Basic Attention Token: Advertising Reinvented - Token-Economy-Book/EnglishOriginal GitHub Wiki

The idea of the Basic Attention Token project is to tokenize users’ attention and to create a more transparent and efficient advertising market. The Basic Attention Token reverses the roles of the players in the advertising industry, and redefines the question of who owns your attention and your web browsing experience, and who gets paid for what from whom.

Historically, economic transactions were, for the most part, based on exchanging products against money, debt, or other products. Choice was limited and customers’ expectations relatively low. Due to the scarcity of goods, producers did not need to personalize their product or differentiate from other products. The industrial revolution (1860-1920) reduced production costs, changing the dynamics between supply and demand of goods. As production started to surpass demand, markets became increasingly competitive, products commoditized, and sales and marketing became a way for companies to differentiate their products from the competition. What followed was a sales revolution (1920-1940). A marketing revolution followed (1940-1990), which then led into the finer-grained marketing revolutions of the late twentieth and early twenty-first century, focusing on relationship marketing and social media marketing. Free trade agreements and the emergence of the Internet allowed companies to increasingly outsource production and services to other countries and focus on product design, branding, and advertising.

For the first time since the agricultural revolution, humans are approaching a stage where there is an abundance of resources like food, money, and knowledge. Most modern-day shortages are due to allocation inefficiencies, and are rarely a product of real shortages. In the age of information overflow, supply chain optimization, and algorithmic market mechanisms, this inefficiency can be further reduced. While the invention of the printing press in the 15th century can be seen as the first information revolution, the emergence of the Internet brought the second information revolution, and with that, the abundance of information. Data has become the fuel of this information economy, and attention is the scarce resource. As we are approaching a “zero marginal cost society,”[^1] time and attention are becoming two of the most scarce resources. The amount of time a person has to pay attention to advertising is limited.

Web2 platforms, in particular social media platforms and search engines, did not have a direct business model to generate income from the services they provided. The only thing they had was user data, which served as a basis for targeted advertising based on user behavior. This revolutionized the advertising industry forever. The current ad-tech ecosystem has been developed and is predominantly controlled by two companies: Alphabet (Google) and Facebook. Anything from web-browsing history to location-based data, our everyday movement is being tracked by the companies whose services we use, and then resold to the data brokers of the marketing industry. The data brokers analyze and resell this data to advertisers. Algorithmic methods extract information from this raw data to evaluate which customers are the most relevant for which advertiser. Users today have little or no direct control over what happens with their personal data behind the walled gardens of the servers of the Web2 service providers.

Collecting lists of people that group consumers by specific characteristics and selling these lists to marketing companies and advertisers was not a new thing. The Internet, however, has radically reduced the costs of collecting and processing such lists, and allows to do so on a much more personalized level. Paired with machine-learning applications, we can now personalize advertising at an unprecedented level that was not feasible before. In the early years of targeted advertising, marketers who used Facebook, Google, and similar advertising networks could only target individuals based on the data collected by one single service provider. In 2012, however, Facebook started to allow companies to upload their own lists, correlating their data against Facebook data. This allowed companies to link datasets from different sources and target people based on their email addresses or phone numbers. Other companies, such as Google and Twitter, soon launched similar features. Sophisticated methods have been developed to profile the behavior of Internet users by linking data sets collected by different companies across different user accounts, devices, and sometimes even offline data. These data sets can easily be linked using pseudonymous identifiers that refer to individuals, like email addresses, phone numbers, and cookies. Cookies are a powerful tool that publishers use to track and link the preferences and behavior of individuals across Internet services.

Furthermore, in the current client-server–based Internet, both users and advertisers have little direct control over what happens with their data. Big data companies are a honeypot for data breaches and privacy violations, as has become publicly evident with the “Cambridge Analytica Files” of how Facebook data was used to manipulate the British and US elections.[^2] Targeted advertisements combined with personalized data feeds is seen by many as a tool to undermine the autonomy of users and has also catalyzed echo chambers of one’s own opinion. Millions of users have installed ad-blockers on their devices to counteract this surveillance trend. Publishers reacted by bombarding users with pop-ups and messages asking them to whitelist a website or disable their ad-blocker completely. Over 600 million devices seem to be using ad-blocking software.

The advertising industry is also prone to intransparencies along the supply chain of these data brokers and service providers. Unscrupulous and sometimes fraudulent ad-tech providers pretend to deliver targeted advertising, when in fact, users might get delivered an ad of products they have recently bought. Advertisers buying such “custom audiences” have no direct insight into what really happens behind the walled gardens of ad-tech providers. They have to trust the third-party providers that ads are properly delivered. It is estimated that more than 7 billion USD in online ad fraud was committed in 2016, from misplaced to outright malicious ads.

