Blockchain technology can work for digital advertising. But root blockchains can’t. At least not alone.
Let me explain.
A root blockchain refers to a public main chain like Bitcoin or Ethereum, whose distributed architecture creates a decentralized and public way to record and verify information.
In theory, this kind of infrastructure could work well for any industry with an opaque supply chain – just like digital advertising. But the reality is more complicated.
Root blockchains are designed to be decentralized, immutable, and public. Implementing these features requires that root blockchains be engineered in such a way that hurts their applicability to larger business applications.
Without a second layer of technology sitting on top, root blockchains are simply…
- Too slow
- Too expensive
- And too public
…to work for digital advertising (and most other industries). Here’s why:
Root blockchains are too slow
Root chains have scaling problems. Blockchains like Ethereum currently process only 7 to 20 transactions per second.
There’s good reason for this.
When data is placed on a blockchain, every single node must process that data and maintain a copy. This is how root blockchains create decentralization, ensuring data is authentic and can’t be meddled with without the entire network knowing about it.
The side effect of this, however, is that root blockchains are slow.
During peak demand times with heavy user traffic, users face long transaction times that cause painful customer experiences. These congested episodes creates a kind of cannibalization effect in which blockchain startups compete for processing capacity.
For Ethereum, the preferred ecosystem for launching decentralized applications, scaling limits increasingly pose a threat to the commercialization of apps. The Ethereum blockchain just can’t accommodate the surge of interest in building on its root layer. That’s because complex operations from smart contracts are replicated across its many decentralized nodes.
At the 2018 Deconomy conference in Seoul, Vitalik made bluntly put it into perspective: “If you want to build a decentralized Uber and Lyft on top of an unscalable Ethereum, you are screwed.”
Root blockchains are too expensive
In the same way it takes time for every computer in Ethereum’s network to process and verify submitted data, it also costs money.
For Ethereum, that cost is translated into “gas.” Gas is simply how we measure the computational work needed to write onto the Ethereum blockchain. The more complex the application, the more computational power it requires, and thus the more gas it costs.
For industries like digital advertising, which process complex sets of data from multiple parties at a massive scale, the costs adds up quickly.
Similarly, Bitcoin’s price volatility, coupled with large transaction fees during congested periods, can be costly for businesses and customers alike. Transaction fees are needed to have a user’s Bitcoin transaction be processed and confirmed. Fees are based on transaction size in bytes. Since a block has a space capacity of 1MB, a user would have to outbid other users in order to process their transaction faster.
Root blockchains are too public
By nature, blockchains are public. They allow anyone with an Internet connection to freely access the data that’s been published on the chain.
Contrary to popular perception, Bitcoin transactions aren’t anonymous. Rather, they’re shared on Bitcoin’s global public ledger while wallet ownership remains private. This makes it possible to connect wallet addresses to user identities to monitor historical transactions; addresses connected to fiat bank accounts are particularly vulnerable to discovery.
But industries like digital advertising expect – and at times require – that certain data remain private, or only accessible to certain groups or companies.
This pseudo-anonymous feature of permissionless, open blockchains such as Bitcoin and Ethereum creates demand for alternative cryptocurrencies that offer privacy enhancing technology.
So can blockchain work for digital advertising?
Yes! The reasons discussed above do present challenges to long term adoption, but they’re also simply the side effects of what make blockchain great:
Decentralization. Blockchains are slow, expensive, and public because they’re decentralized. But decentralization protects from security threats as there is no single point of failure, creates fairness because one central authority can’t create rules that favor their own interests, and can use consensus protocols to make decisions that maximize the benefit to all members of the system, not just a few.
We need blockchain’s decentralization. We just need to speed up blockchain, lower the costs, and (in some cases) make it private.
Which – surprise – we can definitely do by building Layer 2 technology on top of an existing root chain.