Datavest CEO & Founder Rob Nicholas Stone discusses the monetization of private data through his blockchain based application DATAVEST, a cooperative that monetizes user data and pays back individuals in the form of datanotes.
Transcript:
INTRO
Method to the Madness is next.
You're listening to Method to the Madness, a bi-weekly public affairs show on K-A-L-X Berkeley celebrating innovators. Last time on Method to the Madness we talked with Block chain at Berkeley about block chain technology and what that means. Today we're going to be talking with Rob Nicholas Stone, the founder and CEO of DATAVEST, an application that sits on top of this block chain technology.
LISA: Thanks for coming in Rob.
ROB: Yeah, absolutely!
LISA: What is DATAVEST?
ROB: DATAVEST is a way for individuals to monetize the value of their personal data.
LISA: How is that different from what's going on right now?
Rob: Data right now is being monetized. It's being capitalized by some of the largest corporations. And they're able to do that because they have the ability to kind of aggregate all of this data from multiple sources from millions of users. What we're saying is that it's an unfair exchange and the value of your data, the data that you're providing to these companies is greater than the value that is returned to you and it's driving up the largest market capitalizations of the largest kind of Internet platforms.
LISA: So it sounds like you're creating a meta transaction in which the intrinsic value of my data is more than just what I'm giving to Facebook or whatever.
ROB: Individually we don't have much leverage negotiating a fair price for our data. There's a value premium when that data is aggregated. It's been difficult to find a mechanism for allowing individuals to share that data and benefit from the aggregate value that's generated by a platform like Facebook. One of the challenges we had initially was trying to figure out how do we value data is it a pro-rata share of current revenue that that's generated from that data. Is it the kind of commodity price wanted sold by maybe a data broker? or in the context of Facebook and Instagram and Google and Amazon, they're able to capitalize the value because this data, even if they don't know what the application is going to be in the future they're able to price that into the current value of the company. One way that you could look at it is looking at the market capitalization of say Facebook and dividing by the number of users of Facebook. And that's going to be a much larger number than the current revenue of Facebook divided by the number of users.
LISA: I'm curious why you wanted to do this because reading about block chain technology the history of it, originally it was of culturally and socially revolutionary idea. Since that time about 10 years ago, I feel like it's lost a little bit of that sheen but what you're doing is sort of a throwback to that original idea which is that it belongs to the people.
ROB: Right. I knew that everybody had this form of capital that was extremely extremely valuable. And I also knew that in order to appropriately monetize this data, individuals had to have ownership over the application of the data. And so the first two months was basically me trying to figure out how to provide individuals with how to give them a vested interest in the applications that are built atop the aggregate data that's provided. The first idea was we would basically issue individual stock in our company and that company would use this data and monetize it and capitalize it and they would have this vested interest not just in the current value of their data but also the future value. Obviously that for millions of people would be extremely difficult to do. It would be almost a logistical nightmare to pull off in. And so that's where cryptocurrency came into the equation through block chain, through smart contracts. There's a way to design a platform and issue this currency that is similar to equity in a sense, in that it provides individuals with a vested interest in the platform in the application. And so that that's kind of how I arrived at the block chain space.
LISA: What is the problem DATAVEST is trying to solve?
ROB:
A lot of the inequality or injustice right now occurs around this asymmetry of information. Whenever a corporation or a company or organization has more information about you than you have about them, it creates an inbalance. The reason why we decided to issue a digital currency in exchange for data is that I see currency as a form of language and it's a means, a tool of communicating and exchanging value. And what's interesting about data information knowledge is when it's exchanged there's no less of it in the hands of the one transacting it. If I explain an idea to you, I still have the idea and now you have it too. There's a greater supply. There was a book called Unjust Deserts written by Gar Alperovitz and he lays out the idea of this technological residual and it's kind of the gains in productivity not attributed to say capital or labor but is a product of technological advance generally speaking, where it's difficult almost impossible to attribute individual credit for this social phenomenon, but what capitalism tells us to do is is ascribe individual credit for the product of a social phenomenon. Similar to language, a piece of data or a word has very little meaning without the alphabet, without the multiple arrangements of those words and concepts and so similar to this our data doesn't have much value alone when it's siloed. This has been the challenge is that that individuals don't have a way to benefit. It's almost as if language has been co-opted or or taken, monopolized by a lot of these companies and corporations. The reason why we created DATAVEST was to create a platform, a cooperative platform, that basically co-ops back this data and information that's been taken from us and allows us to benefit in this common language through this digital currency.
