armor whacking people with great big swords. Really he should be our Head of Ontology and Time Travel. On one of these expeditions, he recovered an artefact, and we are documenting more than a century of this item’s history using the Mattereum Asset Passport.

I hope you will find that this practical example puts together the whole idea nicely. It’s just the start.

Introducing the Mattereum Asset Passport

Exploring the Asset Passporting Process, By Dr James Hester — Head of Ontology & Provenance, Mattereum

After serving as Royal Armouries Curator of Collections at the Tower of London, and later completing my PhD interpreting how medieval arms and armour was used by examining traces of battle damage, I joined the team at Mattereum to put my training in understanding and documenting objects to a fascinating new purpose.

In the world of art and antiquities, curators and dealers try to compile everything that it is possible to know about an object, since doing so will not only enhance and reinforce its cultural value, but also (especially for the dealers) its monetary value. A doodle on a napkin may not seem very interesting or valuable. However, when we realise that it was drawn by Picasso in 1930 to pay his bill at a café, then suddenly an otherwise insignificant object becomes very significant indeed.

Provenance is another vital aspect of an object’s overall identity which can have an enormous impact on an object’s value. Tracing an object’s provenance — its history of ownership ideally all the way back to its creation — begins with the present and works backwards. Understanding where an object has been is essential for a number of reasons. A pair of limited edition Air Jordans is very different from a pair of the same which Jordan actually wore when the Bulls won the championship. For manufactured goods, it could mean the difference between a properly made product and one where corners were cut and quality standards ignored. Provenance also provides information about an object’s past which could have important ramifications. If the object was stolen, created using prohibited materials, or produced in illegal or unethical conditions, unaware owners might not be able to escape trouble by simply pleading ignorance.

The same is true for any object. Lacking sufficient knowledge, a person might fail to appreciate its utility or value. But by gathering together all of the data relating to that object into one place, we can make much more informed decisions about the things we buy, sell, and use.

One particularly important questions is, of course, how to tell whether the doodle on the napkin is actually by Picasso, and not by someone trying to profit from making you believe that it is. Today, the authenticity of an object — when there is no one currently alive who bore witness to its manufacture — is determined in many sectors by experts. As consumers, we are told that the opinions of these experts can be trusted due to their reputation in the field, gained from years of experience. But even the most knowledgeable expert can make a mistake, or a charlatan may attempt to pose as an expert. And when this happens, apart from some damage to the expert’s reputation, the buyer often has little to no means of seeking compensation for the error or misleading information.

The smart contracts contained in the Mattereum Asset Passport provide a solution to this asymmetric dynamic. Expert opinions regarding all aspects of an object are still sought and gathered together, but they are supported by indemnities which must be signed by anyone providing such an opinion. So by making experts put some skin in the game in the form of a sum of money which they are bound to pay out if their statement turns out to be false, we add an extra layer of protection for buyers and and extra layer of deterrence for fraud. So if an assertion made about an object is found to be untrue, the buyer is compensated: it’s true, or you can sue.

So, how do we do it?

To show how all this works, let’s follow an object through the process of receiving a Mattereum Asset Passport.

Our object is this seemingly insignificant piece of mangled brass. It is, in fact, a spent French rifle cartridge dating back to the early days of the First World War. As a member of a living history group which portrays the life of soldiers in the First World War, I have the honour to visit the Western Front regularly to take part in ceremonies commemorating those who took part in the conflict. On one such visit to the Somme this year for the memorial to the infamous battle which began on 1 July 1916, I discovered this cartridge in a pile of soil excavated as part of the works being done on the site where our encampment was set up. A surprising amount of information can be extracted from this piece thanks to a combination of numerous factory marks and the context in which it was found.

It’s a perfect candidate to showcase the range of information an Asset Passport can contain, and how we go about taking it through the three primary phases of an Asset Passport’s lifecycle: Generation, Population, and Activation.

Generation: Creating a Mattereum Asset Passport

This particular cartridge forms part of my personal collection. As the owner, I am responsible for taking the initial steps for creating an Asset Passport. If this were a newly manufactured object, the individual or company who made it could take this step. However, since our cartridge is over a century old, it’s not really a practical option in this case.

To generate a passport, I have to supply a minimum set of information about the object. If the owner knows a lot about their object, they can supply as much data as they feel comfortable providing. But since each assertion will be supported by a smart contract which hold them financially liable in the event that any information turns out to be inaccurate, owners are welcome to leave the details to later certifiers who have more specialty in a given asset type (as we’ll discuss later).

The bare minimum amount of information I, as the owner, have to provide includes a general object name, measurements, proof of ownership, a general condition report, and some reference photos. In this case, since I have a bit of extra subject knowledge about these things, I’m able to add a few more bits of data that I’m comfortable standing behind. So here’s a look at some of the information I’d supply to Mattereum at the start.

Portion of the cartridge’s data sheet

General reference photo of the cartridge. These photos are an essential part of documenting an object in preparation for issuing a Mattereum Asset Passport

Detail reference photo of cartridge rim. Objects are photographed at all angles, with particular attention paid to details which provide additional information or serve as unique identifiers. Notice also that each photo is uniquely identified so that it can be matched to descriptions in the Asset Passport.

