Can Blockchain Technology Save Digital Advertising?
Digital advertising is at a crossroads.
As users continue to spend more time consuming digital media, the need to reach consumers on digital platforms is more critical than ever for advertisers. According to a report by eMarketer, digital advertising is projected to reach $628.23 billion dollars in 2018. (1) However, significant flaws currently exist in the industry and present challenges for publishers, advertisers, and the public.
These issues include data security concerns, asset tracking, delivery and payment model flaws, a lack of consumer compensation and ad fraud—not to mention the continued rise of ad-blocking technology and rapidly eroding efficacy of digital ads, in general. A possible solution to address many of these issues that is rapidly gaining traction in the tech community comes the world of cryptocurrency.
When the value of Bitcoin surpassed $10,000 in November 2017, individuals outside of the cryptography community finally began taking the emergent currency seriously. The energy around Bitcoin tapered some when the its value floated back to earth (currently valued at $6,186.99, at the time of writing), but what remains is a large amount of speculation and excitement around the underlying technology, blockchain. Several industries believe that this technology could revolutionize the way they do business and digital advertising is no exception.
Before we get into discussing how blockchain could be applied to the benefit of the digital advertising industry, it’s important to have a functional understanding of how blockchains work.
So, what is a blockchain?
A blockchain is a record, or ledger, of transactions between a network of participants.
Blockchains are made up of individual blocks, or packets of data, strung together in a sequence. Each block is made up of three parts: the data input, a hash of the data input, and a hash of the previous piece of data in the block.
A hash is produced through a cryptographic process that takes a piece of data, applies an algorithm and outputs a fixed number of characters. There are several types of hash functions. For example, the Bitcoin blockchain uses a hash function called SHA-256 (Secure Hash Algorithm 256), named thus because of the 256 character hash it outputs.
For example, if your data input was:
“This is my blockchain data”
then your SHA-256 hash would be: b62af5b94c48061262b6c3f292a798f8c79c773c6e62e34d97378e07fd225abc
Hashes have several unique characteristics the make them ideal for the blockchain. Hashes are:
Deterministic: The same data will always generate the same hash. And conversely, if even the slightest change is made to the data the new hash rendered will be completely different.
Collision Resistant: It’s highly improbable—(like, 10^-60 improbable) that that the same hash will be generated from two different data inputs.
Pre-Image Resistant: It is not possible to reverse engineer a hash to decrypt what the data is. (3)
These characteristics are important because it makes hashes incredibly difficult to decrypt. The only way to do so is through a brute force attack—essentially, going through every possible combination until you get a match. As digital ad networks and publishers continue to collect and store more consumer data electronically, security is becoming an increasingly critical matter to consider.
In order to understand some of the nuances of blockchain security, let’s explore what it would take to manipulate a block stored in a blockchain.
Say a cybercriminal tries to go into the blockchain and manipulate a single piece of data.
Remember—the hashes a block is comprised of are deterministic—even the slightest change made to a single piece of data would create a new hash for that piece of data. And that updated hash would affect every subsequent block in the chain since every block in the chain contains a hash of the previous block in the block chain.
So, in order to change a single block in the chain, every subsequent block would have to be recalculated and updated. This alone would be a daunting enough task, but blockchain networks safeguard against this further through an additional layer of security known as proof of work. (4)
Proof of work is a cryptographic puzzle which must be solved in order for a block to be modified or added to the chain. In the case of the Bitcoin blockchain, it takes about 10 minutes to calculate proof of work for a single block. (5) The network incentivizes individuals to solve proof of work and verify the new block by rewarding the first node (user on a blockchain network) who solves the proof of work with ether (unit of cryptocurrency). These individuals who solve proof of work are referred to as miners.
Requiring nodes to solve proof of work to add a block to the chain slows down the rate at which new blocks can be added to the chain, making them more tamper-proof. Remember, if someone wanted to change a single piece of data they would have to change every subsequent block on the chain. And in order to add a block to the chain, they would need to do the proof of work for that block. This means that, the more a blockchain is used, the more secure the previous blocks in the chain become. At the time of writing, there are 792,292 blocks in the bitcoin chain—that adds up to a lot of proof of work that would need to be re-done.
Lastly, blockchains are peer to peer, distributed networks. When a new node joins the blockchain network they are given a complete record of every transaction in the chain. In order for a block to be added to the chain, there must be consensus amongst nodes on the chain that the record that is being added to the chain is valid, matches their record and has not been tampered with.