LISA:That's revolutionary. It reminds me of Marx and Veblen. Where did you begin to start thinking about these kinds of ideas?
ROB: Maybe Veblen, actually. It's funny that you bring that up. He wrote about this idea of absentee ownership when capital is invested by those not vested in the in the company that that capital goes towards. It creates a kind of perverse incentive. If individuals had ownership and they were also the consumers within a company, the incentives are not really to to maximize profit at the expense of higher prices for consumers. I guess another way to put it is if consumers were the owners what would that look like? Right now there's a there's kind of a movement applying the concepts and ideas of cooperatives to Internet platforms. It's called Platform co-operative-ism and it's a guy named Trevor Schultz. He's a professor at the New School in New York and he's written a lot about this. If you look at maybe Uber and what that would look like as a platform co-operative, you'd have the situation where the drivers and the riders are the owners of the ride share company or YouTube platform where the content creators and users benefit from the value created in a business sense by that platform or AirBNB owned by those running out their houses and those using it. It's just, it's an alignment of incentives that I think is more rational. If the economy is unequal for rational reasons that's one thing. But when it's completely irrational and I couldn't ignore it any longer, if if you look back at kind of the progression of capitalism from laissez faire in the 19th century John Maynard Keynes basically kind of saving capitalism in a sense by figuring out a monetary policy that could or fiscal spending that could increase employment. But in finance everyone always talks about inflation, as well, we need a healthy level of inflation. But when you think about it its inflation is really just a decrease in purchasing power and Keynes, his kind of insight was that it's difficult to lower nominal wages. But if you print more money you devalue the currency, you can lower real wages without kind of workers knowing about it. So it almost seemed like a trick. It's like you're tricking labor into thinking that they're getting paid the same amount, that excess profit from real wages going down, you know goes towards the owners of the company. And so the stock market benefits from that. Seeing the irrationality there, this plays into kind of how we've created our currency. It's not like the Federal Reserve where a couple banks have access to the discount window. It's every single individual has direct access to the analog of the Federal Reserve. You have a direct line into creating new money and it goes to you, not to some large institution.
LISA: What are some of the challenges that you're facing right now?
ROB: I think the principal challenge is explaining a new idea and trying to communicate something really that hasn't been done successfully before.
LISA: Why did you choose the co-op structure?
ROB: I don't know if you've ever used Apple Itunes. It's basically data as a service or software as a service where you subscribe to a service and pay a fee. We're kind of turning that on its head. The future revenue that could be generated by this data needs to stay in the hands of those who produced it. If you were structuring this as a C corporation where the data was owned by conventional corporate structure. What happens when Amazon or some platform wants to buy all of the data and then what happens to the value of the currency when all of a sudden you know whoever is acquiring the information the data decides to use that monetize that more for their existing shareholders? We've created a co-operative where the data is always owned by the individuals who are producing the data. We own this data.
Companies can only subscribe to it and they never own.
ID/BREAK
If you're just tuning in you're listening to method to the madness, a bi-weekly public affairs show on K-A-L-X Berkeley. I'm your host Lisa Kiefer. Today I'm speaking with the CEO and founder of DATAVEST, Rob Nicholas Stone. As we continue our de-mystification of block chain technology and the token economies.
LISA: A member of your board recently told me that you were the most dangerous man in America. What do you think he said that?
ROB: So I think the reason why he said that was when I first met with him I laid out a plan for disrupting not only Silicon Valley but also Wall Street and fiat currency and how to go about creating a new non-sovereign alternative to national fiat.
LISA: What's your background your history how you came to this idea?
ROB: It came about in kind of a strange way. I'd done a lot of work in microfinance in Argentina. I worked at Morgan Stanley working kind of closely with their Institute of Sustainable Investing, so socially responsible investing and it was always about how do we direct capital to where it's most productive. The insight or the 3:00 a.m. epiphany for me was that everybody already has a form of extremely valuable capital. They're just they just don't have the framework to monetize it and receive the full value of that data.
