Scott Chamberlain is keen to solve all kinds of challenges using blockchain technology—including digitizing cows to make meat production more efficient and consumers better educated.
Scott Chamberlain is keen to solve all kinds of challenges using blockchain technology—including digitizing cows to make meat production more efficient and consumers better educated.
Lauren Weymouth (0:38):
Today's episode, we are discussing attempts at tokenizing real worth assets.
Yeah. And I particularly love this conversation because I'm ending my day and you're starting yours. It's fun with the time change.
Scott Chamberlain (00:51):
Lauren Weymouth (00:52):
we're so excited to welcome Scott Chamberlain as our guest today. He is a entrepreneurial fellow and a lawyer at the Australian National University. Scott, welcome to the show.
Scott Chamberlain (01:02):
Thank you very much. My pleasure to be here.
Lauren Weymouth (01:04):
So, given your background, we're really curious, what drew you to blockchain technology?
Scott Chamberlain (01:09):
So, when I was in legal practice, I had a stint at being a legal entrepreneur at my firm. We invest a lot of time and money in doing a digital transformation project, trying to automate legal services for our clients, so there's been a real interest in trying to reduce the barriers for people who access to justice. There's a lot of talk about access to justice, but the truth is, almost no one gets access to justice. Law is an expensive thing for lots of people to access and trying to find solutions to those problems that the digital world potentially can solve those. So that was my background coming into the university. And then along came this thing called blockchain and smart contracts. The attraction for me of that technology is its ability to remove the middle man, so this capacity for trustworthy, peer-to-peer relationships that everyone can trust, just have that potentially that unlocks enormous value. The law is full of middlemen, in fact, our whole society is full of powerful gatekeepers that very often now stand in the way of people doing the things they need to do. You're waiting on permission from third parties for people to relate and I really thought that technology seemed to have a lot of promise in the legal game. The other aspect of the technology which was attractive, when you do digital stuff the thing that comes up straight away is yeah, but it's easy to hack, or yeah, but someone else gets your data and potentially the smart contract blockchain space solves those problems too.
Lauren Weymouth (02:48):
So I can hear two specific use cases with removing middlemen and contract work that have kind of inspired your work and had you look deeper into it, are there any examples of some commercialized applications of blockchain that have also had your attention?
Scott Chamberlain (03:00):
This technology's so new and so fresh, the use cases are still being explored. It's quite funny when you go to some of these conferences, there's all this talk about regulation and standards and we're regulating this beast before we even know what it's useful for. It's a really weird kind of world. The stand out at the moment, just the guys that did the Bitcoin project just proved you could do money without a man in the middle. That's an extraordinary achievement. And if you can do money, what else can we do without a man in the middle? And we're still all exploring how that all works and what it's potential is.
Lauren Weymouth (03:36):
It's so true. It's very nascent. And so within your own explorations, what are your go-to resources to stay fresh on the material and what's happening?
Scott Chamberlain (03:42):
Twitter. In this space, I make enormous use of Twitter. The crypto community on Twitter is quite active. It's very diverse. Sometimes it's quite tribal and a little bit vicious, but with everything happening so quickly and so many people doing experiments, they're regularly posting what they're up to on Twitter. I've found stuff on Twitter I would not find any other way, and if you're relying on academic journals and peer-reviewed articles for your information, well, you're out of date by the time those things are through the system, so I've really found Twitter to be an enormous for useful resource.
Lauren Weymouth (04:17):
Right. Well, let's get to the meat of why I brought you on here today, no pun intended.
But it's to talk about digital cows. I saw that you posted that you were working on this as part of the University of Blockchain Research Initiative and it really caught my eye, the idea of tokenizing Australian cattle. Can you tell us why you're focused on cattle?
What challenges you're trying to solve?
Scott Chamberlain (04:39):
Yeah, sure. So Canberra's almost a unique sort of place. We're the capital of Australia, but five minutes from Canberra CBD are working farms; there's a rural community around us. I have friends in that community, and one of them, a mate of mine who's an Ag consultant who worked for the US Embassy in the US Department of Ag, and he runs his own cows, and we were talking about blockchain and smart contracts and what I was doing at the university, and particularly we were talking about a digital identity project that I was working on where we were going to scan the RFID chips that are in your modern passports as a basis for getting your identity from the real world onto the digital world. And he was like, "Well, cows have got RFID chips in their ears. Can we tokenize cows?" I'm like, "Well, in theory maybe. Let's talk about it."
