Will Blockchain Transform the Ad Tech Industry in 2018?

Whether you’re an enthusiastic investor or total neophyte, the fact remains the same: no one can escape the hype around cryptocurrency and the blockchain technology that it is based on. In 2008, around the time of the big financial crisis, we witnessed the birth of the first viable digital currency called Bitcoin. It was a currency born on the internet, without the need for traditional banks or any other central authority. Blockchain was a fundamental component of the Bitcoin architecture, created by the enigmatic Satoshi Nakamoto. Interest in the concept of the blockchain and its possible uses has grown from a few members of the anarchist cyber community to the R&D halls of top banks and Fortune 500 companies.

Bitcoin is only one application of blockchain technology. According to a study conducted by the research division of IBM, 15% of banks and 14% of financial market institutions intend to implement full-scale, commercial, blockchain-based services this year, and those adoption rates are expected to reach 65% within three years. Even the diamond industry has been an early adopter. Just look at what Everladger is doing to keep track of the mining source of those precious stones.  

Challenges of the Internet

Beyond the obvious—social media trolling, software viruses, online fraud, fake news, and criminal hacking—doing business on the internet is often a basic challenge of trust. Is the person you’re doing business with online really who they say they are? And are only authorized personnel granted access to private systems? 

If a hacker wants to target a central database to steal customers’ information, he must simply find a way to breach the security of that database and then copy the information to somewhere he has access to. The Equifax cyber-attack is an example from earlier this year. In what is likely the biggest data disaster of 2017, credit ratings agency Equifax was breached by hackers, causing the loss of personal financial details of over 143 million people. It was a largely unprecedented act, and the hacker group responsible is asking for millions in ransom to be paid in bitcoin.

What Is Blockchain?

“As revolutionary as it sounds, Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. Above anything else, the most critical area where Blockchain helps is to guarantee the validity of a transaction"

– Ian Khan, TEDx Speaker | Author | Technology Futurist

In a sense, blockchain is a new type of database. It is a way to store, validate, authorize and move digital transactions across the internet. Instead of a centralized or decentralized database on one or more servers, a blockchain database is installed on individual computers used by the people who use the database. Hence it is called a ‘distributed database’ because there is no single control center.

“The basis of most business is the movement of a sale—an exchange of value—through business protocol or a supply chain. By creating a shared form of record keeping, that is distributive, permissioned, and secure, every player in a transaction is fully aware of who touches what, and when,” says Dr. Jonathan Reichental. Blocks are only added and never deleted. All changes are simply captured as new blocks. This is called immutability. You can think of the immutable blockchain database as keeping track of changes, like an accounting ledger where financial transactions are recorded. 

Everyone can see the ledger and no single person has ownership of the records. No one can change, add to, or delete from the ledger without it being permanently recorded. The information is put into a block, blocked together, and fingerprinted, creating a level of transparency that opens all transactions to scrutiny and credibility.  You can read a more comprehensive explanation of blockchain technology on Secure Thoughts  

Blockchain grants two vital characteristics/features to the world of online business: transparency & immutability. Since the information is encrypted, nobody can alter the blockchain, which is why it has been useful in finance for currency and data transfers. Even the FDA and IBM's Watson Health are exploring ways to use blockchain to build a patient data exchange to create an audit trail of all transactions on an unalterable distributed ledger, and in the process transform the meaning of accountability and transparency in healthcare.

Is Blockchain Relevant for the Digital Advertising Industry?

Above all else, advertisers keep expressing their concerns about the lack of trust, transparency issues and growing ad fraud that devastate the programmatic partnerships. According to a new study made by WPP, the amount of global advertising revenue wasted on fraudulent traffic, or clicks automatically generated by bots, could reach $16.4 billion in 2017.

Up until now, trust in ad tech is typically maintained by centralized third-party platforms like DSP, DMP, SSP and ad exchanges for delivering reports to keep everything in check. It is hard to imagine exactly how many supply and demand partners transact on a daily basis through Real-Time Bidding auctions. The cost and therefore the profits are driven toward these centralized intermediaries for maintaining all this trust. Not to mention the verification/compliance tools which are very expensive. On top of that, we have the technology services and the application layers that publishers and advertisers have to pay for. These intermediaries charge about 60 cents on every dollar, leaving a publisher with 40 cents!

Let’s not forget about private marketplaces and direct deals. Altogether that might be billions of transactions every day with millions of dollars sent there and back. A recent report by RocketFuel and IAS revealed that PMPs had a higher likelihood of video placement misrepresentation and are prone to domain spoofing.

The challenge arises when the advertiser, trying to make sense of their ROI, feels they might not have full visibility into the buying models. Some marketers start to question whether they are truly getting value for money. You can read more on my previous article about how ad tech is fighting compliance issues.

How will the ad-tech industry benefit by using blockchain technology?

Ad fraud has overwhelmed the advertising industry as programmatic ad technology has become increasingly mainstream. Most anti-fraud systems try to avoid, detect, or innovate around the ad fraud issue. What happens now is that most of those companies end up creating new centralized ventures that only add another layer to the existing tools and will only increase fees on their customers.

The IAB Tech Lab is establishing a new working group with the goal of exploring ways to leverage blockchain to improve efficiency and value realization in digital advertising.