Digital advertising today involves two main stakeholders, the advertisers and publishers, and many intermediary services that have been established to serve the needs of advertisers and publishers. Users have almost no active role in the system, except for maybe limited opt-out possibilities. The Basic Attention Token project reverses the roles of the players in the advertising industry and redefines the question of who owns your attention and your web browsing experience, and who gets paid for what from whom. The Basic Attention Token provides tokenized solutions to current challenges of the industry. The idea is to use cryptographic tokens and a privacy-preserving browser to create a decentralized advertising system. Advertising is performed P2P, directly in the “Brave” browser, a decentralized application that communicates with the Ethereum network and manages two tokens: BAT (Basic Attention Token) and BAM (Basic Attention Metrics).

The BAT token can be used as a transfer of value between publishers, advertisers, and users in a way that (i) users are compensated for viewing ads in a privacy-preserving manner, (ii) publishers receive a bigger stake of the ad revenue than they would today, and (iii) advertisers could gain a better return on investment, as well as more accurate data. Users can opt in to earn BAT tokens based on their attention. When they activate ads in their Brave browser, the browser shows relevant ads as system notifications based on their browsing history.

**Basic Attention Metrics (BAM) **allows for the accurate tracking and reporting of user attention directly in the browser. In spite of the fact that the browser constantly tracks one’s attention, this data is anonymized, as it never leaves the browser software locally running on one’s device. In-device machine-learning algorithms determine relevant content for personalized advertising. The “attention value” for each ad depends on how long the ad is viewed and other metrics such as the number of ad pixels that are visible in proportion to relevant content, etc. Data analysis is performed directly on the browser for the sake of serving targeted advertising without revealing the base data to the company that delivers the ad (advertiser). Advertisers have direct access to trustful metrics without the need for third-party tracking and without compromising the privacy of the user. Such a level of disintermediation can improve the effectiveness of targeted advertising.

At the time of writing the book, the Brave browser has over 13 million monthly active users who use Brave to browse the web to manage their tokens and perform other operations. As opposed to current web browsers, ad blocking is built into the Brave browser using the Tor network. Such ad-blocking also makes the browser faster. Furthermore, the Brave browser provides more inbuilt security, as it upgrades websites that don’t have HTTPS to use the HTTPS protocol. Privacy is not an optional browser extension that needs to be manually installed. The browser also provides an analytics dashboard to monitor and manage features such as incentive programs, ad matching algorithms, and attention measurement systems.

Some argue that cloud-based services like personal data micro-servers, such as “Hub of All Things,” already offer the opportunity to shift control over one’s personal data back to individual customers, where users can configure their own personal data storage infrastructure. However, they have remained a fringe phenomena. While such services do offer more control over where your data is stored, one still has to rely on third parties for identity management and hosting services, which does not provide the same level of autonomy and security as blockchain solutions such as BAT.

How BAT works in detail: Anyone who downloads the app receives an initial amount of BAT tokens. Advertisers pay publishers BAT tokens to display personalized ads, which are filtered by the algorithm in the Brave browser, based on locally collected data only. This means that users maintain ownership and control over their data. When delivering an ad, the advertisers send BAT tokens in a locked state using a smart contract. If and when users view the ads, the smart contract unlocks the BAT tokens, which compensate the user with up to 70 percent of the advertising revenue. The publisher hosting the advertisement receives the rest, which could incentivize them to deliver relevant quality content instead of random spamming with irrelevant ads. Users can get compensated for their time and attention, and in turn, spend these tokens for other online activities, such as tipping artists and content creators for their free online content.

This tipping option works in a similar way to services such as “Patreon,” but eliminates the need for third-party services such as Patreon. One could also use BAT tokens to pay for subscriptions, digital goods, and other services in the future. At the time of writing the book, BAT tokens can be used for charity donations to over 1000 organizations, such as the Red Cross or the World WildLife Fund. BAT has partnered with the TAP Network, a rewards-as-a-service tech company, which has more than 250,000 commercial partners such as Amazon, Apple, Walmart, American Airlines, Starbucks, and HBO. Users will also be able to redeem their BAT tokens for rewards from any of those companies, which could be a further incentive for users to adopt Brave and BAT. Furthermore, there are over 28,000 Brave-verified publishers where BAT tokens are also accepted, such as Vimeo, Vice, Washington Post, The Guardian, and MarketWatch.

Web3-based advertising solutions provide more transparency for the publishers without compromising the privacy of the user. Due to the open-source nature of this solution, the browser software can be audited, and all transactions are publicly verifiable. The open-source nature could make the systems more resilient and reduce fraud. However, there are also some challenges that need to be resolved before BAT can reach mass market adoption.