As you drill down into it you discover that there is an enormous need to try and find a way of digitizing cows. The Australian market, we're not a big beef producer, but most of what we produce is exported because of our small population, so we are in fact, the world's second-largest exporter of beef behind Brazil. We have a very detailed paper-based system for trying to track cows from birth to slaughter, including these RFID chips, the tags that go on a cow's ear, and that rigorous paper-based system, plus the tags, offers the possibility of being able to tokenize these cows, get these real-world cows and have a digital representation of them in a way that's trustworthy enough that you could have a market for tokens in cows. It's an important industry for Australia. We employ an enormous number of people in rural and remote communities on farms and there's a lot of pressure in terms of how meat is produced, what the consumers sees, can they trust the quality of the meat, how it's been raised, all these sorts of things. We think there's a chance of being able to solve some of that with blockchain technology, so we're working on a project to see if we can do that.
Lauren Weymouth (06:51):
I'm going to take a quick step back. We've been throwing out the word tokenization and you've used it to talk about digital identity in cattle and you've even hinted that there's other challenges that can be solved by tokenizing. What's your easy definition of tokenization for someone that's never heard the word before?
Scott Chamberlain (07:07):
that's actually, that's not an easy question to answer because the token itself when you think about it is a thing, but really it's simply data in a database. So, what we're talking about, data in a database that you can trust, and when we talk about it in a blockchain context, it's data in a database that you can trust because of the way the protocol operates not because of any third party providing the trust. It's sort of self-manufactured trust in the data.
Lauren Weymouth (07:38):
So, when I hear the word tokenized cattle, should I just think about a value for one cow, like a token for a cow that represents that one cow? So, it's like a 1:1 ratio?
Scott Chamberlain (07:51):
Well, so yeah and no. Like, it can be 1:1 ratio, but for the moment we're just saying it's a ledger where we're saying there is a farm that is owned by a farmer and on that farm is this cow. So that's the data. So, the token is this cow exists. Now, the problem with digital data is that you have to know that the cow exists, not that there's just an entry in a database, right, that has to be linked back to a real cow. So, when I'm talking about tokenizing, I'm really talking about digitizing, taking the physical fact of the existence of that cow, and being able to show it in a database in a way that you still trust that physical cow exists.
Lauren Weymouth (08:38):
Okay. So, let's understand a little bit about the challenge in the current cattle market and how blockchain can solve it. So, what are the problems that we need to solve for?
Scott Chamberlain (08:47):
So, there's six problems that relate basically to meat, money, and information. Livestock markets are physical markets, you physically move the cow to the market, someone buys it, and then physically takes that cow and puts it on their property. That physical nature of it is where all the problems are.
So, firstly, there's high operational cost if you're going to sell your cow, that transaction of taking your cow to market, storing it at the sales yards, having someone sell it, and having someone else buy it, and then transport it to wherever they've got to take it, that's a costly way of selling anything. So, what that means is A, you're losing value from your system in just sheer transaction costs, and B, it means that there's sub-optimal allocation of capital. People are holding onto cows when they shouldn't, they should simply sell them, or people are not buying the cow when they should because of the costs of that transfer. You can't get in and out of cows easy. It leads to lower-quality meat because that whole process is stressful for the animal. You've got to put them on a truck, so you get poorer-quality meat and slightly lower prices than you'd otherwise might.
On the money side, financiers can't easily get exposure to a beef physical market because they actually have to buy the physical cow. When people are buying derivatives in futures and stuff, they never actually want to take custody of the asset, right. That's how oil went to negative value recently during the stock collapse due to COVID because it actually costs to store it. Well, you get a similar problem with cows. And so, whereas there's lots of fund managers that would like exposure to the beef market at the moment because agricultural markets are quite strong, they can't, they have to take part-ownership of a cow. That's not easy to do. And it means that farmers can't capitalize their operations properly. About the only means of capitalizing your farm is bank debt. So they've got all these farmers that are what they call asset-rich and cash-poor. It's like they got a farm that's worth a lot, they've got cows that are worth a lot, but the only way that they can raise money to make improvements on their farm is through debt.