Section of Mattereum’s Certifier Contract (which I, as the owner/certifier, would sign) confirming the information provided about the cartridge.

All of the information here is converted into XML format for ease of storage on an IPFS server (along with digital copies of the relevant physical documentation). Each point of information — we refer to them as “certifications” — is supported by contracts affirming the validity of the assertion, and committing to an indemnity for that assertion proportionate to the value of the object, the impact of the information on the object’s identity, and the degree of certainty the owner is willing to claim. With this data placed on the blockchain, and the appropriate smart contracts created to support the certifications, the cartridge’s Asset Passport is generated.

Population: Adding more data with the help of experts

So now we have an Asset Passport for our cartridge, but there are still a lot of gaps in our available information on what it is and where it has been. This is where we tap into the vast stores of knowledge held by subject experts around the world to further populate the Asset Passport with data. At Mattereum, we call these experts “certifiers”.

Owners can seek out certifiers to provide certifications about their objects. Alternatively, certifiers who have already established a presence in the Mattereum ecosystem can locate newly created listings for objects within their areas of specialism and provide certifications independently. To attach a certification to an object, certifiers will follow the same procedure as owners when they supplied the initial information at the generation phase (owners are, in essence, also certifiers in a manner of speaking).

Each certification is backed up by a smart contract stating the nature of the indemnity the certifier is willing to place behind their statement. Additionally, certifiers can set a fee which must be paid in order to activate a certification so that subsequent owners can enjoy the coverage offered. And, yes, current owners can set fees for their certifications as well, so that they can continue to profit from their knowledge even after the object has been sold on to several future owners.

Returning to our cartridge, I, as the owner, sought out a colleague who was a specialist in the history of the site on which it was discovered. As an added bonus, he was also present when I uncovered it, so was in a position to act as a witness to provide an additional support to my claims of lawful discovery and ownership.

So our certifier is able to add two further certifications to the cartridge’s Asset Passport. First, a witness statement claiming that he saw me discover the cartridge in the way in which I had previously described (as shown below). Second, and far more interesting, he is able to tell us a lot more about where it came from, and how it got to where it was found.

As it happens, the area of the Somme where the cartridge was found (La Boisselle, on the outskirts of Albert), was only occupied by the French Army for four months before the British took over this part of the Western Front for the Allies. Furthermore, military records tell us that there were eight units of the French Army present in La Boisselle during this time. So by virtue of where our cartridge was found, we can confirm with authority that it was fired between September 1914 and January 1915 by a French soldier from one of eight units, which led it to be discarded and, over a century later, recovered by a history buff paying homage to their memory. All of this information is formatted, stored, and backed up with smart contracts using the same process described earlier.

Witness statement affirming the discovery and ownership of the cartridge.

French soldiers of the 118e régiment d’infanterie at La Boisselle (1915).

Members of the 10th Essex Regiment WW1 Living History Group with French reenactors at La Boisselle for the 2019 commemorations of the Battle of the Somme (I’m the chap farthest right).

This process repeats itself for as many certifiers as appear to attach certifications to the object. The unique identifiers created by this process to represent the sum total of all data on the object, as well as the indemnities against the statements’ validity which lay out the modes of recourse should any information turn out to be false, combine to form the fully-formed Mattereum Asset Passport. In the cases where there are privacy concerns, the existence of certified data can be proved by a hash or a series of hashes placed on chain without the data itself being made public.

Activation: Bringing the Asset Passport into play

The full potential of the Mattereum Asset Passport becomes apparent when an object is sold or otherwise transferred to another owner.

So let’s say that I decide to sell my cartridge to another collector. First off, having far more information about the object than I would have on my own, I am in a position to ask for a price much closer to its actual value. Buyers have the ability to peruse the Asset Passport to have a greater understanding of what it is they are potentially buying. Below, you can see some examples of the user interface from our cartridge’s Mattereum Asset Passport. It is also possible to view the certification details of assertions made about the object.

As part of the sale, the buyer has the option, for an added premium on top of the base sale price, to activate the Asset Passport and receive the coverage offered by the numerous certifications. The buyer can choose to activate all of the certifications, or simply those which they prefer (since not all points of information will be relevant to all buyers). Certifiers are paid from the added premium whenever their certification is activated.

Once an Asset Passport is generated, the population and activation processes repeat for the duration of the object’s existence. As more information comes to light, more certifications are attached by certifiers. With each new owner, certifications are activated, meaning those owners enjoy added protection against inaccurate information about their goods, and certifiers enjoy a recurring stream of income in exchange for the knowledge which they have shared.

The true beauty of the Mattereum Asset Passport lies in its versatility. Here, we have demonstrated its capabilities using a bit of antique brass only really exciting to history nerds such as myself. But using the same procedures and the same mechanisms, it is possible to assign Asset Passports to any class of object ranging from priceless artwork, to aerospace components, to the device on which you’re currently reading this.

No matter what the object is, the Mattereum Asset Passport can document it in a secure, reliable manner which ensures that vital data is preserved, that experts can derive value from their knowledge in ways not previously possible, and that consumers will have the necessary object knowledge to make the best use of the things they have.