Blockchain is a term you are likely to have heard, but a concept that you may not be quite able to wrap your head around. To understand the technology, it makes sense to start with its first and most famous use, and the reason they are such a big deal today.
Bitcoin, the first decentralised cryptocurrency and electronic payment system, was introduced back in October 2008 to a cryptography mailing list, before being implemented as open source code in January 2009.
Created by an unknown person or group under the pseudonym ‘Satoshi Nakamoto’, the Bitcoin system enables peer-to-peer transactions to take place without the need for an intermediary or a middleman.
Despite this, it wasn’t the digital currency or the system per se that was identified as being innovative and revolutionary; it was the technology behind it. This technology is what we have now come to call blockchain.
What is blockchain technology?
A blockchain is a distributed database – a ledger, essentially – of all transactions that have taken place within a peer-to-peer network. This database includes ordered records of each transaction, which form a ‘block’. These blocks contain a timestamp and a link to the previous block, creating a continuously growing list.
‘So,’ I hear you cry, ‘if a transaction is carried out digitally between two parties, how do I know the transaction ever actually happened without an intermediary to deal with it?’ The answer is a little complicated – but please bear with me.
When a digital transaction is carried out, it is grouped in a block with other transactions that have occurred in the last 10 minutes. It is then the role of the most cryptographically advanced members of the network to verify the transactions by solving coded problems – these people are known as ‘miners’. The miner who verifies the transactions is rewarded, and as a result of their work, the block is added to the chain and broadcast to the rest of the network as fact.
“The important thing to keep in mind with blockchain is that its combination of immutability, database structure, decentralisation and permissioned access make it an ideal ledger for tracking activity over time,” says Richard Bush, chief product and technology officer at NYIAX (New York Interactive Advertising Exchange).
“The major strengths of the technology are a combination of record-keeping, trusted information exchange and confirmation, regardless of organisational structure.”
To put it in layman’s terms: I go into a shop in a shopping centre, which doesn’t accept cards, and pick up a £20 product. I tell the shopkeeper that I’ll pay him when I take out cash and sign an IOU, bearing in mind that I only have £20 in my bank account. A copy of this IOU is then sent out to the centre’s most frequent customers, who work to verify its validity. Once the IOU has been verified, all other customers and shopkeepers in the shopping centre are notified. I then visit another shop and attempt to buy something for £20 but I am not allowed to because the shop, being in the same shopping centre, has been notified that I have already ‘spent’ my £20.
This analogy is an attempt to break down blockchains into their most basic financial sense. However, the technology is used for far more than just digital payments.
How else can blockchains be used?
It is at this point that we say hello to Ethereum, which like Bitcoin is an open source distributed public blockchain network. However, Ethereum enables anyone to build and deploy decentralised applications.
Furthermore, rather than tracking the ownership of digital currency, Ethereum’s decentralised platform runs smart contracts – computer protocols which help to determine whether the exchange of anything of value has met specific conditions.
Due to Ethereum’s features, it can be – and has been – used in a variety of applications in a wide range of sectors. Examples of Ethereum’s uses include crowdfunding, digital signatures, identity systems, digital rights management and many more.
“Blockchain technology, especially with regard to Ethereum and smart contracts, can disintermediate many existing processes,” says John Frazer, external relations at Ethereum. “For example, rather than using an escrow service for a real estate transaction, a smart contract could automatically transfer the funds to the seller once the land title has been updated with the buyer’s name.”
Blockchains in advertising
The introduction of Ethereum also opened the door to other possibilities for using blockchains – most importantly for our purposes, in the world of advertising. One example of this is the aforementioned NYIAX.
NYIAX, operating on Nasdaq’s technology, is an ad exchange deployed in the cloud which runs blockchain technology. It enables advertisers to buy, sell and re-trade premium ad inventory as guaranteed contracts – removing unnecessary costs and risks, because all transactions are recorded within the core blockchain ledger.
“We’re starting with blockchain as our core ledger because it is fundamental to our business,” says Bush. “We see a number of opportunities moving forward related to leveraging nodes within the industry and using that data to feed back into the advertising market.”
Ethereum has also led to the creation of adchain, a blockchain ledger, created by ad tech company MetaX, that embeds a tracker into a creative asset. The asset is then followed around the internet to establish whether the ad has been seen and who has seen it, where it appeared, conversion rates and how budget was spent.
Through use of the adchain, advertisers, DSPs, SSPs, publishers and safety vendors can work together to eliminate ad fraud, guarantee viewability and ensure brand safety – undoubtedly three of the most pressing matters in the digital ad space today.
What is the future for blockchain technology?
So, these are the ways that blockchain technology can be used, but it is still widely debated whether the general public could ever really embrace it. For a start, as you’ve probably realised, it’s not exactly the most straightforward concept. Can you really expect the average Joe to understand the complexities of a blockchain, and see them as credible?
“Yes, in much the same fashion as the internet and the web. Both have become invaluable in our world today. Blockchain tech will be no different,” says Ethereum’s Frazer.
“Blockchain tech at this point appears much like web tech did back in the late 1990s. Disruptive change is coming, but we don’t have a fully detailed picture yet of what those changes might be. Major corporations and banks are already paying close attention to blockchain technology.”
NYIAX’s Bush, however, only partially agrees with this view. He agrees that blockchain technology can lead a powerful change in the way we use the internet, but suspects the impact on the public’s everyday lives will be more oblique.
“Due to its inherent properties, we believe blockchain can be utilised in numerous areas throughout the internet, and we’re exploring a number of potential concepts,” says Bush. “Right now, blockchain is a buzzword among various industries, and percolating into public perception. As with many buzzwords, there is some validity to its concept, but also a lot of fluff.
“Does blockchain have potential to affect a person’s everyday life? Absolutely, but mostly in an indirect manner. For example, we don’t think about the merchant service companies that process credit card transactions on behalf of businesses every day. We recognise major credit card providers, but there are underlying entities that actually facilitate the moving of money from a person’s line of credit, to a store’s bank account.”
This article first appeared in the June 2017 print edition of Mobile Marketing. You can read the whole issue here.