Lauren Weymouth (10:54):
So we need a system that more easily connects all these parties and then showcases more transparently who has what?
Scott Chamberlain (11:04):
Yeah, remove [crosstalk 00:16:19] the friction that comes with a physical market if you can. So, for the meat packers, they've got a plant that they need consistent throughput. To manage that throughput they've actually got to go buy physical cows and store them in their own paddocks and they don't have the instruments that let them trade risk and hedge prices. For consumers on the information side, regulators want to know about the history of a particular cow and therefore it's meat for what they call attestations that gets attached to the particular cow or meat that it's been raised properly, has it been grain-fed, there are a bunch of stuff that you need for export controls.
Lauren Weymouth (11:49):
probably particularly, if you want to stamp something grass-fed or organic and then also to be able to track back if there has been any kind of disease in the meat that cause sickness.
Scott Chamberlain (11:59):
Yep. So, if you get a disease you want to go back through all the farms that the cows been on, so it would be nice to know that information in semi-real-time. For consumers, you've now got this desire for grain-fed, for has it been raised in a certain way, have they HALAL type meat, et cetera. If you want those attestations then at the moment the problem is it's just not easy to replicate that information, so you tend to have a situation where the higher standard gets met by everybody because then it doesn't matter. So, in Australia, I think our lamb, all lamb in Australia is produced HALAL because it's just, that's ... Then everyone's compliant. The system can't distinguish between those that are or aren't, so you'd have to make everyone whether you sell it as HALAL or not. So, if you can attach different attestations on these things you get different product marketing. You have people who could, you know, these cows have been raised in a way they've been played Beethoven every morning to them so that they're nice and relaxed and the meats really juicy, or whatever.
So, those are the six features that make the market, there are frictions within the market, that means it doesn't perform as well as it might and we think potentially blockchain will solve it.
Lauren Weymouth (13:13):
So, you know what I'm going to ask next, right? We want to know, how do you take blockchain and use it to transform a sub-optional market?
Scott Chamberlain (13:21):
So, the secret becomes the cows themselves. We aim for a system whereby everyone can see in new real-time, who owns each cow or where that cows located, and what attributes or attestations the cow possesses and that those attestations get attached to the cow in some sort of trustworthy way. Because I can reliably render that information and share it, you can now create tokens, you can create ledger representations of the cow representing different rights of ownership, investment, or slaughter rights in cows or herds of cows. So, if we can take those real-world cows and turn them into a trustworthy, online system, or digital system, we can now start creating and trading rights in those cows. And if we can do that, we get the market for rights in cows rather than a physical market for cows.
Lauren Weymouth (14:14):
And this basically impacts everyone in the chain because it helps the farmers, it helps the distributors, it helps the consumers, the sellers.
Scott Chamberlain (14:22):
Yep. And the money men, the hedge funds that want exposure to beef in some way, shape, or form without actually owning a particular cow.
Lauren Weymouth (14:30):
And the investors, can't forget the investors, yep.
Scott Chamberlain (20:33):
Money makes the world go around.
Lauren Weymouth (14:36):
So, in looking at this, and I know you're just starting this project, you've been more into putting the digital identification on blockchain. What surprises have come up in using smart contracts to digitize assets?
Scott Chamberlain (14:51):
So, smart contracts are surprises. I work with a programmer in the crypto space who's very bright and talented, and it's been an interesting exercise in, you know, this is what I want it to do. No, the system can't do that. You're trying to stop thinking like a human, you've got to start thinking like a machine. Like, this is just data. Like, things can be spoofed. You can pretend to own lots of machines, you can pretend to be lots of people, but it's an interesting, it's a different way of thinking in order to get your head around how some of these systems work or don't work. So, every time we've tried to look at these projects, the things that's spreading out for me about these systems, the whole notion of private keys and custody of the private key is going to be one of the key things to overcome when you're talking about these systems.
