What IS this blockchain thingy?In 2009, Satoshi Nakomoto, an unknown identity debated to be an individual or a group, invented cryptocurrency that popularly went by the name Bitcoin. Information exchange saw a new tech vehicle called blockchain along with the birth of Bitcoin. There has been a tremendous change in the way business transactions have happened since then, and there has been a growing need for advancement in the digitization of such transactions, including blockchain. But, is blockchain really an advancement?
Imagine working on a Google doc file. You have to pass the edits you have made onto other users. You also have to share the updated file with every user. If you were on a shared network, which acts as a distributed environment, all users will have access to the edits, and there will be a copy of every update you make with every user on it. Technically, a blockchain, is just a protocol that allows multiple independent parties, or “agents”, to agree on “truth” or consensus. In classic blockchain, a hard programming riddle is presented to agents, and only those proven to have solved it, can add new pieces of information to the consensus. Other agents choose to go along with the new consensus once they verify that the riddle was solved correctly. The riddle step ensures that agents won’t try to spam the system concurrently with contradicting facts and there will be enough time for other agents to agree on new pieces of information. It also makes it harder for fraudulent agents to hack the system.
In the Bitcoin world, those blockchain agents are called bitcoin miners. They endlessly solve cryptographic riddles and thus facilitate bitcoin transactions. In the marketing world, specifically in terms of ad tech, blockchain isn’t designed to facilitate ad tech transactions with the same efficiency.
Why is it so popular?
Each computer on the network is connected to every other computer having a link to previous system’s information with a focus on sharing the information publicly to everyone. There is no central control over access to information.
Many businesses have tie-ups with banks and organizations to carry out secure modes of transaction which requires verification of information to legalize the source. With blockchain there is no need to invest time in verification as each and everyone in the network is connected to everyone and information is shared. Also, the removal of third-party verification methods reduces the share of business for banks, which in turn results in increase of revenue for businesses.
There has been a huge hype about the disruptive impact blockchain will have on the world of ad tech for a while now, but the truth is there really is a long way for blockchain to go before there are any visibly profitable applications there.
But, why is that? Let’s dig a little into the fundamental design of the blockchain.An academic paper, from 1985, entitled “Impossibility of Distributed Consensus with One Faulty Process” asserted that there is no reasonably viable way to do it
As of January 2019, there are 287,476 bitcoin transactions per day with an average block size of 0.88 MB. The on-chain transaction processing capacity of the bitcoin network is limited by the average block creation time of 10 minutes and the block size limit. These jointly constrain the network’s throughput. The transaction processing capacity maximum is estimated between 3.3 and 7transactions per second. This is super puny next to VISA’s credit card transactions that are at an average rate of 3,000 transactions per second. At peak, it could probably service more than 10,000 transactions per second. In the ad tech world, a leading DSP for media buying can place up to 10,000 bids per second and meet its volume objectives. This emphatically reveals the scale challenge that blockchains face. There are some ideas in the blockchain community on how to improve scalability with new algorithms, but it’s highly unlikely they will be able to reach the required scale that digital programmatic advertisers would require.
There is supposed to be no specified charge for a transaction, as it is considered ‘near free’, but the rise of bloating causes miners to reprocess and re-record information on a massive scale. This reduces the speed and authenticity of data being transferred. Also, the cost of a credit card transaction is believed to be less than 4 cents. A typical ad tech transaction is in a similar range. As a benchmark, a single Bitcoin transaction is estimated to waste a staggering 100 to 346 KWh and the cost goes up: 100Kwh in New York prices is $20.
There is a huge possibility of misinterpretation of information since the content presented to the users is conceptualized by the people, who are in turn naïve users in the network. With the rising concerns in security after adoption of blockchain for transactions, countries like Russia, China, India and Sweden have banned the use of bitcoin and blockchain by marking it as “financial harm”. Not to mention, fraud and hacker attacks, since there is no single authority that manages it, there’s no easy way to fix the damage once it’s done. Blockchain in a programmatic ad context would be even more problematic in terms of scalable data volume. Having blockchain to verify each bid request is like having the IT dept audit every single Indian every single year. It is not feasible.
It is predicted that in 10 years blockchain technology will improve to a level that calling it “blockchain” will no longer be relevant, because the linear structure of blockchain (in fact, essentially why it’s called blockchain in the first place) directly translates to how fast a transaction takes and how large the network can be. A typical upgrade would be a system where transactions are linked together and can confirm previous transactions. In order to submit your next transaction, you need to validate others in the queue. In order to get what you want (your transaction submitted), you have to do some work for others. The chain won’t be a single directional string of blocks and would rather look more like a mesh (or graph). Maybe it could have a non-linear set of branches that go in several different directions, where many parallel transactions are happening. Maybe it will be called a transaction graph. Maybe this is the transactional precursor to what the cloud was 25 years ago. The closest mathematical model that supports this design in theory is the directed acyclic graph or DAG. But let’s not get ahead of ourselves. There are ideas on how to increase the efficiency of blockchain consensus algorithms. Replacing riddle solving with more efficient selection criteria (e.g., Proof-of-Stake) is one of them, but it’s not clear if those ideas will preserve the “good” qualities of blockchain, such as the decentralized and transparent nature of its consensus keepers.
IAB is addressing these issues currently by establishing a new working group within the IAB Tech Lab.
However, Blockchain is currently not a great solution to manage programmatic advertising transactions. The mainstream architectures that power it (such as Bitcoin and Etherium) are non-scalable and not cost effective, and that is why marketers and ad pros should think twice before rushing in to adopt it.