It would be an understatement to call this project ambitious, as it seeks to completely rewrite the method by which the planet manufactures and ships its food and drugs, as well as providing unheard-of transparency to the consumer about the origin, quality and current state of the product on the grocery store shelf. To give you an idea of the scope of this project, the company’s vision paper is titled “Food Supply Chain 2.0.”
We will be using our standard 14-point analysis methodology here. These points consist of:
- The Concept
- The Company
- The Team
- The WhitePaper
- The Road Map
- The Token
- The Network and Technology
- The Presale
- Offering Details
- Structure of the Offering
- Exchanges Supported
- SEC Compliance
- Business Viability
- Community Response and Anticipation
- Possible issues and little bit of devil’s advocacy
- Final Takeaway
Let’s start with the Concept – if you are part of the growing trend of what I’ll call “food awareness,” you probably give a thought or two about where your food comes from, how it is treated on the way it gets to the store you buy it from, and what condition it is in when you take it home to your family to feed them. In the United States, food regulations and labeling laws began in earnest in the 19th century, and in 1990 and actin congress provided the FDA with specific authority to requiring nutrition labeling. It wasn’t until the formation of the European Union that Europe centralized and enforced rigid standards for food labeling, but the practice had occurred for decades before in individual countries. However, despite all of these laws and practices across the globe, there remains serious problems. First, fraud is endemic, nutrition labels have been proven again and again to be less than trustworthy, and secondly, metrics are collected in large batches, so even when there is no outright fraud, what you are reading on the label of the item you are holding in your hand is an approximation of truth. Finally, whatever measurements there are, are taken at the source, not at the destination and certainly not along the way. And a lot can happen along the way.
The solution, according to Ambrosus, is to fuse hard technology in the form of sophisticated sensors with this new concept of Internet of Things, running on a decentralized, trustless immutable blockchain database of information. Each monitored food or drug item contains with it a token that is bonded to the product and facilitates an ever-growing chain of information about the condition of that food or drug item as it travels the entire length of the supply chain, from manufacture, through transit, to the consumer. The consumer, at the end of the chain can instantly see all of the information through the use of a mobile app scanning a QR code. As you might imagine, this will provide tremendous transparency for the consumer, and ensure food quality without the requirement of a centralized authority such as the FDA, or Europe’s EMA.
The Company and the Team
The company itself has some impressive history, with respect to its associations and responses from the investment community. For instance, it was accepted as a Member of the United Nations Advisory Committee of Sustainable Food, and formal endorsements from the President of the Swiss Quality Control Association. This is a Swiss company located in Zug (spelled Zug) , Switzerland, which is interesting in and of itself, since Zug has been dubbed “Crypto Valley” due to its extreme support of the concept of bitcoin and digital currency, and an unusual concentration of crypto entrepreneurs. Just to give you an idea, there are currently 10 Bitcoin ATMs in this town of 30,000 people. The company was founded in 2016, and has raised money in the traditional way, by attending funding events such as the Monaco Growth Forum.
As in most cases, the most important aspect of Ambrosus is the team. In this case the team is large, and highly credentialed in terms of depth of expertise. I have to confess, I enjoy this part of the research more than any other for these ICO’s because of the international makeup of the team – Ambrosus is no exception. The CEO worked for the United Nations, the World Resources Forum, and Bloomberg. He has spoken at Davos, where he discussed financing models for Sustainable Consumption and Production. In his presentation, he pointed out some major constraints that small food producers face due to lack of access to finance. As you will see when we discuss the whitepaper, this is clearly still on his mind. The co-founder and CTO of the company is Dr. Stefan Meyer, who has worked in the food and biotech industry for twenty years. The lead engineer, a professor named Jean-Paul Sandoz has an impressive list of patents that are filed with the US Patent and Trademark Office, some of which are clearly baked into the concept around Ambrosus, such as self-sensing control systems and piezo-electric senors. Even the developers have some interesting credentials, which is often unusual in an ICO. For instance, one of the lead developers published a blog in 2015 that shared a design how to send time-locked and encrypted messages which could only be read in the future, using something he called the “timechain.”. This is just one of three blockchain developers. This team even has a communications manager who looks to be about twenty years old – but has a PhD and taught Investment Law at a Greek University. I’m always fascinated by the diversity of some of these ICO teams, but Ambrosus really stands out in this regards. If there is an “all-star” on this team in terms of blockchain technology, it’s Dr. Gavin Wood, who is none less than the co-founder of the Ethereum platform. This is a little like having Beyonce as a backup singer for your latest youtube video.