LISA: How long is that when that light bulb went off?
ROB: That's about eight months ago.
LISA: Well people are talking about universal basic income now. And to me this is sort of a workaround to that. I could get money from my data every month instead of trying to figure out a universal basic income through the federal government.
ROB: Right. And we framed it sometimes this way. It seems strident to kind of imagine this could actually provide consistent guaranteed level of income to individuals but it really is, it is a private sector mechanism for UBI that requires no subsidies no welfare just receiving kind of the value that you're already creating. Back in 1965 Lewis Kelso, he is kind of the founder the creator of the Employee Stock Ownership Plan, and he said that the challenge of our age is figuring out a way that workers or individuals can take ownership in the technology that's essentially replacing them. Thinking currently about that, what's driving the technological advances that we're seeing right now? A lot of it is this networked data and so you could achieve two things at once, you allow individuals to have access to a form of capital and at the same time that capital happens to be the core ingredients, the fuel that's driving the technological advances that we're seeing currently. So it's a way to gain ownership over this technology for anyone essentially with a with a smartphone and internet connection is able to accrue value.
LISA: Where do I find out about this?
ROB: It will be on a mobile app so you download the app and you're presented with, we're calling them data funds, that it could be a specific sector or a company innovative new technology and you're able to invest your data into that company and receive an asset that's derived from that data. We're calling them data notes. Users will receive this immediately upon the investment of their data.
LISA: Give me an example of a company that I would say OK I'm going to open my data to you.
ROB: An example that I think really drives this point home is, I don't know if you've ever used Twenty-Three and Me? There's nothing more personal than our genetic information or genetic data and in companies like this are able to aggregate millions of potential volunteers who are or are willing to provide this and sell that off to pharmaceutical companies to create some of the most profitable new drugs or treatments or therapies and the individual is not compensated.
LISA: In fact, we have to pay to actually do it.
ROB: Right. What we're trying to do is create a way for individuals providing data such as this to drive some of the most innovative kind of medical breakthroughs but also be vested in the value that's created from its application and the application is great. It's just the fact that those who are creating this information, this data, are forgotten about. One example is that hedge funds are basically purchasing your data there. They're going to companies such as Yodaly that are transaction aggregators and they're looking at kind of trends in our spending and they're trading on that information. Hedge funds are really some of the biggest buyers of this type of data. They call it alternative data. Hedge Fund wants access to some alternative data, some transaction data that they're already collecting from us. What we would require is that they subscribe to access this information that's totally anonymized. They don't really care who you are. They just want the data and they want to pick up trends in consumer preferences and what people are buying and they're able to trade on that. So data in that revenue that they pay will be rerouted through smart contracts and this gets back to the value of the block chain to repurchasing the currency on the secondary market and compensating individuals who actually provided that data. This is a form of ownership.
LISA: So if I'm a member of this, will I have like a little token bank on my computer and every now and then I see some monetary value?
ROB: That's right. You'll have a wallet.
LISA: So I don't need a bank for this.
ROB: You don't need a bank. The idea getting back to kind of the idea of universal basic income is that we wanted anyone in the world to be able to gain access to this. Anyone with a smartphone and internet connection is able to start accruing this capital that they already have. When you kind of sit back and think about it, they're making billions of dollars based on data that we've provided them with. What we're thinking about is how to use our own information, share it, cooperatively own it, and monetize it kind of directly. The future revenue that we create at DATAVEST through aggregating this information is directly driven back into the value of the currency. As revenue comes in, that revenue is redirected into supporting the value of the currency.
LISA: So let's say I have two hundred of your one of your tokens called?
ROB: Data notes.
LISA: OK. Data notes. Where can I spend those?
ROB: Initially you're able to convert those into U.S. dollars. They're completely liquid. So you're able to exchange them for other digital currencies or you're able to just cash them out and we're using Ethereum. And it's done through Etherium.
LISA: You're letting Etherium do your mining?
ROB: Right.
LISA: So you don't have to worry about massive computers.
