Blockchain technology has been called the next internet, revolutionary and transformative. Such grandiose terms may be applicable, but these descriptions also attract skeptics. Some of the most-oft-voiced criticisms of blockchains include issues of scale, transparency and the threat they pose to intermediaries.
For proponents of the technology, of which I am one, these critiques are valid and deserve careful consideration. In fact, only by examining such concerns can the blockchain community innovate solutions that will render blockchain technology a worldwide phenomenon underpinning systems of commerce, communication and value exchange.
Blockchains are based on distributed ledger technology in which each transaction is validated by a percentage of nodes in the network. The process of validating transactions takes time. Each block on the Bitcoin blockchain takes 10 minutes to mine. The Ethereum blockchain was built to support smart contract applications and so the transaction speed is much faster, at 15 transactions per second. The pace of exchange on the internet is even speedier. For example, 45,000 transactions per second are processed by Visa. In advertising, the number of transactions is even more so. The Facebook Audience Network serves ads to 1 billion people per day, and Google ads receive 29.8 billion impressions per day.
The extraordinary transaction demands of the digital world have led many blockchain critics to posit that the technology will never scale. While it’s true that public blockchains using proof-of-work consensus algorithms across thousands of nodes are too slow for programmatic ads or any real-time system, private blockchains do not harbour such constraints. Private blockchains can be built using different consensus algorithms and channels, such as the Lightning Network.
The Lightning Network allows for instant value transfers through the implementation of off-chain transactions. Distributed purists may take issue with the concept of private blockchains because they are centralised, but there may be some cases when private blockchains are more appropriate, such as in certain enterprise and governance models.
Another component of blockchain technology is that it is a harbinger of transparency. Because all transactions are recorded, there is no “black box” in which any single participant can hide their actions. The reason that this transparency is so revolutionary is that many of our existing systems are opaque and convoluted, allowing malicious actors to take advantage of the dark alleyways, so to speak, and steal data and value without repercussions.
Blockchains provide “streetlights” so that there are no hidden passageways. Some people have made the “too much of a good thing can hurt you” argument about this added transparency. In the long run, however, transparent pricing does nothing but good for buyers and sellers in the marketplace.
Within the advertising ecosystem, the AdLedger consortium was founded for the purpose of deciding the rules and standards governing data exchange within a peer-to-peer blockchain network. Participants include players from both ends of the supply chain, from advertisers to publishers. Such collaboration will be essential across industries before blockchain systems will become a universal reality.
It is, however, inevitable that should blockchain technology achieve mass adoption, the role of intermediaries will shift — “shift” being the key word. Many critics of blockchains’ potential have argued that blockchains will do away with intermediaries. This is not necessarily true.
Case in point: though the peer-to-peer capacity of blockchains has the potential to render banks obsolete, Goldman Sachs, Morgan Stanley and others are investing in blockchain technology. In music, streaming services act as intermediaries between artists and consumers, but Spotify recently acquired Mediachain Labs, with a plan to use blockchain technology to address the industry’s attribution problem. Essentially, by commodifying the generalized services of intermediaries, we encourage competition, which is the greatest driving force of innovation.