What's Coming: Blockchain And Advertising

"Blockchain marketing" is the buzzword for 2018. So much so that the Interactive Advertising Bureau (IAB) released their "Blockchain for Video Advertising" whitepaper detailing how this new technology will revolutionize the digital advertising supply chain and have ripple effects throughout the marketing industry.

What is blockchain?

According to the whitepaper, blockchain provides a way for two parties to make a secure transaction on a decentralized network. It is an immutable, distributed and transparent ledger that cannot be altered in any way. This means that once the data is stored on the blockchain’s distributed peer-to-peer network, its authenticity cannot be brought into question and its value can be verified at any point throughout the network.

Special permission is required to write new entries into a blockchain database while the ledger itself remains publicly visible. Once you enter data into the blockchain, it becomes fully encrypted and the system distributes it to the network where it can never change. Not only can blockchain technology create absolute transparency amongst digital advertising services, but it can increase efficiency, reduce costs and eliminate fraud.

Where can blockchain help advertising?

Speed

According to an article on The Motley Fool, the most advanced applications on the blockchain can currently process in excess of 7,000 transactions per second. But that number still pales in comparison to figures recently put out by Visa, showing its capacity to conduct more than 24,000 transactions per second. Advertisers are hopeful that speed on the blockchain will continue to increase to where digital ad transactions may soon be processed in real time, much like they are for cryptocurrencies. As it stands today, however, blockchain is too slow to process real-time aspects of the digital ad environment.

Today’s digital ads move at light speed, and their demand pushes advertisers to process hundreds of thousands (perhaps even millions) of ads sold every second. Advertisers sell digital ads instantaneously in real-time auctions. IAB guidelines suggest responses in auctions must occur in less than 100 milliseconds, though most occur in under 75 milliseconds.

Blockchain cannot meet those speed requirements. Bitcoin, for instance, the most popular blockchain application, processes only between three and four transactions per second. Bitcoin has an open-source competitor, Ethereum, that can process 20 transactions per second. In addition, privately-run blockchains could speed up transactions even more. However, as of today, blockchain technology does not scale.

Companies are working feverishly to devise an approach that improves speed. One possible solution is to use proof-of-stake, which uses less computational power, instead of the existing "proof of work." According to The New York Times, proof of stake "distributes new coins to people who are able to prove their ownership of existing coins" while proof-of-work requires a ton of energy to maintain the security of the blockchain system.

For example, the Lightning Network is working to build a scalable payment system on top of blockchain that processes transactions instantly between two parties. Depending on its outcome, this solution might work for micro digital advertising transactions.

Blockchain still has aspects of its technology providing useful and valuable applications in programmatic situations, specifically the distributed immutable ledger.

Truth

In campaigns today, it is common for a marketing platform to claim 20,000 impressions delivered over the course of the campaign while the publisher states there were 22,000. The advertiser might swear there were only 19,000 impressions. Who is right in this circumstance? The only way to reach a resolution is to agree on a number and initiate payment for work done. Usually, the advertiser is the one leading the negotiations and providing the metrics used to determine billing.

Blockchain marketing could solve this problem by using the immutable record stored on the blockchain’s public ledger to reconcile the work that was completed with an agreed-upon number of impressions. The blockchain could then be used to verify for each source the exact number of impressions.

Applications of this kind do not need real-time processing, meaning this area of digital advertising would work well with blockchain as it stands today. One warning, however, is that the current speed of updates supports aggregated reporting only. This means we are close to achieving the desired levels of transparency, but we're not quite there yet, as you do not have full and immediate access to the transaction-by-transaction data from each partner.

What is the future of blockchain marketing and advertising?

As the technology continues to evolve, new iterations of the blockchain may offer more value to marketing and advertisers. Developers on the Ethereum blockchain, for instance, are currently developing smart contracts, which will bring greater transparency to transactions.

Smart contracts are bits of code, also known as distributed apps, that developers write to set up a binding agreement between parties based on a trigger. The trigger can be a specific external event, such as the arrival of an expiration date or the point at which a given market reaches a strike price. Because blockchain is a public ledger, parties cannot forge or change these contracts. Everyone from the parties involved to industry regulators can analyze the transaction.

Anything from improved business workflows to blockchain-protected voting systems could result from the implementation of these smart contracts. As for the future of blockchain marketing, databases might update smart contracts every day with the most current delivery, impression or click data. They could also start payment when an advertising campaign ends.

Companies like IBM, MetaX and Amino Payments are investing heavily in blockchain with a focus on advertising. As the technology advances, you may see more applications from these companies to help blockchain marketing streamline and become more transparent. Expect engineers and others to vigorously test new methods to make sure they are reliable and trustworthy before adding programmatic ad processing transactions to the mix.