OK, on to the whitepaper. In this case, there is actually much more than just a whitepaper – there is a repository of detailed documents, including, of course, the whitepaper – but also papers on Food Sensors and Tracing, Non-Invasive Analytics, a handful of detailed use case scenarios, such as Olive Oil, Swiss Cheese and Pharmaceuticals, plus a separate Vision paper where the authors expand upon and expound beyond the whitepaper. The amount of information published far exceeds the normal output leading up to typical ICO – but then again, considering the team of people used to producing large amounts of scientific documentation, it’s not too surprising. It is, however, impressive.
They key points of the whitepaper include a widespread use of innovative and highly advanced physical sensors of several types, such as DNA labeling of proteins, smart gels which can be smeared onto tissue, such as a salmon, and digital tracers that sense pressure and other ambient factors as food travels from point of origin to its destination. Along the way, in a sort of version of Internet of Things, data about the product and environment, is reported from these sensors into an immutable blockchain to provide information that cannot be manipulated, thus ensuring the integrity of the food. It’s not just sensors, either – it’s cameras in stationary places and along with the packaging, and other types of permanent and temporary sensing devices to provide a 360-degree view of what is happening with this food item before it gets to your kitchen.
One of the things that I found interesting in the whitepaper and vision papers is the concept of a “Farmer’s Fund” – and here we can see the CEO’s concerns raised at Davos being met with the Ambrosus network, wherein up to 2% of the value of the entire network would be set aside and locked into a smart contract to supply collateral for loans to small farmers operating in developing countries with little access to financing to grow their operations. The fund would be replenished by voting by the community using the Ambrosus platform, and holding the token, which is called “Amber.”
Another interesting concept is that of “Digital Matchmaking” between members nearby to create “digital collectives”, where farmers who are producing similar or complementary products can be offered in bulk, and thereby find larger customers and to increase their bargaining power. This is also extended to the location and bidding of logistics companies to ship the product.
And finally, a big part of this idea is a reputation system for producers, shippers, and all member of the supply chain. The Amber token would be used to reward and track reputations based on actual events, as smart contracts are completed and the data recorded on the immutable blockchain. The consumer might be rewarded in Amber for purchasing the product.
Ok, let’s talk about the road map. One of the things that should be obvious by now is that this is not a short-term project. The plan is for a proof of concept to be released in September or October of 2017, followed by a food and commodity marketplace by December of 2017, and in 2018 a beta of the marketplace and some of the sensors. But it’s not until 2019 that the first generation of sensors will be launched and 2020 is when the first fully-automated Decentralized Autonomous Organization with sensors and artificial intelligence. It’s also important to note that there is not a planned exchange for cryptocurrency trading planned until the winter of 2019. Now of couse there’s nothing to stop outside exchanges from listing the token – and this will most likely happen – it’s just that the development of an exchange by the Ambrosus team will not likely happen immediately. This is in contrast to many ICO’s which launch an exchange before the ICO itself. In fact this speaks to the sincerity of the leaders, since it’s a way to show the world that it’s not JUST about the money – it’s about the project.
The Token and the Technology
The token named “amber” – with a symbol of AMB, is an erc-20 compliant token, which means it can be used on the Ethereum platform and can be used with any decentralized application running on that platform. For more information about ERC-20 tokens please listen to our Blockchain 41 podcast.
What’s interesting about this token is that it’s “bonded” to a product until there is a defined expiration date or a “termination event” programmed into the smart contract. You could imagine the purchase of the product might be such an event, or any event along the supply chain. End consumers of these tokens can claim the token, which can then be re-used and re-bonded to another product at another time. The token can also be used to reward members of the supply chain, and to record reputation status – and can even be used to transfer value for services during the supply-chain lifecycle.
