Disrupting the DisruptorsFebruary 2018
We have a massive data problem. We’re creating and collecting more personal data than ever, but it’s stored in insecure and private databases. Despite the original decentralised design of the Internet and the hope of peer-to-peer communication; digital information is anything but peer-to-peer. Data is most useful when it is close to hand and in one place. As the Internet and corporate IT networks evolved, it made sense to find as much data as possible and secure it in one place. This led to the silo effect where companies and even departments inside companies found it technically challenging to share data. Expensive consulting fixes for corporate networks and application programming interfaces (APIs) for Internet services have created a more collaborative environment but in many cases, but the fact is, data hoarding is easier than data sharing.
Privacy laws and data protection legislation also have a chilling effect on data sharing. The Health Insurance Portability and Accountability Act (HIPAA) in the US or the Data Protection Act in the UK are designed to protect consumer rights, but the trade-off is in sharing of data. These regulations are complicated, and it is better to be safe than sorry from a regulatory perspective. So people err on the side of caution and don’t want to go through the hassle of opening up data to other parts of the organisation or the public. The downside is too high for the relatively intangible upside of collaboration.
Even when sharing is culturally encouraged, technically possible, and legislation is favourable, today’s infrastructure makes it almost impossible to earn money from sharing data. The best that happens is that developers or citizens get free access to data. There is no market for data; price isn’t used as a coordination mechanism to incentivise data buying and selling. There is no easy way to get paid for published data and licensing of personal data is almost non-existent. Some content can be distributed using open-source or dual-licensing arrangements, but in most cases licensing is costly, difficult to enforce and inefficient.
New Data Infrastructure
Public blockchains are in many ways worse than existing databases. They are slower, have less storage, use more energy, and are less private. But these are design choices made to improve one feature: censorship resistance. Public blockchains aren’t owned or managed by one Government or company that can choose who views or uses it. This is what crypto people mean when they say blockchains cut out the middleman. Governments have traditionally had the ability to censor information and communication; but today Silicon Valley tech monopolies do on a global scale. Twitter, Facebook and Google have all come under fire recently because of their decisions to limit freedom of speech. If you control a network you pick and choose who uses it. This is too much power for a single entity.
But public blockchains are the ideal solution for a public data utility. We now have the tools to ensure no single entity controls data. With all communications, money, and health becoming digital; data infrastructure will be too valuable to be controlled by one nation or company. In fact, for individuals and society more broadly, global data infrastructure, just like the Internet, should be a public good. Never has so much data been available for collection and analysis. And everyone wants it. As sensors are embedded in everyday objects, and we move to a world of ubiquitous computing, everybody is fighting for who ‘owns’ the data. This is yesterday’s war. Public blockchains offer an open-source, decentralised, shared database that anyone can view and interact with based on programmable rules.
As we start 2018, we are seeing the emergence of this new data infrastructure. We aren’t there yet, we still need to process more transactions, at faster speeds and use less energy in doing so. Data needs to be private, stored in an accessible way, and shared across different blockchain flavours. We also need a way for individuals, organisations and machines to buy and sell data in a marketplace. The storage and access to data is important, but it will be the data marketplaces that finally provide a business model for data creators. There will finally be a way for people and machines to make the most of the data they collect. A marketplace provides an economic incentive for the more efficient allocation of data. Individuals can sell it instead of giving it away for free; organisations can monetize it instead of letting it sit idle on databases; and machines can buy and sell data automatically to increase their utility. In my view, a peer-to-peer marketplace for data is the second most important idea to come from the blockchain industry after peer-to-peer electronic cash.
“The seed of disruption has been planted. Why allow yourself to be sold for nothing when you can get paid?”
The End for Data Monopolies
2018 will see the beginnings of this global data sharing and monetisation network. Data creators will begin to earn money from uploads, likes and retweets. This is a far more profound change than it may seem. Disruption has typically come from startups offering seemingly inferior products that serve a niche which is underserved by the incumbent. Blockchain-based networks won’t just disrupt particular companies; they go much further, they disrupt a digital norm: the existing assumption that we should be giving away personal data for free. Digital monopolies including Facebook, Google and Amazon, get data from users for free. Every like, search and purchase feeds the learning system to further improve the algorithms; in turn bringing more customers and engagement. In value chain terms, data is supply, and AI algorithms are demand. Digital monopolies are searching everywhere for more and more data to feed their algorithms. Facebook buying WhatsApp and Instagram. Google with self-driving cars and Google Home. And Amazon with Alexa Echos and Dots.
Blockchains and decentralised public infrastructure change the game.Blockchains reduce the value of hoards of private data. It makes proprietary datasets much less valuable because as more and more machines, individuals and organisations use a public data infrastructure, a global data commons becomes more attractive to data sellers. As this data commons grows with more datasets, it will attract more data buyers, creating powerful network effects. In other words, data becomes more of a commodity; and it is no longer the source of value in and of itself. Firms that control supply — data — no longer dominate markets.
The point of value capture in the value chain will change from data to brand and trust.
As data becomes less valuable, the customer relationship becomes ever more important. Startups and incumbents alike will compete for customers’ data based on trust. The global data commons will mean individuals will choose where their data is sold or rented. This global data commons will at first attract individuals that care about privacy and self-sovereign data. Machines will soon follow as machine operators and owners look for new revenue streams. Some organisations, especially the public sector, will be attracted by the non-corporate controlled nature of the decentralised infrastructure as well as the cost and liability reductions in not storing consumer data. Smaller organisations and startups will sign-up to access standardised data that would otherwise take too long or cost too much to acquire.
Today, data is siloed with no business model for creators to monetise it. Blockchain technology and other decentralised infrastructure are emerging as a new data infrastructure to support machines, individuals and organisations to get paid for the data they generate.
This will lead to the downfall of digital monopolies whose power rests on the collection and control of more data than anyone else.
Blockchain-based data infrastructure, including data exchanges, will commoditise data and help realise the vision of a global data commons.
“Disruption comes in many guises, for Google and Facebook, disruption isn’t from some upstart they can acquire: it is from a centralised model of data ownership to a decentralised collective model of data sharing.”