So, the private key doesn't work like a password, the private key's actually integral to the asset themselves with the way that the public, private key encryption works. Without that private key you've got nothing, you can't do anything, so there are challenges to systems where notionally the asset, what you own is recorded on a ledger, and that asset literally vanishes if you lose the private key. Like, you can't do anything with it. And so that scares people. You know, if you're talking about tokenizing, for instance, real estate, you can't think of it as a token. I don't want to lose my house just because I've lost my private key, right?
Lauren Weymouth (16:25):
that's an impediment to mass adoption?
We've been reading in media about people losing their keys and not being able to access their crypto accounts and that's just with finances, but then when you put actual assets, like you said, your house, or your cattle, whatever else, then it really could become an issue.
Scott Chamberlain (16:42):
And that becomes a challenge then to how you design your system. I mean, it's not the end of the road, there's all kinds of different ways of structuring some of these things that try and get around some of that. So, maybe in the case of assets, your blockchain becomes a record of who owns something, it's not a token, it's not something in your wallet that you lose, there's a transactional record and that's what records the fact of ownership of a particular thing. And you've got, yeah, there's something else that you're manipulating with your private key, so it's almost like the right to transact, is what you're tokenizing rather than the actual ownership of the thing. There's different ways of cutting it.
It's a nascent concept that we've got at the moment, but it's like mining, we talk about mining rights, so there is a property and if you want to sell that property, well, you've got to first prove that you've got the right to sell that property and it doesn't come from just ownership of a private key, there's something else, there's some other process you go through to show that you are the person that owns the property is, in fact, you and now that you've gone through that effort to prove that you're that person, you can now be the person that transfers that property to someone else on the record. So, the asset doesn't vanish because you don't have a private key, you've simply got to re-establish your right to play with that asset. That's one potential way of cutting it. But the private key, it's one of the main barriers to adoption.
The other one is tokenization, you get to the point that everything of value can be turned into this kind of liquid asset that you can trade 24/7, 365. Then anything of value starts to look like money because I can trade it and once it starts to look like money, now you've got a whole problem with your money services, business laws, and your anti-money laundering laws, and we run the risk in this space of getting really good at tokenizing assets to the point where everything starts to look like money, and everyone becomes a money services business, and that's something important to try and avoid, I think, when you're designing your systems and your platforms, and how to make things work. So, the two laws, the money laws and then the securities laws, it's just how you structure these systems in a way that's compliant, you have to thread the needle on those two regulatory systems
Lauren Weymouth (19:01):
How have you been experiencing government in Australia keeping up with creating policy or regulations to open the doors for new innovation when it comes to blockchain?
Scott Chamberlain (19:12):
Yeah, so the Australian Government's been reasonably good at, it's saying all the right things and it certainly has a desire to be open to blockchain and the technology. We're not as strategic about it as say Singapore, or indeed China, in terms of adoption of blockchain tech. But the barriers here in Australia aren't quite the same as some of the barriers that you've got in the US. Our securities laws are a lot clearer in terms of what is or isn't a security. It's if you want to do something and comply with law, it is easier to do that, easier to work out a way to do that. The main challenge we have in Australia, we've long accepted electronic transactions, we've got a specific legislation that gives validity to electronic transactions and electronic signatures in any kind of useful way, so we don't have that kind of barrier where things have to be done with bits of paper just because a signature has to be on a bit of paper.
The main problem that Australia has is simply it's tax regime. It's had to make specific adjustments for crypto to its tax regime. We have capital gains tax. We have income tax. And then at the state level, we've got a thing called stamp duty, which is a tax on land. You guys don't have this, but every time you buy and sell land in Australia you got to pay tax to the local state government called stamp duty. It's just simply a tax on the value of the land. Now, there's a lot of people out there trying to tokenize real estate. Well, you can't. You can't do that. In Australia, you're breaking all kinds of laws to tokenize ... Each token transfer would have to be registered with the local state government and you'd have to pay stamp duty. It's a problem.
