Photo: Rachel McIntosh
An interview with WENN Digital CEO Jan Denecke on navigating the regulatory space in blockchain.
The KodakOne project has been the center of much attention within and without of the blockchain space. Many have seen the launch of the project as a representation that blockchain is gaining greater acceptance in mainstream financial and technological spheres.
However, controversy emerged it was announced on January 31st that the KodakCoin ICO was going to be postponed for several weeks. As a result of that announcement, Kodak’s stock value fell by about 15%; it had previously risen more than 100% when KodakOne was originally announced; some voices in the crypto community criticized Kodak, saying that the blockchain initiative was a an attempt to profit off of the buzz around blockchain.
There was also some question as to Kodak’s relationship with the RYDE project, a blockchain platform that Finance Magnates spoke with Jan Denecke, CEO of WENN Digital (the company that partnered with Kodak to create KodakOne) about the reasons for the postponement of the KodakOne ICO, Kodak’s relationship with WENN and RYDE, and his thoughts on companies seeking to take advantage of the blockchain hype.
Can you speak a little to the decision to delay the launch of KodakOne–why did it happen, and what could have been done differently to prevent it?
First of all, it’s not a delay. I think it was a misunderstanding of what we are doing. The KodakCoin for us is an essential part of the whole business model. We needed to create it, and that’s why we need to do anICO to somehow bring the coin into the outside world.
When we started to discuss that, our first thoughts on how we were going to establish it were in September 2017. The discussion was focused how regulation authorities were seeing ICOs were completely different to how it is now. It has rapidly changed in the last few months. The attention of regulation authorities like the SEC, really started by the end of 2017.
We realized from the beginning that what we wanted to do was an unregulated ICO, as everybody did it. However, we realized that the regulation authorities are digging much deeper into that market–that’s just my personal opinion. I believe strongly that the ICO market will not stay unregulated. As the SEC said at the end of 2017, there is no difference between utility tokens and security tokens–every token is a security token.
For us, that was the first sign where we basically said, “Listen, we have to do a regulated ICO. We can’t take the responsibility for our investors–big or small–if they invest in something, and half a year or a year later, the regulation authorities come and shut it down.” That risk is too big for us. So, we decided to make a very bold decision: we said, “okay, we won’t even discuss the token as a security token or a utility token. We will treat the token as a security token, and basically say that we’re gonna do a regulated ICO.”
From that decision on, obviously there are lots of hurdles to overcome. In a formulaic way, you have to act very compliant, which is a big effort and costs a lot of money. We decided in the first step to do a so-called ‘Reg. D’, which is only for accredited investors. If you do a Reg. D, you have to act compliant.
There are different kinds of things like the KYC (know your customer)–you have to know if they are an accredited investor, and so on. We started to implement that thing, very closely with our lawyers and also in our discussion with the SEC, we created a process where everything is compliant under Regulation D.
The definition of launching an ICO is an under-regulated topic, completely different than an unregulated ICO. When I launch an unregulated ICO, I immediately can buy on the platform, everyone can buy on the platform with any kind of money, crypto, or the tokens.
For us, the launch means that the first thing we have to do is filter through our investors to find out if investors are accredited–that takes some time. So when that process begins, we pick out every inquiry we have and run them through the system, and say, “okay, you are an accredited investor, you can go one step further.” Then you have to go through the KYC process.
That whole process–to document that–takes time. So, it’s not a delay, we just started the process of creating the possibility to invest into KodakCoin. These are formal processes which are needed to be compliant under the SEC. One sentence to answer the question “why regulate it?”–in my perspective, the regulation is a protection for investors.
There are a lot of ICOs out there that have no substantial business behind them, they’re basically a ‘pump-and-dump’ story. This is what regulation is avoiding. I remember the penny stock times, when everybody could buy penny stocks, and you never knew what was in the stock that you bought. Basically it’s the same thing.
We are doing a regulated ICO for accredited investors, and it is the first step of protection for smaller investors, not to jump unprepared into a thing where they might lose a lot of money. This is basically what we are doing. It’s not a delay, but a process that’s started for the accreditation of the investors and the FYC process.
So it was a decision to make the process more secure?
Definitely. We need to make it compliant. These are not out rules, these are the rules of the United States and the authorities. If you wanna have a compliant ICO, you have to play by the rules. That’s what we are doing.
There has been kind of a rash of companies–for example, the Long Island Iced Tea company that became Long Island Iced Tea Blockchain company–that are kind of taking advantage of the buzz and the hype around crypto. What are your thoughts on companies that are taking advantage of that?
Obviously, I can’t support that at all. I know we were sometimes thrown in the same pool with companies like that, but I am actually relaxed on that topic because that is not what we are. We have a brilliant technology already up and running. We have a brilliant idea, and we are basically starting to build. We have a big, big, huge feedback from the community of photographers, agencies, and so on.
