Is the Bloom off the Blockchain Tulip?

Blockchain is the sort of cool technology that should excite me, but for some reason it does not. Part of my resistance is the whiff of humbug that accompanies so many blockchain-based ventures, whose founders often seem more excited about their Initial Coin Offering than building the actual business. But even ignoring that, I fail to see how the advantages of blockchain will create the revolution its proponents expect.

I’m not the only skeptic. Gartner recently found that just 1% of CIOs have any blockchain adoption and 77% have no plans. GlobalData predicted that blockchain will lose its gloss as projects are shelved or evolve in non-blockchain directions.  Like the Dutch tulip mania in 1637, the blockchain bubble is bound to burst.

Let’s start at the beginning. Blockchain is a “distributed public ledger”, which means it provides a provides a public stream of transactions that are stored in multiple places and can only be updated by verified agents. How the verification happens is a little vague in the discussions I’ve seen, but for now let’s assume that it’s fast, cheap, and perfectly secure. You might want to be a bit more cautious in real life.

The twin advantages of blockchain are that the data can’t be changed once it’s accepted (because it’s stored in multiple places) and the data is public (so anyone can easily see it). To be clear, data can still be encrypted, so blockchain contents can be kept private if the owners wish.

That’s cool in its own nerdy little way, I guess. But in practical terms, the benefit is much lower transaction costs because there’s no need for intermediaries to verify identities or register transactions.  This in turn makes possible things like micro-payments, which aren’t feasible if the cost of processing each transaction is too high, and public inspection of data, which again isn’t feasible if you need to control access for security reasons.  Here we’ll accept another dubious assumption, that the blockchain processing is essentially free. In real life somebody has to pay to verify identities and move, process, and store all that data.

So, what wonderful new things is blockchain supposed to make possible?

• Direct sale of personal data. At least half the discussions of blockchain in marketing propose some form of paying people for their personal data. The usual plan is to get direct payment from advertisers who want to send messages based on your information.  Sometimes the payment would be in return for viewing ads, completing surveys, or taking other actions. I’m hugely skeptical of this idea.  The practical roadblocks have nothing to do with blockchain: they're signing people up, getting them to update their data, and ensuring their data is accurate. Overcoming these depends on paying consumers enough money to make the effort worthwhile. I suspect most consumers won't be bothered, and that advertisers will really be interested in relatively few, high-value individuals.  (These are also the least likely to want to participate.  That some consumers are more valuable than others is never mentioned when these programs are discussed.). Transaction costs are not the problem, so blockchain isn't the solution.

• Loyalty systems and coupons. These also depend on consumers being willing to participate. But they’re familiar programs with proven consumer appeal.  Blockchain makes sense here because transaction costs, verification, and fraud are significant expenses for program operators.  Most blockchain-based loyalty and coupon schemes also propose payment in a cryptocurrency.  But this is probably more important to the promoters than consumers.

• Media buying. The premise for blockchain in media buying is that adtech vendors currently gobble up more than half of every media dollar , and, as Jeff Bezos says, “your margin is my opportunity”. If blockchain let advertisers and publishers connect directly, it could reduce the “adtech toll” significantly. But it's not that simple: each vendor in the adtech space is providing some useful service in exchange for its fees. So any blockchain solution would need to replicate those services or make them unnecessary. That takes more than just accepting blockchain payments.

• Ad fraud and brand safety. Blockchain is often proposed as a way to eliminate ad fraud by ensuring buyers only pay for ads that are seen by real people. It could also ensure that ads are only placed on brand-safe Web sites. These are highly feasible applications: they involve a relatively small number of parties (advertisers and publishers); the parties have existing commercial relationships;  and they all want to cut out the middlemen. One concern is that verifying that ads are seen by real people may require managing billions of individual identities.

There’s also a major scalability issue, since current blockchain networks handle just a few transactions per second.  Ternio claims to have solved this  but their product isn’t released yet…and as I write this, their Web site is disconcertingly focused on promoting their coin sale.

• Content rights. This is paying for commercial use of photographs, music, articles, and other copyrighted materials. Blockchain could easily reduce costs by replacing existing payment mechanisms. It could also streamline other parts of the process, such as recognizing content as it’s used, identifying the user, and connecting the user to the owner.

• Payment processing. This has applications well beyond marketing, although marketers can certainly benefit. Blockchain has good potential to reduce costs and cut out some middle men. As with media buying, blockchain must climb some steep scalability mountains before it can replace processes like clearing stock trades or processing credit card transactions.

• Supply chain. Yes, blockchain can be used to track products from producer to consumer. But it’s not clear that it removes significant bottlenecks. If you’re going to trace a head of lettuce from farm to grocer, the real challenge is having sensors in place to record each step in its journey.  Conventional databases can store the resulting data quite nicely. Similarly, if you want to detect counterfeits by verifying an item’s origin, the biggest hurdle is creating an unalterable physical identifier like an engraved serial number.  Blockchain doesn’t help with that. You might use blockchain to store an unalterable registry of the identifiers, but conventional security methods already do a pretty good job of keeping such data secure.

• And so on.  Here's a nice graphic from Jeremiah Owyang that includes additional blockchain applications.  (Read the original article here.)  Each is intriguing and highly threatening if you're a middleman in that industry.  But in every case, the process can already be done with existing technology or faces problems that blockchain doesn't solve.

My conclusion is that blockchain applications will be more evolutionary than revolutionary. They’ll make existing processes more efficient but not introduce entirely new business models.  The biggest exception is direct sale of personal data, but I don’t think that will happen.

