Blockchain, Explained

Will the technology be media's savior?

It seems as if overnight, the media industry has gotten the blockchain bug. Today, there are events, panels, articles and conversations about how blockchain will save journalism and advertising and marketing. In fact, Adweek has one of its very own. But before we decide whether or not this technology will be media’s savior, we wanted to answer some pretty basic questions. We’re also introducing a weekly blockchain newsletter, which you can sign up for here.

Stay with us as we go on this blockchain journey. It’ll be decentralized AF.

What is blockchain?

At its core, a blockchain is a digital ledger shared among any number of stakeholders with an interest in keeping better track of information and transactions. Everybody gets a copy of the same distributed information. Nothing can be removed. And because a blockchain is a decentralized system, a consensus of stakeholders has to agree before something is added to the ledger.

Because it promises to create a more democratic and decentralized model for sharing data, blockchain technology has the potential to improve transparency among companies, countries and individuals that move along some sort of good or service—anything from a piece of paper or a coffee bean to a financial product.

So … what’s the block, and where’s the chain?

Whether it’s Bitcoin transactions or data about how a shipment of flowers is making its way from Senegal to the Netherlands, the block is the mechanism that records information to the blockchain. Some people like to compare it to an Excel spread sheet or a Google Doc. Those blocks come together to make up the blockchain, which is the overall digital record of transactions. Every time one is completed, the next can be created. So far, this has been a lot slower than some parts of the internet, partly because certain blockchains need to have every party agree before it’s added in order to help make it transparent and secure. That makes the chain the overall list, a record of all transactions.

Why does blockchain matter now? 

It’s a combination of things. On the one hand, there’s a lot of money flowing into the sector, thanks to public and private initial coin offerings. (ICOs, as they’re called, are an unregulated way for companies to offer investors cryptocurrency rather than traditional shares of stock.) On the other hand, more companies are starting to experiment with how they might use blockchain for their business. In fact, 40 percent of respondents in a recent Deloitte survey were willing to invest at least $5 million on blockchain projects this year. Some companies are using them to experiment with shipping projects; others are using them for advertising networks. Then there’s the giant that’s about to step into the room. This spring, Facebook announced it’s setting up a blockchain team led by David Marcus, who previously ran Facebook Messenger, and Kevin Weil, who was previously Instagram’s product chief. Facebook also moved Evan Cheng from director of engineering at Facebook to director of engineering for the company’s burgeoning blockchain division.

Are there are different types of blockchains?

Yes. There are public blockchains, which are open to anyone to send transactions on or to verify or observe what’s happening at any given time. Two of the most popular public blockchains are the Bitcoin blockchain and one for Ethereum, another cryptocurrency. There are also companies, such as Aion, which debuted in April as a way to help other companies build their own blockchain products and services. (TechCrunch likened it to what Linux has done as an open-source platform for operating systems.)

You also have private blockchains. These are often used for more niche purposes like a business managing data or interacting with its customers. For example, Northern Trust, the financial services firm created one with IBM that it’s been testing for more than a year to store data such as biometric information and other records. In June, it also won a patent for storing meeting notes on the blockchain.

And there’s a third type: consortium blockchains. These are a combination of public and private, where a blockchain is private, but it’s governed in a more democratic way where each party involved has a chance to have a say in what gets added.

New types of funding, new technology, few regulations, few clear use cases—why is this all so confusing?

Think of it like the early days of the internet. The world of blockchain technology is still the wild, Wild West. By early June 2018, the total value of initial coin offerings had already outpaced the previous year. And while the past year has seen a record number of ICOs, some have been legitimate, but others are sketchier. In July 2018, for example, two Nevada men settled a lawsuit by the Securities and Exchange Commission over illegally profiting from an ICO after they made about $1.4 million in 10 days by selling shares of a company called UBI Blockchain Internet.

The blockchain sector is something regulators and lawmakers are beginning to look at more closely as well. Earlier this year, the U.S. Securities and Exchange Commission, in uncharacteristically snarky fashion, even created its own cryptocurrency called HowieCoin to show how easily ICOs can hide as frauds. In June, the SEC appointed Valerie Szczepanik as its first “crypto czar,” while members of Congress in July held multiple committee hearings to learn more about how the blockchain can be used in industries such as agriculture.

Who are the major players right now?