Here are a few ways that I predict blockchain will change the industry:

Fighting Ad Fraud – Blockchain technology minimizes fraudulent activities like bot traffic, domain spoofing, pixel stuffing and ad stacking. With blockchain-based transactions, media buyers can easily track the number of impressions that are being delivered and verify whether those ads were targeted to the right audiences and served in the right place and at the right time. Every impression bought by an advertiser will come from an authenticated publisher with a validated domain.

Hard-coded transparency – By deploying blockchain technology, every member of the supply chain will then be operating with the same information. Every change made on the blockchain ledger becomes public. It is verified, approved and seen by all members. Such openness of the network and peer support adds accountability and builds trust.

Immutability – Once a blockchain block is created, its data cannot be modified retroactively without the alteration of all consecutive blocks. It is only possible if there is majority consent of other members who agrees to change the ledger simultaneously. You can add blocks, but not delete.

No third-party intermediaries – At its essence, the blockchain-based technology is a decentralized protocol of communication. Transactions allow direct exchange of digital and physical data between parties without any middlemen OR central distribution authority. This dramatically reduces or even eliminates the cost of ads being presented to the user.

Smart contracts – A piece of code which is stored in a blockchain network is called a ‘smart contract.’ It describes the conditions which all parties of the transaction agree on. If changes are to be made to the contract, they must be approved by all other members in the same time. Blockchain platforms, particularly Ethereum, have built-in rules that only execute the contract in cases where the buyer’s price matches the seller’s price.

Ad Verification -Blockchain’s advantages include verification of ad delivery: immutable contracts with consumers are completely transparent as are verifications about products’ authenticity that track the point of origin.

Limitations:

Awareness: Blockchain faces the hurdle of adoption and scale. The technology needs to reach a critical mass of users before it works as intended, with all parties accounted for in the same blockchain ecosystem. The vast majority of users don’t really care about the blockchain technology and how it works on the backend. They are only interested in the added value that this technology can present them. I expect it to be quite a long journey until the benefits of blockchain will rise to mass market awareness.

Latency: Blockchain’s biggest asset, decentralization, is also its biggest weakness in the digital advertising space. Due to its distributed nature, in which transactions are verified by ledgers, blockchain is too slow today to work in real-time bidding situations. For it to work, every point along the ad supply chain would need to adopt it, which could take a while given blockchain’s technical complexity. The computing power needed to pull off this kind of verification and encryption is just enormous: according to Manny Puentes, founder and CEO of Rebel AI, transaction validations take at least 10 seconds and sometimes over a minute(!) , while programmatic buying is supposed to occur within milliseconds.

Scandals and public perception: One of the biggest barriers to further blockchain adoption is its public perception as an accessory to the dark net’s money-laundering, drug-related, illegal online marketplaces. Cryptocurrency and the blockchain are neutral in and of themselves, and can be used for good or evil. Over time, public perception can change as legitimate businesses will use this sort of technology and cryptocurrency will become mainstream.

Next trends to watch for

Blockchains come in many different types. None have yet achieved the same scale of success as Bitcoin, but they do offer other benefits, such as increased speed, larger data capacities, different consensus methods or more advanced functionality. Here are few examples for trends that in my opinion will be interesting to follow:

• As “brand-formance” marketing is on a constant rise, we may see more tracking platforms (such as volume, TUNE, CAKE) to start utilizing the blocking chain as part of tracking/analytics/compliance in performance marketing.
• Header bidding and the blockchain technology: once latency is no longer an issue, it will be interesting to see how the RTB auctions will utilize blockchain’s full transparency as part of header bidding.
• “Applying smart contracts and blockchain to digital advertising, advertisers would be able to purchase ad impressions at a forward price from futures exchanges,” says Ivan Guzenko, CEO of SmartyAds and blockchain enthusiast. This technology facilitates smart contracts and allows buying and selling of any kind of commodity at a predetermined price at a specified time in the future. Can’t believe it is possible? Well in this case meet Nyiax, which has developed partnership with Nasdaq to combine financial trading and advertising technology in one platform to enable publishers and advertisers to buy, sell, and re-trade premium advertising inventory.
• New ways to measure advertising ROI using the Basic Attention Token (BAT), which utilizes the Ethereum blockchain to create a token that can obtain a variety of advertising and attention-based services.

Blockchain technology is already being utilized in the digital advertising space, and here are some examples of the projects and initiatives that depend on it:

•  AdChain and Adleger are building a standardization within the industry. IAB’s stated goal is to allow building of decentralized applications, specifically for use in the digital advertising ecosystem
• Adex is a decentralized ad exchange that utilizes Ethereum to address problems like fraud, privacy, and consent in the digital advertising space. It will be interesting to see if Ethereum will be the main protocol for the ad tech and if/how Adex will change the ad flow in the next couple of years.

Bottom Line

The potential of the blockchain is so significant that anyone who wants to understand the future of the internet needs to understand it.

As a whole, blockchain technology is still in its infancy, and it has bugs and hackers of its own that need to be addressed and secured before widespread adoption will occur. Still, there’s no doubt blockchain will change the way many industries transact. Digital advertising is no exception. While adoption and scale is a solvable problem, it is still years away before every player in the landscape invests the time and resources necessary to commit to a brand-new technology as a transactional layer.

The one thing that most analysts and leading technologists agree on is that, if this theory can turn into practice, it is going to increase productivity in every industry.

Thank you and have a great 2018!

Alex Lyhovez, Digital marketing professional.

[email protected]