So even if someone was able to 1.) manipulate the data, 2.) update the hash for each of the previous blocks in the chain, and 3.) solve the proof of work required to add all of the new blocks to the chain, if the update they are attempting to add to the chain does not match the records of a majority of nodes on the network, the update will be rejected.
THESE ELEMENTS WORKING TOGETHER—THE INTERCONNECTION OF BLOCKS, PROOF OF WORK, AND THE PEER TO PEER, DISTRIBUTED NETWORK—ARE WHAT MAKE BLOCKCHAIN SO SECURE.
There is one other notable innovation worth mentioning that has been applied within blockchain networks to great effect. Asymmetric encryption, also known as public and private key encryption, is a way by which users can securely exchange information. (6)
Upon initiating a first transaction within a blockchain network, new nodes are generated two keys: a public key, and a private key. Public keys and private keys are randomly generated numbers that can be leveraged to exchange data securely. A helpful way to think about the two keys is that the public key is an encryption key and the private key is a decryption key. (7)
A user’s public key is, as it sounds, public. It’s visible to anyone who wishes to find the information and can be shared without fear of being intercepted. Conversely, private keys are safeguarded, just as you would currently safeguard your own passwords.
To illustrate how the secure exchange of data can occur, consider the following scenario:
Two nodes, Alice and Bob, want to exchange a sensitive, private document. In order for Alice to get the document to Bob, she’ll begin by asking Bob for his public key. Alice will then take Bob’s public key, encrypt the file using the public key and send the encrypted file to Bob.
Only Bob’s private key can be used to decrypt Bob’s public key. Therefore, only Bob can decrypt and access the file. No private information has been exchanged. The file sent was encrypted, the public key was already public information, and the private key never left Bob’s possession, thus creating a more secure environment for the transfer of information.
Now that we have a basic understanding of how a blockchain network works, let’s consider how blockchain technology could be applied to some of the challenges the digital advertising industry is currently facing.
Asset tracking, delivery and payment model flaws
One of the biggest issues digital advertisers and publishers face is the structure of their relationship with ad networks. (8) In the current environment, advertising networks act as middlemen between publishers and advertisers. This presents several challenges for advertisers and publishers alike:
Ad networks take a cut of the buy for access to their networks:
This means less money for advertisers to get their messages placed and viewed, and therefore less money going to publishers for their available ad inventory.
Ad networks typically will collect money upfront or after 30 days, but payment may not be issued to publishers until 60 or even 120 days out. This payment structure hurts publishers as they can be left waiting months to collect payment. (9)
Ad networks also control the flow of information between advertisers and publishers:
This lack of transparency introduces the possibility of misinformation in campaign performance reporting.
Ad networks control ad placement:
This means that advertisers have less flexibility with regards to what platforms their ads are placed on and publishers have less flexibility with regards to what ads are displayed on their platforms. This can be extremely detrimental to advertisers in instances where ad networks are leveraging controversial sites to place ads. (10)
With a blockchain-backed ad network, the need for an intermediary is eliminated altogether—blockchains are decentralized systems. By leveraging “smart contracts,” computer programs built upon the blockchain using asymmetric encryption, advertisers and publishers can create campaigns that are largely self-executing. (11)
At their most basic level, here’s how a smart contract could work between a publisher and an advertiser:
A smart contract is created that says for every click ‘Advertiser Alice’ receives on ‘Publisher Bob’s’ website, Bob will receive 1 ether (unit of crypto-currency) from Alice as compensation.
The smart contract validates that Advertiser Alice does indeed have 1 ether in her possession by looking up Alice’s public key. And the smart contract validates that Publisher Bob’s website did, in fact, display the ad and that the ad received a click. If the parameters of the contract have been met, the system will automatically transfer the funds to Bob.
Conversely, the smart contract may determine that, while Alice does in fact have 1 ether in her wallet, the click her ad received was actually from a bot. Therefore, the parameters of the contract have not been met. Alice retains her ether, and the smart contract waits for Bob to hold up his end of the bargain.
By building ad networks using the blockchain, there exists the possibility for a number of potential benefits.
Real-time payment and inventory tracking for publishers and advertisers:
Currently, ad networks often require that advertisers purchase large blocks of impressions at a time. With a blockchain backed ad network (and without a middleman) this wouldn’t be necessary. Advertisers would have total control and transparency into the payment and delivery process. By leveraging smart contracts, publishers would have the benefit of being immediately compensated for impressions and clicks, rather than waiting to be compensated.
