How Blockchain Can Help Solve Ad Fraud

As long as intermediaries have little incentive to distinguish between human and bot impressions in their reporting, ad fraud will be a problem. The solution will require radical transparency, enabled by blockchain technology, writes Hunter Gebron, Director of Strategic Initiatives, MetaX.

With the permeation of “fake news” and “click-bait” seeping into the once sacrosanct world of high-quality journalism, it seems we are already in the late stages of an information war that is being waged all around us.

Professional journalists that write in-depth and unbiased news stories chocked full of intellectual integrity are pitted against antithetical and unscrupulous click-bait hucksters. Both are using different means to achieve the same goal, readership, which in turn leads to ad revenue. But the consequences of who wins in this fight may ripple across our society for generations to come.

If we were scoring this bout, there is no question the journalists are losing. Journalism jobs are steadily in decline and have been for some time. “In the decade from 2008 to 2017, newsroom employment nationwide declined by nearly one-fourth (from 114,000 workers to 88,000).”

While most of the press around fake news centers around the Russian hacking of the 2016 political election and Facebook. There is another more insidious reason why fake news articles are written - to collect advertising revenue.

Here is a synopsis of how our ‘Free Internet’ stays free.  Digital publishers (the ones that don’t want to live behind a paywall) must monetize via ad revenue. Advertisers pay publishers based on the number of eyeballs and clicks their ads receive. Consumers who want free content must contend with the endless barrage of ads that have become a ubiquitous part of our online experience. It’s not quite a Faustian bargain, yet, but it’s getting closer to resembling one everyday.

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The important thing to know about digital advertising is that it's a numbers game.

The more traffic digital publishers can draw into their site, and the more ads they can display, the more money they are able to collect from advertisers.

One of my favorite quotes is “show me the incentive I’ll show you the outcome” by Charlie Munger.

So let’s take a look at some incentives and their outcomes.

Digital advertising in 2018 topped out at around $111.14 billion and by 2019 it will account for 55% of all media ad spend.

The goal, if you are a publisher or website hosting ads, is to get yourself as big a slice of that $111 billion pie as you can. The incentive is to get as many eyeballs and clicks to see the ads you host as humanly (or as we’ll come to find out ‘in-humanly’) possible.

Now for the outcome.

Of the $111.14 billion spent roughly, $15 billion went straight to fraud.

Yes, you read that right, 13% of all money spent on digital ads was vacuumed up by fraudulent websites and bots in 2018. By 2020, that estimate balloons to $44 billion.

The incentive to get clicks and eyeballs leads to an outcome in which fraudsters have figured out how to game the system. Fake news is just one tentacle in a multi-armed beast that represents all the various forms of ad fraud.

A common practice, known as domain spoofing, where bad actors trick advertisers into buying on a site that isn’t really that site, is exacerbated by the complex patchwork through which digital ads travel, and that makes following the flow of money incredibly difficult.

“Why would fraudsters spoof a domain?” Imagine for a second you are a fraudster. You know that many advertisers want to buy ad placements on CNN.com. So you create a fake website that for all intents and purposes looks like CNN.com, but it’s really just a blank page with a video player on it. You then sell that fake page to advertisers as CNN.com. If it’s done well neither CNN.com or the advertisers ever knows what happened. If it’s not then it gets exposed.

Whether it takes place on a street corner in NYC or in a complex patchwork of web connections that funnels ads from point A to point Z,  fraudulent inventory is fraudulent inventory. The vendor ends up not being paid and the customer gets tricked into paying for something they did not want.

‘It is difficult to get a man to understand something, when his salary depends upon his not understanding it!’” - Upton Sinclaire

The relationship between advertisers and news publications goes back a long time, at least 300 years in the United States. However, programmatic advertising has only been around for a decade. Yet billions of dollars are stolen every year. How can we stop this?

An answer may lie in distributed ledger technology. The major selling point for blockchain technology is its native property of radical transparency. All financial activity on the blockchain is recorded and visible. This is the exact opposite of digital advertising which is often likened to a ‘black box’. Money goes in and what comes out is a ‘report’ from a centralized, for-profit company telling you all the wonderful places your money was spent. Want the raw data so you can check for yourself? Good luck with that! And it’s these kinds of conditions where an activity like domain spoofing is able to thrive.

Also Read: What Is Bladtech?

Meanwhile, legitimate digital publishers are getting screwed. Money that should be going to them is being siphoned away to fraudsters.

Here is a novel concept. One that is partly inspired by the ads.txt initiative brought forth by the IAB Tech Lab. Ads.txt allows publishers to publicly declare who the authorized sellers of their inventory are.

We can apply the same principles using blockchain technology to allow digital publishers to publicly declare the authorized wallet addresses they control on the blockchain. The caveat is they will need to be comfortable accepting cryptocurrency as a form of payment from advertisers but the upside is it would completely eliminate the incentive for domain spoofing.

Remember, the main reason why domain spoofing is able to thrive is that fraudsters can collect the money to their bank accounts. 

If everyone can publicly see the wallet addresses of everybody else (which is how public blockchains function) then money should never get sent to the wrong place. It would be pretty foolish to spoof a domain if you knew the money was going to be sent to the entity you were pretending to be regardless!

Getting an entire industry to get comfortable with the idea of accepting cryptocurrency is a tall order. But with $15 billion in fraud hanging over the digital advertising industry’s head, it may be time to start exploring alternative options.