This is the third in a five part series on the business impact of blockchain technology.

One of the most promising uses of blockchain is in digital advertising. As companies shift their advertising budgets online, lured by growing audiences and the potential for unprecedented targeting and personalization, the advertising marketplace has become increasingly opaque.

But according to a new report by the Interactive Advertising Bureau, a trade group of global media and technology companies, blockchain has the potential to transform digital advertising market and build a transparent market.

Risk of Fraud

The primary hazard in online advertising is outright fraud, as hackers find increasingly clever ways to create fake web traffic, a phenomenon generated by bots rather than actual human visitors to a site. The consultancy Juniper Research estimates that advertisers will lose $19 billion to fraudsters in 2018, or 9 percent of total digital advertising spend.

Then there’s the reputational risk of companies’ ads ending up on sites that reflect poorly on their brand. Additionally, online advertising turns off a lot of consumers who believe their personal information is being misused for targeting.

Murky Supply Chain

Much of the problem arises from the murky nature of the digital advertising supply chain. Advertisers and publishers employ a range of intermediaries such as agencies, exchanges and networks, some of which employ difficult-to-understand algorithms and face contradictory incentives. The resulting ecosystem is easy to hack—and impossible to audit.

Several initiatives are underway that plan to use blockchain to build more transparent and efficient links between buyers and sellers in the advertising marketplace.

“As an immutable, distributed, transparent ledger, blockchain is a natural fit for the digital supply chain,” according to the report by the IAB. Blockchain technology could contribute to “a vision of a more transparent, brand-safe, and fraud-free media landscape made up of trusted, verified trading partners.”

Building Trust

“A major attraction of blockchain for digital advertising is its potential to enable consensus, collaboration, and trust between buyers and sellers,” the IAB contends.

Media inventory suppliers and buyers spend an inordinate amount of time reconciling campaign discrepancies be they for raw impression counts, viewability, brand safety, or quality of traffic. There is also the ongoing headache of managing multiple versions of terms and conditions.

Smart Contracts

One company, Kochava, is working on a new blockchain framework that is uniquely suited to the high-speed transactions occurring in digital advertising. The framework, known as XCHNG, uses “smart contracts” that would execute automatically when conditions are met involving ad placement, views, and payment. The XCHNG system is “traceable and trackable” and allows buyers and sellers to work together without an intermediary, according to Kochava CEO Charles Manning.

Blockchain could usher in a new level of collaboration and trust between advertisers, publishers and consumers.

One group of programmers has developed a blockchain-enabled registry of legitimate, reputable publishers called adChain. The registry, which launches in April, will be maintained by individuals who are paid in cryptocurrency to flag fraudulent or low-quality sites. AdChain’s developers promise to produce “a comprehensive audit trail for everything related to a campaign.”

Sharing Data Securely

Blockchain allows the owner of a record (or “block”) to directly and securely share data using a cryptographic key. It eliminates the need to upload valuable information to databases, as well as the risk of intermediaries who can limit access to the data or lose access to a hacker. This could usher in a new level of collaboration and trust between advertisers, publishers and consumers.

Comcast is developing a blockchain-enabled platform that will “turn the television industry (i.e. advertisers, programmers, operators, and device owners) into their own peer-to-peer distributed database,” Jonathan Heller, chief product officer of Comcast’s Freewheel division, told the IAB. “You will have the effect of having the collection of everyone’s data without anyone’s data actually going anywhere, changing hands, or being exposed in any way. Then you can report or target off of that. All the blockchain does is add the trust layer.”

By enabling greater data-sharing among industry partners who will not have to give up proprietary customer information, the platform—variously referred to as the Blockchain Insights Platform or Blockgraph—will enable more precise and efficient targeting of customers across screens.

Keeping Personal Data Safe

Personal data about consumers—their demographics, behaviors and interests—are the lifeblood of the digital advertising industry. Right now, however, this data can be easily hacked or misused. The blockchain holds the promise of a day when consumers exert greater control over their personal data and what promotions they see.  

One example is BitClave, which promises to pay consumers with cryptocurrency in exchange for using its search engine. The company rewards consumers—not advertising firms or other middlemen—for data about their interests. Tomorrow’s companies may have to pay consumers more directly to make their pitch, but they may also be able to achieve more precise targeting.

The Future

Blockchain technology faces some significant challenges in transforming the ad industry. Most notably, the process of querying or writing to a blockchain is currently much slower than the process of placing ads online, the IAB says.

But the IAB predicts blockchain will roll through the ad industry in a serious way during the next couple of years.

“2018 will be the year that a wide range of blockchain applications will be rolled out across digital and cross-screen video advertising including linear television,” the IAB says, “with 2019 likely being the year that these technologies begin to see broader adoption—provided certain risks can be mitigated.”