Valuing Your Blockchain Data
Damon Rasheed is a co-founder of Advantage Data, a data consultancy company, CEO and founder of Rate Detective, an Australian financial comparison site. Damon has had more than 20 years experience working with data and has been involved in setting up several successful internet startups that have relied largely on big data analysis.
Having been involved in the Initial Coin Offering (ICO) scene as an adviser to several large ICOs over the past 12 months, I have seen a rapid change in the market regarding what is acceptable from an investor’s point of view. Historically, you could raise money on a good idea, or even a bad idea well marketed, and scams were more common than bone fides ICOs.
However, the industry is self-regulating in many ways and nowadays, at a bare minimum, you need a great idea that has a genuine blockchain application to boot as well as endorsement from people who have a track record. Increasingly, you need to have a machine learning application as well to get the triple whammy of concepts that are a prerequisite for many whitepapers.
Rarely will you read about the data that’s collected and what the value of that data could be. Data is an asset that can be put on your balance sheet and I am predicting the next big thing for the blockchain industry will be an increased focus on data collection and valuation.
The concept of data being an asset is not a new one. Look at Amazon’s profit and loss over the last 5 years and if you were an alien from Mars you would struggle to see how Amazon is valued at USD 1.5 billion, because they have barely turned a profit. But they collect data and lots of it and their data asset forms the major part of their valuation. The story for Facebook, and many other tech plays, has been no different in the early days until they developed revenue models.
Blockchain applications are at a significant advantage to traditional data plays because the transparent nature of the blockchain can inherently add to the value of each record collected. Furthermore, blockchain applications generally collect data on mass, which is also a significant driver of value. Often revenue for ICOs are generated a long way down the track, if at all, so data should be a primary focus of any ICO as a major selling point to investors in the absence of early revenue initiatives.
The issue is that most ICOs, or blockchain applications, don’t put enough thought into data collection from the outset, as there are tons of important factors that can influence the value of the data and if you fail to structure your data collection correctly from the outset you could be losing big down the track when it comes to valuing your most important asset.
At our data consultancy business Advantage Data, we have been researching data valuation methodologies. We were extremely surprised that none of the big 4 accounting firms has established methodologies for data valuation, especially for blockchain applications. The pioneer in the industry has been Douglas Laney from Gartner who developed one of the first data valuation methodology, central to their approach is identifying the:
- Intrinsic value (how correct, complete and exclusive is your data)
- The business value (how good is the data for a specific purpose)
- Performance value (how does the data affect key business drivers?)
Amazon and Facebook don’t just have your name and email address - they know your spending habits, hobbies, friends, relationship status. Facebook uses deep learning to analyse your photos to learn about you! They have an incredibly unique and complete dataset. If you’re looking to invest in an ICO, or are looking to start an ICO, I would be looking at the quality of data collected against the above criteria. A lot of the ICOs I see coming out lately are much better designed than their predecessors in the way that the token economies provide incentives, by the way of free tokens, for users who interact and provide data. These ICOs are much more likely to be successful in my view.
We have developed a proprietary data valuation methodology, which is especially well suited to the blockchain. Our valuation method is the only one that we are aware of that uses “machine learning”.
We will be road testing this method for 2 upcoming ICOs that will be announced in the next few weeks. Our methodology uses a range of signals such as business and accounting fundamentals across many industries where data-based economics formed a significant part of the business value of and private and publicly traded firms. We match our proprietary set of data features to build a machine learning model to model data value. Faced with a new dataset, we can derive the necessary features and estimate the value of data even before the first lot of data is collected so we can advise on value of what that data will be prior to launching given some assumptions about the quantity of data collected.
As ICOs becoming more and more regulated I am confident that data as an asset will be the focus rather than an afterthought. Watch this space!
Disclosure: Antanas Guoga, Member of European Parliament, a serial entrepreneur, investor, and backer of Cryptonews.com is a distinguished adviser at Advantage Data