ROB: Right.
LISA: Why did you choose Etherium?
ROB: We chose Etherium, a technology that allows us to design a platform that works for us, because of the ability to design smart contracts that achieve the purpose of our intention.
LISA: What is a smart contract? What does that mean?
ROB: The reason why DATAVEST is using smart contracts is a lot of crypto currencies right now, they haven't figured out a way to have the off chain organization or company benefit the currency directly. So what we've done is we've created a protocol or smart contract that as DATAVEST as a platform generates revenue, we have that revenue going directly into supporting the value of the currency and that's done through our currency repurchase protocol. Which, it's basically like a stock buyback by a company where the company wants to return value directly to shareholders by buying stock on the market and taking it back as treasury stock. You increase demand, you reduce supply, and that benefits our end users and they have a vested kind of interest in almost a form of ownership in the platform. You can put anything, you could almost put anything in into it, any kind of contract. It triggers an event based on something happening off chain. So as revenue comes in, that triggers the repurchase of currency without any intermediary. So it's rules-based governance of monetary policy essentially. What we've done by creating kind of a cooperative structure with smart contracts is that there's kind of two extremes right now. You have the kind of purist crypto currency folks that they don't want anything off chain. They don't want to leave any kind of room for active governance. And then you have on the other side permission block chain, which basically means you know it's a corporation is calling all the shots and determining everything. We tried to find a middle ground where there's a democratic processes in place through the co-operative and there is a level of governance that can kind of manage the supply of this currency in a rational way.
LISA: Where does the U.S. government come in or any government come into play here? If I'm a user and I start getting money from my data, my private data, say I'm starting to accumulate some tokens. Is that money taxed?
ROB: It should be. It should absolutely be taxed. And the question, the outstanding question still for us, since this is really new territory, is how is it going to be treated? If you're being compensated for your investment of data, is that being treated as income? Or is that data considered an asset that you're exchanging for an equivalent amount of value? My opinion is that it should be considered an asset, a form of capital, and that capital exchange for data notes represents an equivalent exchange that you would be…your cost basis would be the market value of data notes at that time.
LISA: Right. And so if they go up them I'm taxed on the gain.
ROB; That's right.
LISA: When do you expect to go live with DATAVEST as an application?
ROB: Right now we're planning within the next six to eight months a private beta or a closed beta to recruit the pioneer users of this application. We're planning our full launch to be shortly after that ,hopefully within nine to 12 months we'll have this, you'll be able to start making money from your data.
LISA: An idea like this seems very disruptive to say Facebook. Why do you think of Facebook or Google or one of the other overlords wouldn't enter into this marketplace? What are their constraints doing something like this or do they have constraints?
ROB: They do and I get this question a lot. It's well OK. You're doing this you're a small startup. You have these billion dollar platforms that you're potentially disrupting. What prevents them from doing the same thing. And their challenge is that they were started in a way that the incentives between their users and the shareholders of those companies aren't aligned. And so the more that a shareholder makes, the less money there is available to users to monetize. So if one of these platforms, all of a sudden Zuckerberg decided to kind of monetize data for his users rather than shareholders, what would happen is, well, he'd get sued I think.
LISA: By the shareholders?
ROB: Right. They've created a zero sum game where –a situation where one wins at the other's expense. And so we design DATAVEST to align the incentives between those who are funding our startup our platform that we're building and the users that are going to be creating the preponderance of value of the platform. When I bring up the idea of capitalized value of data, just meaning that this data is being priced based on its its future revenue that it potentially could generate, the mechanism that DATAVEST is using is, we're issuing a form of digital currency directly for the investment of data. Data is an asset. It's a strange asset but it's an investable asset. When you invest it, you want to be entitled to kind of the future revenue generating potential that it creates. So we're not tying it to how much capital you already have, how wealthy you are. Anyone can gain access to this and actually the only way to gain access to this is through providing this asset that doesn't cost you any money. It's just utilizing and benefiting you for the capital that you already have.
LISA: So do you know who your target beta is going to be? Is it going to be a city? Is it going to be a certain demographic of people? Do you know that yet?