Lauren Weymouth (20:58):
Yeah, that really highlights how some things will be created and flourish in some jurisdictions and some territories and some things won't. I know our partners at National University of Singapore are working on a tokenizing real estate. Not tokenizing but putting real estate on blockchain and it's interesting to hear that that won't happen in Australia, so it won't be something that catches internationally based on laws in place.
Scott Chamberlain (21:21):
Yep. Not until we get rid of the stamp duty, and that applies to also what we call asset-rich corporations, so if you take your land and stick it inside a company and then tokenize the shares in the company that owns the land, you've still got that problem. There's no easy solution.
Lauren Weymouth (21:35):
So you're working with a programmer, are there other multi-disciplines at the university, or people that have showed interest in getting involved in your projects?
Scott Chamberlain (21:43):
There's another colleague of mine, Dr. Philippa Ryan who also specializes in this field and she's doing the theorem-based projects, one of them is tokenizing wine. So, we're tracking wine exports to try and prove the origin and deal with all of the tax treatment of the wine so that that's automated, that's shipping it between Australia and UK.
Yeah, it's data, right? So, if the data can be made trustworthy without people in the middle then that's really useful data because at the moment the internet's full of information, but you can't necessarily trust it. You need to find ways to make the trust travel with the data and once you do that you get an asset.
Lauren Weymouth (22:24):
Yeah. I think this is so important for people to hear. You know, right now people go to the internet to understand and figure out what blockchain is and what's possible with it and as you said, they use Twitter, maybe attend conferences, listen to podcasts, but it's great to hear that the thinking and the process identifying challenges creating potential applications around it and I get lit up when new people get excited about it or understand about it because I'm really passionate about growing the ecosphere and furthering research and development in the field.
Scott Chamberlain (22:55):
It's a space where you need to show rather than tell. You need to have something that people can get their head around because it actually works, and in what way it works. One of the problems with the adoption of blockchain is, people say, this is a blockchain project. Well, no one actually cares about whether it uses public key encryption or not. Like, it just has to work and it has to work better than what was there before, or be able to let you do something in a way that's better than what was there before, and to do that you've got to demonstrate it. So, we're going through a process at the moment first of, we're trying hard not to make big claims about what this tech does because maybe it doesn't do it, but that's the nature of the research. Let's really dig deep and see if we can make this thing actually happen.
[INSERT Lauren Weymouth (23:42):
... I'm asking, if there's anything I haven't asked you that you'd like to say or talk about?
Scott Chamberlain (23:47):
whoever created Bitcoin didn't wait for the government to change the money laws, they just said, "We need a better money, let's do something." That's the ethic that I'm kind of taking into these projects which is, firstly, you try and structure your innovation in a way that's voluntary. You want a system that assumes that users will use it because it's more useful than what exists, not because somebody's changed a law that forces them to use a particular system. You find the barriers in the existing regulation by trying to design the system in a way that makes it work with the current laws and regulation and only if you can't do that do you try and get it changed.
So, it's just a delightful process at the moment to be able to do that. With the cows I can sit down with somebody knowledgeable in the field, we can design the workings of a system for tokenizing cattle. Then we can go to the relevant people and say, "Hey, look, we've been able to do this. Did this technology actually can make this work, what do you think? Do you want to take it further?" And I have to say thanks to Ripple for making that opportunity available. It's a different, better way of being able to do practical research.
Lauren Weymouth (24:55):
We really appreciate what you've been working on. Where do you want to send people to find out about your work?
Scott Chamberlain (25:00):
They can go to the ANU College of Law website, which is law.anu.edu.au. Or, better still, they can drop me an email and I'm very happy to talk to them about it. It's [email protected]
Lauren Weymouth (25:18):
Perfect. Well, thank you for taking risks on challenging the status quo so that we can experience all the joys of blockchain and what it has to offer in the future. Thank you so much for being on the show, Scott.
Scott Chamberlain (25:25):
Thank you for having me. It's been a pleasure.
Lauren Weymouth (25:27):
It was a pleasure hosting this UBRI's podcast all about blockchain. Listeners, thanks for tuning in. If you have any questions about this episode or feedback for new episodes, please reach out to [email protected]