The only ones who are jumping on it, are–let’s put it this way–a press related topic. I totally understand because obviously there are buzzwords like blockchain, and stock-raising with blockchain, and so on. In the end, the quality will survive and the product will survive.
That’s why I’m not very concerned about that because we are about to create a huge product. I can’t tell you now, but we have two really big archives coming onboard with us. We’ve gotten big support from the community.
Where do you see the KodakOne project a year from its launch?
That’s a very good question. The KodakOne project a year from its launch will already have lots of services up and running. We will just have finished our closed beta phase with agencies; we will have the possibility to [offer] most of the services I explained to you in the beginning. It will be a major player in the image economy.
It will enable all image rights holders to have a substantial advantage in overseeing where the royalties have been paid to, and whether the usage in the net is licensed or not, and acquire some money for it. Basically, it will reward the ideas of all photo creators.
Following the announcement of the decision to postpone the KodakCoin ICO, reports emerged questioning the connection between the KodakOne project and the RYDE project, a blockchain initiative that was cancelled a few days before KodakOne was publicly announced. Can you clarify the relationship between RYDE, WENN, and KodakOne.
“WENN Digital was created by two companies. One company is the WENN Media Group, the other company is RYDE–I founded RYDE in 2017. My background is that I am a copyright lawyer, and I was dealing all the time with trying to solve the problem that digital assets are used on the internet for free, or that creators are not rewarded for their ideas.
That’s why we created RYDE, and the mission of RYDE was part of the name–[RYDE stands for] ‘Reward Your Ideas’. We basically created the web crawler, and we didn’t want to do the approach that is the normal, aggressive approach of a lawyer going after every kind of unlicensedusage.”[With regards to] the commercial usage, let’s put it this way: if the person had known where to get the license, he probably would have bought it. Normally, they don’t know where they can buy or acquire the license so they just take it and use it. So it’s not a ‘bad use’ on purpose, it’s more of a situation where they don’t know where the license is [or how to acquire it].
We created RYDE with the idea of: “let’s treat the user of the license more like a customer.” If you approach him the right way, he is more likely to acquire that license. We turned everything around by saying, “if we give you the possibility to buy [an image’s] license–if we find you and also do an upsale and acquire that license for future uses.” RYDE was acting more like an agency.
We just had one big problem–RYDE never really understood the market in an abstract way. We needed to learn from our customers, and one of our big customers was WENN Media Group. We were working very closely together on that topic.
There was another problem: we realized that if we found images on the internet, we basically saw that the request to the client if there is an unlicensed usage or not, was very difficult to find out.
As I said in the beginning, archives are sold, agencies are sold, so it’s difficult to find out who has a license and who doesn’t. Then I was digging deeper into the blockchain technology, and understood really that this could be the key to create an overall immutable royalty system, where you actually know who has which license, and who acquired which license.
If we find something, the request to the system is much faster and more efficient than the request to the client who has to go into his books and look it up. That’s what we then discussed with WENN. WENN was an agency that has a big amount of pictures–they are shooting up to 5000 pictures a day, creating 5000 pictures a day, and they are very exclusive pictures as well.
They have distributed all over the world, which was a quick way that we could learn about the evolution of how a picture exists in the market. We had a very close look over the past one and a half years over these topics, and then created an implementation of blockchain technology into these companies.
We therefore created WENN Digital. It was born out of two companies: one image company and one company that was crawling the net and searching for unlicensed usages.
So the RYDE project was already existing on its own before the blockchain project was picked up by Kodak?
Yes. We created RYDE and developed the first crawler technology in 2015, and we started RYDE in 2016. It already had clients and all the services were up and running. Obviously, at the beginning we were testing and from then on we were growing and growing.
We had different kinds of agencies, like obviously WENN, and some great photographers like Magnus Reed, and so on. The RYDE business was up and running, so it was like, let’s put it this way; we were growing together with WENN Media Group.
How did WENN Digital then get involved with Kodak?
As we then created WENN Digital and the whole idea behind it, we were always looking for a strong brand partner with a lot of trust in the brand, that was also well known in the image economy. We came up with Kodak; my whole childhood was on Kodak film, and every photographer out there has breathed Kodak his whole life.
It was a company and an image that was very related to the photography economy. They’ve had a big aim of rewarding photographers and standing on their side, so that was a brilliant brand for us. We basically reached out to Kodak, and presented them with our plan and how we wanted to approach the problem on the internet, and they were really, really amazed and opened. It was a very good start of the discussion.
We became closer and they liked the idea, we loved the idea, so basically we then ended up in that licensing contract, and we are very happy about it. So, that’s how we ended up in a brand licensing contract together. We are very happy about it; it’s a wonderful partnership, I must say.
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