ROB: Yes. So we're based out of Pasadena, California. And so we're actually working at my house in Altadena. We converted are barn into an office and we kind of have an urban ranch and horses and donkeys and chickens and it's kind of a fun corporate headquarters but we’ll probaby have to move soon. But you know it's been good while it lasted but so we're thinking Pasadena just maybe an interesting place. There was research done that Pasadena will be kind of representative of the demographics within the U.S. as a whole and I think it was like 15 to 20 years. So we think it's a would be a good kind of case study or a good place to do this.
LISA: And you have a child, a two year old son?
ROB: Yep yep turns two March 26.
LISA: Well I have to ask you..you're pretty deep into this new technology, block chain and the token economies. Do you have any particular fears for your child as we move forward or are you optimistic?
ROB: I guess if you kind of imagine all potential futures right now where we are, it's difficult. I don't wanna be negative but it's difficult to see one that is going to make sense or I'm going to be happy with for him and that's part of why I'm doing this is, you have four, really four companies that are as Jaron Lanier calls it the siren servers that are collecting all this information on all of us. And you know one worry and it's not it's not an irrational concern is that what happens when one of these companies develops a technology through using this data our data, big data is our data, and using that to develop A.I. They're using machine learning and when they get to a point where they're so far ahead of everyone else it's going to be very difficult to catch up. So I guess my concern is that they do kind of have a breakthrough in this area. It's going to be tough to kind of catch up with that technology for anyone else. And that's going to only be benefiting the same or tiny kind of small number of people.
LISA: So it sounds like your approach at DATAVEST is very democratic and an opportunity to bridge the you know, we talk about the 1 percent. It sounds like that big divide could possibly be bridged if everyone gets compensated for their private data.
ROB: That's exactly right. And and we get rid of this asymmetric information that’s of companies whether it's financial institutions or these Internet platforms that are kind of using our information against us that we think we have to take ownership over it and be entitled to kind of the value that it creates and have that be shared.
LISA: What's coming up for DATAVEST in the future?
ROB: If we imagine that enough of us sign up and decide to take ownership back of this information, this data, there's an opportunity that once you get to a critical mass, we're hoping we can sign up a million users within the first year, that at some point you don't want to be selling or brokering this data to third parties who are then benefiting making all the money essentially. So asset management firms, hedge funds, they’re they're big buyers of this type of data, that would be transaction data, geo-location data.
They're kind of buying this up wherever they can get it. And it would make too much sense not to take that in-house. So we've come up with the idea, this is kind of our Second Stage part of this, that we could create a cooperatively owned hedge fund. And the interesting thing about a hedge fund is most people can never invest in one. But the ironic part I guess is that everyone can actually own a hedge fund company. And so there's an opportunity that we can cooperatively own this investment firm that is directly trading based on our information and we're directly benefiting from it. We would have all of that revenue driven back into the hands of the users. And it's almost the portfolio managers dream come true to have direct access and intel from individuals all across the world be able to look at the trends, of the change in demand, consumer purchases, even pose questions. And the interesting thing from an investment application is that the data value of some of the poorest people in the world is actually greater than the data value of individuals in the U.S. And so if we're only monetizing this data based on this advertising model, that would only benefit wealthier individuals. But what this does is anywhere there's anywhere there's asymmetric information a profit can be made and that profit, and there's less information and a lot of these frontier and emerging markets that we have the opportunity that any intel or any information they provide on prices that they're facing is essentially tradable information, that can that can return value to those individuals and put them on the map and give them a form of capital that they've never had.
LISA: I know there's going to be a lot of interest in this. So is there a way that listeners can reach you or DATAVEST? Is there a website?
ROB: Absolutely! Our website is DATAVEST.org and my email is Rob at DATAVEST dot org. There is a place where you can put your e-mail to kind of sign up to be one of the first users of this.
LISA: Wow! thank you for being on Method to the Madness and once you launch, I'd love to have you back on.
ROB: You'll be investing your data soon.
LISA: I will be investing my data. Thank you.
ROB: Thank you.
OUTRO:
You've been listening to Method to the <adness, a bi-weekly public affairs show on K-A-L-X Berkeley celebrating innovators. You can find all of our podcasts on iTunes University. We'll be back in two weeks.
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