The technology is multi-faceted, in the sense that it features a hardware layer in the form of sensors, then a couple of software layers to support interactions. The Ethereum blockchain will be used, but the Ambrosus protocol also calls for a custom blockchain functioning as a side chain and communicating securely with the Ethereum blockchain, as well as the use of what is known as IPFS – the Inter-Planetary File System. This is a relatively new protocol which allows for a distributed file-system. Why would this be necessary? Because if you think about the sheer number of reported transactions coming from all of those sensors, there is no way you could store all of that on an ever-growing blockchain without crushing performance. Another way to mitigate potential performance issues is that the Ambrosus protocol calls for writing changes to the smart contract collecting the monitoring data every 100 readings, instead of every reading. I am sure this will be tweaked as the system evolves.
As we mentioned, Ambrosus has been seeking and receiving financial backing from organizations before the upcoming token sale. According to news sources, Ambrosus has raised $30 million dollars ahead of the ICO. Some of that financing has come from a part of the Swiss government- specifically the government of the Swiss Canton of Vaud (vau) – a Canton being the equivalent of a state in the US or a province in Canada.
As of the time of this recording, the ICO sale itself has been postponed due to some security concerns. They recently abandonded their slack channel altogether in favor of Discord, and according to a statement on their blog, they are the victim of a series of targeted hacks and phishing scams. This is not uncommon, but as they mention on their blog, this sale has one of the largest caps, and one of the largest presales to date. So they are most likely a serious target.
- The original date was September 13th, the new date is now September 15th.
- The sale will be conducted using KYC – Know your Customer protocols, which if you have ever signed up for a crypto-currency exchange, it will probably involve holding your passport up to a camera and providing all kinds of information. ON the Discord thread there was one Russian guy who said that during the presale, the KYC procedure demanded a notarized version of his latest gas bill. That gives you an idea. So get your documents ready if you are going to participate. KYC information is coming soon, according to statements made on Discord.
- The hard cap is a whopping $100M Swiss Franks – which is about $105 M USD..
- The sale is closed to U.S. Investors, and along with the KYC standards, it may be difficult for US investors to participate without going to lengths. The company is obviously serious about this, and they refunded over $500K USD to a presale investor when they discovered that they had purchased shares on behalf of a U.S. Citizen. By the way, I had a discussion on their Discord Channel with a member of their team, and he explained that even though they don’t believe their token would be considered a security by the SEC, the ongoing lack of clarity in U.S. regulations leads them to believe they should take no chances whatsoever in this regard. As most of the listeners of this podcast know, there is little to stop US citizens from trading the token on the secondary exchange market, once it is released.
- The tokens will be allocated as follows:
- 40% to presale and token sale
- 9% to partners and early investors
- 8% to the team and advisors
- 25% to a partner development pool
- 3% Security Audit and Bounty Program
- The breakdown of the money they receive is as follows:
- 35% to R&D of the protocol and ecosystem
- 25% R&d Sensors
- 25% to outreach, partnerships, and integration with other system
- 10% to a food quality lab
- 5% to legal and administrative
- Initial exchange rate is 1 ETH to 1000 AMB (Amber). In the token sale, there does not appears to be a sliding scale bonus. There is a bounty and more information can be found the ANN Bitcoin Talk forum thread for the Bounty.
- There are no current exchanges that have been identified which will list the AMB token, and the communication about exchanges has been “coy”, in the sense that they need to walk the fine line of heavily discouraging speculation in the token, while also attracting investors. Statements made on the forum by team members might lead one to believe that exchanges are likely in the future of the token – but there will be no specifics until after the sale is complete. Our opnion is that ther eis a very high likileood that exchanges will pick up this token.
As with any utility token such as this, and with the company’s hard line on discouraging speculation, the Howey test applied shows very little likelihood that the SEC would rule this as a security, and therefore in our humble opinion it’s not necessary for the company to register the sale as a security offering, at least in the eyes of the SEC. As we have said, though, this does not stop the ICO from being blocked to U.S. Investors. That is the prerogative of those holding the sale. All I can say about this is that if you as a US Citizen are at all disappointed in this, please use your democratic process to speak out and ask the SEC and congress to issue some clarity on this area – and don’t hesitate to educate your representatives while you are at it.
