What blockchain will do to advertising in an increasingly decentralised world

A look at how blockchain could be used to address challenges faced in different types of transactions in digital advertising.

The poster child of blockchain is Bitcoin which, as we have seen, has grabbed headlines across the globe. The Winklevoss twins, famous for claiming stake to the Facebook concept, last week might have become the first Bitcoin billionaires. In 2013, it became known they had invested $11 million of their settlement payout into Bitcoin. Today, this investment is worth over $ one billion, in just four years. And, according to sources, they are yet to sell any, highlighting their continued belief.

Another aspect of the blockchain has also been steadily getting attention: the notion that a blockchain can serve as a global asset registry. It allows counterparties in a transaction to maintain records in a tamper-proof way that does not involve third parties. This has big implications for every business participating in a marketplace and doing transactions. Advertising as well as digital advertising stand to change significantly if this becomes a new paradigm.

Digital advertising is characterised by three types of transactions:

1. Advertisers paying for an opportunity to present a value proposition or, better still, drive a transaction from a user;
2. Users trading their personal data in exchange for personalised ads;
3. Publishers being paid for access to the ‘real estate’ they control.

This article lays out the challenges associated with each type of transaction and outlines how blockchain technology could be used to address them.

Advertiser use cases

Half the money I spend on advertising is wasted; the trouble is I don't know which half’ - John Wanamaker (1838-1922)

Almost a hundred years since, this quote is still partly true even in digital advertising. It is because advertisers grapple with three-fold issues: measurement, attribution and straight-out fraud. An ecosystem of companies has blossomed to help advertisers address these issues. It has helped in parts, but it has also exasperated trust issues in other places.

For example, trackers help advertisers count conversions (measurement and attribution). However, they are typically paid by the advertiser and so are incentivised to be harsh on publishers, and their representatives. Towards a fairer system, an exciting use case is where conversions could be directly written into the blockchain limiting the role of trackers.

Blockchains are about using cryptography to do away with middlemen. Each transaction in a blockchain has the previous one embedded in it. If any record is tampered with, it becomes immediately obvious from examining the blockchain. The other benefit of blockchains is that multiple parties can write to the same blockchain.

The two main kinds of blockchains are public blockchains (e.g., Bitcoin) and permissioned blockchains (e.g., Ripple).

As the name suggests, public blockchains are suitable when the data does not need to be private, and when it makes sense that no one has single control of the blockchain software. Further, public blockchains tend to have slow transaction speeds because of the proof-of-work requirement (explained later). In the advertiser use-case, the requirements include the need for multiple parties (different publishers, networks, affiliates and the advertiser) to be able to update the blockchain.

In the case of tackling fraud, the proof-of-work could potentially be verification activities. Different parties are typically bound by legal contract which creates the right environment for a permissioned blockchain. While not fully decentralised, permissioned blockchains allow for data to be private while maintaining control of the codebase. In a similar application, AdEx is contemplating the use of an ADX token to facilitate execution of a contract between an advertiser and a publisher.

User value exchange

Users are becoming increasingly comfortable with sharing data but they are also increasingly aware of who is using their data and what value is provided in return. An important use case for users is to control at a fine granularity how specific attributes of their data are being used, such as location or browsing behaviour. This is where the Ethereum blockchain can come in.

Public blockchains are designed such that all transactions are visible to miners. The role of the miners is to verify transactions, combine them in a block, and append the block to the blockchain. Many miners could be working on pulling together the same set of transactions but only one of them can add the new block to the blockchain. Depending on the blockchain, the decision on which miner gets to add the block is made either by proof-of-work or by proof-of-stake.

In the proof-of-work method, each miner is assigned a computation such as verifying a transaction, or generating a random hash with a certain number of zeros up front. Upon furnishing proof that they are the first to complete the task, the miner is allowed to add on the block. In the proof-of-stake, the largest stakeholder has the sole right to add the block.

Ethereum is built to be able to harness this computational effort in its broadest generalisation. Each transaction on Ethereum can contain a ‘smart contract’. A smart contract is nothing but a program that the miner has to execute in order to collect his payout in Ethereum money (called ethers). The Ethereum blockchain can be thought of as a distributed computing platform that has embedded in it code that cannot be altered. This opens up all kinds of possibilities for delivering digital content or handling digital information such as user information. For example, we can imagine an application for managing user privacy that only allows advertisers or ad networks with the necessary permissions to unlock and utilise a particular user’s information in order to display a relevant advertisement.

Publisher applications

Programmatic selling of digital media has become mainstream. Inventory on most major publishers is readily available on major exchanges. Annoyingly for legitimate publishers, there is significant fake inventory sucking away advertiser dollars via domain spoofing. WPP has estimated that $16 billion-plus of advertising dollars have been spent in 2017 on fraudulent sites masquerading as premium publications, such as the New York Times and Forbes magazine.

The industry has responded to this with the Ads.txt effort. However, adoption still needs to pick up. Furthermore, other measures are also needed to combat increasingly sophisticated forms of fraud which are always emerging.

Blockchains could help by providing secure ways to sign certificates allowing resellers such as Supply Side Platforms (SSPs) to mark their inventory as legit. The adChain registry - a smart contract built on Ethereum - is one-such publisher certification mechanism where token holders collectively accredit new publishers. However, most buyers on exchanges have highly-tuned, sophisticated setups and incorporating complex blockchain flows might not be straightforward.

In summary, blockchains are here to stay and could be set to transform all marketplaces. Digital advertising could be one of the first major successful commercial applications of Ethereum-based smart contracts. The specifics of different advertising use cases will determine the blockchain variants that are deployed. It is quite likely that, in advertising, we will see the emergence of a combined ecosystem of both public and permissioned blockchain environments.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)