It depends on which part of the ecosystem you’re looking at.

Lots of industries—and plenty of large brands—are testing it out. Walmart is testing blockchain in China to track food safety throughout its supply chain. Johnson & Johnson is testing it in its incubator. Comcast is building out a unit to see how it could affect video, and IBM is investing heavily in blockchain, potentially making the technology more mainstream, much as it did for artificial intelligence.

But then there are all the ad-tech companies—Kochava, MadHive and NYIAX, for example—that are pivoting to blockchain, seeking to integrate the technology into their advertising platforms. But unlike ad tech, where Facebook and Google remain at the top, there are no runaway winners yet for blockchain, especially in the advertising world.

A lot of venture capitalists are also starting to invest in the space. In June, the powerhouse VC firm Andreesen Horowitz announced a new $300 million fund dedicated to cryptocurrency and blockchain. Other big names like Sequoia Capital and Union Square Ventures have also helped validate the space with investments of their own. Last year, USV backed Kik’s ICO for its Kin cryptocurrency, while Sequoi has invested millions in companies like Polychain, the first $1 billion cryptofund. This Forbes list shows the 50 biggest companies exploring blockchain in some way.

What are the use casesor at least potential use cases?

While blockchain technology has only recently become a widely discussed topic, there are already a lot of uses cases, or at least a lot of potential ideas and applications. Some, such as those for tracking transactions or following shipments around the globe, seem reasonable. And then there are more consumer-friendly things like CryptoKitties, which helps teach people the basics of blockchain while raising and trading—you guessed it—digital cats. Here’s a look at some of the ways people are touting the use of blockchain:

What does blockchain mean for the ad-tech and mar-tech worlds?

Ad-tech companies have the potential to either benefit from the blockchain or be severely threatened by it. While the layers of data collection and use, along with the multiple monetary transactions, often make ad tech fairly opaque, some say blockchain technology could make the whole industry more transparent. Writing all the info to the blockchain allows for an advertiser to more accurately and more efficiently track how money is being spent and where the ads are showing up, rather than trusting a third party or media buyer or publisher based on where they say ads show up. It could also be used to help improve the quality of ad networks by requiring publishers to become whitelisted based on cryptocurrencies that in a way act as a downpayment for making sure a media company is what it says it is.

However, while programmatic advertising has largely been helped along by its ability to rapidly scale digital ads, blockchain technology still has issues with speed. As of now, a blockchain-enabled advertising exchange can process far fewer ads per second than a traditional digital advertising network. (Even earlier this year, a network could only verify as many as a dozen or so transactions per second, far fewer than the millions performed on other programmatic channels. However some, such as Kiip, have been trying to get around that obstacle by batching transactions that don’t need to be accounted for right away.

What will it look like for publishers?

A number of startups are looking to use the blockchain to help publishers get paid. By using the technology, publishers might be able to more directly receive revenue rather than always having to go through third parties such as Facebook. One of the companies looking to do this is, a startup founded by Jarrod Dicker, who previously ran innovation at The Washington Post. His vision is to create a place online where publications and the writers, photographers and others who fill the pages can monetize content directly from a blockchain-based marketplace.

What does blockchain mean for brands?

Brands say they see potential for advertising and other aspects of marketing. Some see how ad exchanges built on top of a blockchain could help cut down on ad fraud. Others see ways to create new engagement methods for brands to interact with consumers. It could also help track ownership of content from news organizations while also knowing where fake news originates.

AB InBev began by testing a six-figure campaign (the exact amount wasn’t disclosed) with the mobile advertising platform Kiip. The campaign, which is running this summer, is for brands including Budweiser, Bud Light and several others in order to track impression-level data along with engagement, price and creative. By allowing data to be written onto nearly 30,000 ledgers, the campaign allows AB InBev to have more knowledge about its campaign without worrying that something will get lost or changed along the way. That includes tracking CPMs, engagement and a variety of other metrics. One media buyer at AB InBev called it the “future of media.”

Recording all of the data to the blockchain makes the reporting and auditing of a campaign easier.

Other brands, like J&J’s JLabs, are thinking about what blockchain could mean for healthcare if they’re able to tie a consumer’s data to products in more personalized ways. If a person has more control over their data, they can decide when it might be worth sharing information that could lead to a better match for products and services they might actually want to buy, perhaps even someday leading to better-matching products that don’t risk leaving personal data such as healthcare information out in the open.