In terms of business viability, we should break this up into several phases, because the vision is so grand, far-reaching, and disruptive of current supply chain practices that it would be a mistake to judge the viability of the business model based on the end-game vision. It is hard to imagine the widespread adoption of sensors in the short term – we are potentially talking about a gel tape on every fish or pumpkin. On the other hand, it should be understood that this is not just one idea – it is many, and contains many business opportunities at many levels. In a 5-page paper issued named Business Opportunities, one of the most believable business models would be an enhancement of the growing niche of organic marketplaces that pay close attention to quality. One can easily imagine the demographic of Trader Joe’s or Whole Foods consumer embracing this concept, and rewarding the producers who are members of this platform, particularly if those Whole Foods shoppers can scan the QR code of an item and obtain lots of data around quality before purchasing. In a discussion I had on Discord with the CEO of the company, DNA testing of salmon is a good use case to solve once and for all the doubt between farm-raised and so-called “wild” salmon.
Another business model that is attractive would be the pharmaceutical industry, especially if governments embrace a higher set of standards which could include the technology presented by Ambrosus. Ultimately, as the CEO has mentioned on the Discord channel, the first viable business models will be in the higher-end markets, such as olive oil and other premium foodstuffs.
Reaction from the Community
The reaction from the community on Bitcoin Talk and Reddit has been mostly positive, although some criticisms were voiced with respect to their communication. Their slack channel had some major issues and had to be abandonded – however, when they switched to Discord the situation improved markedly. This is one instance where the CEO is very active on the thread answering questions and engaging with the community quite energetically. If you are so inclined you can join the Discord channel and read in-depth discussions from the CEO and some of the other team members with a wide range of people in the crypto community. Form what I have read, when you filter out the trolls and focus on in-depth conversation, you find thoughtful replies and the team seems to hold their own pretty well against sincere criticism.
A little bit of devil’s advocacy here. First, this is a very long-term play in terms of adoption. The level of monitoring the project is proposing here is far beyond anything that exists currently. It is not possible to believe that any efficiencies realized by the use of this platform would entirely offset what would have to be high costs of application of monitoring devices at the level suggested. Secondly, it turns out that there is, in fact, some competition at a certain level. There is a company named Modum doing a very similar thing, although on a much smaller scale. They are focused on pharmaceutical industry and are measuring mainly temperature range during shipment. They do, however, have working devices and have monitored over 1,000 shipments and received over 500,000 data points during those shipments. The whitepaper is slim, however, with little about the technical details of the network, and with what appears to be a narrow use case. And I see little in terms of how to scale something that measures 500 shipments per data point. So when you examine this carefully, the level of competition is not as great as it seems at first glance.
Another slight concern is the fact that the platform uses what is known as “Proof of Stake” – which means that the only way to join the network after the sale would be to purchase AMB or perhaps write a distributed application on the platform that somehow collects the AMB token. But if the price of the AMB token rises due to speculation, then this would slowly raise the cost to newcomers of the platform. I’m thinking now of the small farmers that the CEO mentioned at Davos and their access to financing. Or, more generally, a higher cost to participate.
And finally, we are seeing the use of more-or-less privatized side-chains in these ICO’s for technical reasons and Ambrosus is no exception. When this occurs, the question should be asked whether the private management of a side-chain undermines the egalitarian nature of blockchain technology – such as Ethereum.
I posed these last two questions on the Discord forum and received perfectly reasonable answers to them – with respect to the first, Mark and Matthew mentioned dynamics pricing to deal with the rise in AMB, such as already exists on certain fee exchanges, and to the second Matthew actually agreed, but explained that a private side-chain can avoid fees. Makes sense.Takeaway
All in all, we believe that the Ambrosus token offering will probably be a large success, especially with the team and their connections, the presale numbers, and the anticipation. We believe the execution of this project will take years, and will be slow going. We dot no believe, personally, that this ICO is an ideal short-term investment, our opinion is that short-term investors would do best to heed the advice from the Ambrosus themselves, and not treat this as a speculative investment. We will certainly be keeping our eye on this outstanding project as the months and years roll by, and will check in from time to time.