Transparency into campaign performance:
Because the blockchain keeps a record every transaction, advertisers could have total transparency into the network data. With access to information such as when an ad was clicked, which publishers are performing best, and what other ads users are engaging with, advertisers have the ability to insightfully optimize campaigns.
Combating Ad Fraud with More Engaging Ads
Ad fraud in the digital advertising space has reached staggering levels—with an estimated $18 billion dollars of 2017 digital ad spend wasted due to false impressions from bots. And while blockchain-backed systems alone are not the silver bullet that will resolve this issue, several new ad networks such as NOIZchain, AdEx and BAT (Basic Attention Token) have recently emerged that paint a very compelling picture of what the digital ecosystem could look like in the future. A system with more engaging content, more meaningful insights, appropriate compensation for all parties—all with a greater degree of control and security.
Let’s consider what this might look like, based on features and benefits proposed by these up-and-coming digital ad blockchain tech companies.
More engaging content, more meaningful insights
Both NOIZchain and BAT use an interactive advertisement model. In this model, advertisers produce ads that are designed to be engaged with, whether through multiple-choice clicks or through a conversational interface. This is significant for a number of reasons. (12) (13)
Sample ‘interactive advertisement’ and dashboard display from NOIZChain.
By having users actively engage with an ad, advertisers are able to reduce the number of accidental clicks, and to take away more robust insights about the consumer. Additionally, by requiring interaction with the advertisements beyond a simple click, AI built into the network is able to more accurately identify aberrant behavior and remove fraudulent accounts.
Advertisers also use the information gained from the engagement to not only improve their advertisements, but also to more accurately establish ideal user targets based on who is converting on their ads. For users, the benefit of providing this information is that they ultimately receive more tailored and relevant advertisements, improving the overall browsing experience.
Despite these benefits, the favorability of this environment still tilts in the favor of advertisers and publishers—after all, they’re ultimately making money off of the consumer. In order to offset this, blockchain-backed ad networks are exploring ways of compensating users for their engagement with advertisements. Through cryptocurrency this process would be totally seamless—all users need to do to direct funds towards their account is provide their public key and the smart contract programmed into the advertisement would do the rest.
With blockchain-backed systems, users would also be able to provide feedback to advertisers, publishers and the network by flagging ad content, ad placement, publishers, or other users for removal from the network. This would be done through a proof of stake mechanism built into the blockchain network. Similar to the proof of work mechanism we discussed previously, proof of stake is a method of reaching a consensus.
While proof of work is a race to validate, proof of stake is a voting mechanism. Users vote up or down, staking their decision using ether. The party that wins out is rewarded with ether for staking the winning side in the process. By requiring users to stake their votes and offering , it incentivizes participation in the process, reduces gratuitous flagging of content, and encourages truthful voting.
Let’s be clear—blockchain-based solutions are still a long way from resolving the current issues with digital advertising. Before they can have any significant impact, users need to adopt and actively use them. Dollars follow eyeballs, and without active users on these networks, the platforms cannot succeed.
Blockchain technology has the potential to completely subvert the current digital advertising landscape, and given the industry’s current shortcomings a total overhaul just might be the only thing that can save it.
Sources:
(1) https://www.emarketer.com/content/emarketer-total-media-ad-spending-worldwide-will-rise-7-4-in-2018
(2) https://www.youtube.com/watch?v=SSo_EIwHSd4
(3) https://blockgeeks.com/guides/cryptographic-hash-functions
(4) https://www.youtube.com/watch?v=M3EFi_POhps
(5) https://blockexplorer.com
(6) http://www.informit.com/articles/article.aspx?p=102212&seqNum=2
(7) https://searchsecurity.techtarget.com/definition/asymmetric-cryptography
(8) http://adage.com/article/digitalnext/rose-colored-glasses-blockchain-advertising/312628/
(9) https://martechseries.com/mts-insights/guest-authors/blockchain-advertising-implications-every-player-system/
(10) http://www.odwyerpr.com/story/public/10263/2018-02-28/blockchain-will-bring-transparency-digital-advertising.html
(11) https://www.youtube.com/watch?v=ZE2HxTmxfrI
(12) https://medium.com/@NOIZchain/how-proof-of-stake-works-in-noiz-tokenomics-cdec03309c1b
(13) https://basicattentiontoken.org/