True believers will argue that it’s too early to understand how blockchain will play out. I’ll grant it's impossible to foresee the long-term impact of any major technology. But one way to think about new technology is to imagine a world where that technology is fully deployed: say, where all devices were sentient or communication was free and instantaneous. Your vision won’t get the details right but you will get a sense that things would be radically different.

Try that with blockchain: take a few moments to imagine a world where financial transactions are free and data security is absolute. I'll wait.

How’d it go? Personally, I didn’t see much of a change. Truth be told, financial transaction costs are already pretty low and security is already pretty good. Existing trust mechanisms aren’t perfect but lack of trust doesn’t get in the way very often. It might be nice in some highly abstract sense to be free from central identity authorities but they don’t interfere much with day-to-day living. In any event, most authorities would remain in place in a blockchain world.  Even identity and financial authorities would still exist, even if they were not under central control.

In short, blockchain is interesting and has its advantages. But if you think it will be the biggest change since the Internet, I have some tulip bulbs you might want to buy.

Eager to Sell Your Personal Data? You'll Have to Wait

Should marketers pay consumers directly to access their personal data? The idea isn’t new but it’s become more popular as people see the huge profits that Google, Facebook, and others make from using that data, as consumers become more aware of the data trade, and as blockchain technology makes low cost micro-payments a possibility.

One result is a crop of new ventures based on the concept has popped up like mushrooms – which, like mushrooms, can be hard to tell apart. I’ve been mentioning these in the CDP Institute newsletter as I spot them but only recently found time to take a closer look. It turns out that these things I’ve been lumping together actually belong to several different species. None seem to be poisonous but it’s worth sharing a field guide to help you tell them apart.

Before we get into the distinguishing features, let’s look at what these all have in common. They’re all positioned as a way for consumers to get value from their data. I’ve also bumped into a number of data marketplaces that serve traditional data owners, such as Web site publishers and compilers. They can often use some of the same technologies, including micro-payments, blockchain, and crypto-currency tokens. Some even sell personal data, especially if they’re selling ads targeted with such data. Some sell other things, such as streams from Internet of Thing devices. Examples of such marketplaces include Sonobi, Kochava, Narrative I/O, Datonics, Rublix and IOTA. Again, the big difference here is the sellers in the traditional marketplaces are data aggregators, not private individuals.

Here’s a look a half-dozen ventures I’ve lumped into the personal data marketplace category (which I suppose needs a three letter acronym of its own).

Dabbl turns out to be a new version of an old idea, which is to pay people for taking surveys. There are dozens of these: here's a list.  Dabbl confused me with a headline that said “Everyone’s profiting from your time online but you.” Payment mechanism is old-school gift cards. On the plus side: unlike most products in this list, Dabble is up and running.

Thrive pays users for sharing their data, but only in the broad sense that they are paid to fill out profiles which are exposed to advertisers when the users visit participating Web sites. The advertisers are paying Thrive; individual users aren’t deciding who sees their data or paid to grant access on a buyer-by-buyer basis. Payments are made via a crypto-token which is on sale as I write this. The ad marketplace is scheduled for launch at the end of 2018. That sequence suggests there’s at least a little cryptocurrency speculation in the mix. (Another hint: they’re based in Malta. Yet another hint: the U.S. Securities Exchange Commission won’t let you buy the tokens.)

Nucleus Vision is also in the midst of its token sale.  But they’re much more interested in discussing a propriety technology that detects mobile phones as they enter a store and shares the owner’s data using blockchain as an exchange, storage, and authorization mechanism. Store owners can then serve appropriate offers to visitors. This sounds like a lot of other products except that Nucleus’ technology does it without a mobile app. (It does apparently need some cooperation from the mobile carrier.) Rewards are paid in tokens which can be earned for store visits, by using coupons or discounts, by making purchases, or by selling data. Each retailer runs its own program, so this isn’t a marketplace where different buyers bid for each consumer’s data.  Sensors are currently running in a handful of stores and the loyalty and couponing systems are under development.

Momentum is an outgrowth of the existing MobileBridge loyalty system.  It rewards customers with yet another crypto-token (on sale in late April) for marketer-selected behaviors. Brands can play as well as retailers but it’s still the same idea: each company defines its own program and each consumer decides which programs to join. The shared token makes it easy to exchange or pool rewards across programs. The published roadmap is ambiguous but it looks like they’re at least a year away from delivering a complete system.

YourBlock gets closer to what I originally had in mind: it stores personal data (in blockchain, of course), uses the data to target offers from different companies, and lets consumers decide which offers to accept. Yep, there’s a crypto-token that will be used to give discounts. Sales started yesterday (March 12) and are set to close by April 23. Development work on the rest of the platform will start after the sale is over, with a live product due this August.

Wibson calls itself a “consumer-controlled personal data marketplace” and, indeed, they fit the archetype: users install a mobile app, grant access to their data, and then entertain offers from potential buyers to read it. Storage and sharing are based on blockchain but payments are made via points rather than a crypto-token. At least that’s how it works at the moment: in fact, Wibson has just completed its initial mobile app and you can’t download it quite yet. During the initial stage, only Wibson will be able to buy users’ data and they’ll just use it for testing. If they’ve published a schedule for further development, I can’t find it.

So, that’s our little stroll through the personal data marketplace. Less here than meets the eye, perhaps – most players offer more or less conventional loyalty programs, although they use blockchain and crypto-tokens to deliver them.  True marketplaces are still in development. But it’s still an interesting field and well worth watching. As with mushrooms, look carefully before you bite.