Another example: In mid-July Brooklyn Roasting Co. announced it’s working with IBM to put its Ethiopian Yirgacheffe beans on the blockchain. The the coffee roasting company  is using the technology to more securely track and show every step along the journey of a coffee bean, from the farm it comes from to the farmer who harvests it to the places where it’s washed and shipped and ultimately roasted and cupped. IBM is also working with financial services firms such as Deutsche Bank on a very different use of blockchain: to conduct secure, cross-border, commercial transactions across multiple countries and banks.

What does blockchain technology mean for agencies?

A number of agencies are already putting together teams to build their own products and to better understand the technology. In June, Omnicom and Reprise were among the companies to join the board of a new nonprofit called AdLedger that’s devoted to developing standards for using blockchain technology in digital advertising.

These partnerships are important for a number of reasons. First, as the various companies (both blockchain companies and those looking to use the technology) create new standards for blockchain in advertising, it could allow them to correct the sometimes frustrating standards of the current ad-tech ecosystem. It also could help reset the power structure, wresting some of it away from giants like Google and Facebook or ad-tech trade groups such as the Interactive Advertising Bureau. It’s no secret that brands and agencies are often frustrated that measurement sometimes varies across platforms, making it difficult to know how one platform might work better than another.

Another reason the partnerships are meaningful is that brands are already beginning to experiment. About the same time as Omnicom and Reprise and others were joining AdLedger, MediaOcean announced it’s building a blockchain advertising network with IBM. From MediaOcean’s perspective, blockchain has the potential to track campaigns across all channels including digital, television, radio and out-of-home. Already, Media Ocean’s clients, like Kellogg and Unilever, are testing it as a way to improve transparency and ultimately trust in the agency in the process.

How might consumers benefit or be affected?

One of the major promises you’ll hear from those pitching the gospel of the blockchain: You own your data. The internet as it exists today is largely dominated by powerhouses like Facebook and Google that operate what’s known as a closed ecosystem—often referred to as a “walled garden”—that does not separate user or company data from the code. That means that what goes into the garden can’t come out, prompting many people and companies to grow frustrated that they don’t have ownership of their own information. However with the blockchain, users will be able to uncouple their data in a sense from the app or website using it. In fact, it might make personal data more valuable, and some companies are already trying to tap into that. For example, DataWallet, a blockchain-based company, aims to help people get paid by brands in exchange for their data rather than just letting it get collected and used for free. If a user’s personal data is stored in an anonymous, encrypted digital wallet, they’ll be able to decide when to share data with an outside source rather than unknowingly allowing companies to take it and use it without permission. That’s appealing for many reasons beyond simply control.

Who invented blockchain?

Most people attribute the creation of blockchain to the inventor of Bitcoin, an anonymous person who goes by the name Satoshi Nakamoto. Nobody knows Nakamoto’s actual identity, but it appears Nakamoto is not the only one who deserves credit—a nine-page 2008 white paper explaining Bitcoin cites the work of cryptography expert Stuart Haber, a researcher at H.P. Labs.

Do you need Bitcoin to have a blockchain?

Not at all. Actually, it’s the opposite. Bitcoin was created using a blockchain. However, Bitcoin’s rapid rise in value as a digital currency has certainly helped raise the profile of the technology.

I keep hearing about “initial coin offerings”—what are they? 

It’s basically a way for companies to raise money, where investors give cold, hard cash in return for tokens, which are ascribed a monetary value. It’s not regulated like an IPO. But the idea is the same: Get people to invest money in a company and then build that company up.

For example, last summer the Canadian messaging app Kik raised nearly $100 million for its ICO. This year, another messaging app, Telegram, raised $1.7 billion for its ICO. All told, ICOs raised about $6.3 billion in the first quarter of 2018, according to Coindesk, more than 118 percent more than all of 2017.

Where does blockchain go next?

Like a lot of emerging tech, blockchain is still in its early days. While much of the focus over the past year has been on companies funding projects through initial coin offerings, the real test will be who buys into various products and whether they work. In the world of advertising, that will require scale in order to compete with existing advertising markets. In most industries, it will require proven costs saved or revenue earned. And in every industry, it will depend on people seeing true value from the technology.

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