As opposed to Steemit, BAT is a centralized solution, at least when it comes to their token economics and token governance. While STEEM and Steem Power are purpose-driven tokens that are minted upon proof-of-contribution to the Steem ecosystem, the BAT token is pegged to fiat currencies. BAT tokens are not minted upon proof of certain behavior, but were initially funded with fiat money in a token sale. The token flow and value creation in the BAT model seem to be reflecting old-school value creation models, and are based on a pool of pre-mined BAT tokens. The Brave founders and managers decide how many tokens are issued and how the token flow works: After a private capital injection from VCs, the BAT project conducted a token sale in 2017, which ended within 30 seconds, raising around 35 million USD (156,250 ETH). In total, 1.5 billion tokens were created, with 1 billion sold in the token sale, and the remaining tokens retained. The Brave team was allocated 200 million for funding of future development (BAT development pool), and 300 million will be given away for free in multiple batches on a first-come/first-served basis when users download the browser (user growth pool). The first payouts started in December 2017. The user growth pool still holds around 250 million BAT. As for token distribution, the top one hundred own 72 percent of all token supply.

The BAT project is still in the early stages of roll out and many features are under development. Anti-fraud mechanisms need to be developed to limit the amount of ads served per user. This is a challenge, as anyone could open any number of wallets on different devices. Furthermore, for token withdrawals to be compliant with regulatory authorities, certain KYC (Know Your Customer) mechanisms will probably be necessary, especially in light of anti-money laundering legislation. The wallet is currently one-directional; tokens cannot be withdrawn. Users need to use third-party services to convert fiat money to BAT and vice versa. This is probably a short-term restriction and will eventually be resolved as the system matures.

It might be difficult to motivate users to switch to a new web browser like Brave, since browser market shares have historically been quite stable. However, as opposed to traditional browsers, Brave offers privacy features and revenue possibilities. The opportunity to make money by watching ads, while promising an unprecedented level of privacy, might change the dynamic in the browser market. Once all of Brave’s functionalities are fully rolled out and operational, it might be attractive enough for users to go through the effort of installing a new piece of software on their devices.

However, advertisers might be the biggest bottleneck to BAT adoption. Google and Facebook currently dominate the ad-tech industry, with an estimated market share of roughly 70 percent. Their large user base makes them popular among advertisers and publishers. While they offer advertisement options in-line with their newsfeed or search results, BAT currently only offers display ads, which is not as attractive to advertisers. The BAT project has it on their roadmap to implement BAT usage beyond advertising use cases, for any in-browser value transfer. Whether they will be able to succeed at implementing this plan remains unclear.

In the long run, it is likely that the BAT ecosystem or a similar attention token could become a mainstream method for micro-payments on social media, not only for advertising payments but also for rewarding content creation and content curation. Apart from BAT, other projects are developing similar solutions, such as AdEx, a project that focuses on video ads.

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The Basic Attention Token provides tokenized solutions to current challenges of the advertising industry, reinventing the way users, publishers, and advertisers interact. It redefines the question of who owns your attention and your web browsing experience, and who gets paid for what from whom. They use tokenized incentives and a privacy-preserving browser application to create a decentralized ad exchange.

The “Brave” browser is a decentralized application that communicates with the Ethereum network, which manages two tokens: BAT (Basic Attention Token) and BAM (Basic Attention Metrics).

The BAT token can be used as a transfer of value between publishers, advertisers, and users in a way that (i) users are compensated for viewing ads in a privacy-preserving manner, (ii) publishers receive a bigger stake of the ad revenue than they would today, and (iii) advertisers could gain a better return on investment, as well as more accurate data. Users can opt in to earn BAT tokens based on their attention. When they activate ads in their Brave browser, the browser shows relevant ads as system notifications based on their browsing history. Advertising is performed P2P, directly in the users wallet & browser.

Basic Attention Metrics (BAM) allows for the accurate tracking and reporting of user attention directly in the browser. In-device machine-learning algorithms determine relevant content for personalized advertising. Data analysis is performed directly on the browser for the sake of serving targeted advertising without revealing the base data to the company that delivers the ad (advertiser). Advertisers have direct access to trustful metrics without the need for third-party tracking and without compromising the privacy of the user.

In spite of the fact that the browser constantly tracks one’s attention, this data is anonymized, as it never leaves the browser software locally running on one’s device. Users maintain ownership and control over their data.

Web3-based advertising solutions provide more transparency for the publishers without compromising the privacy of the user. Due to the open-source nature of this solution, the browser software can be audited, and all transactions are publicly verifiable. The open-source nature could make the systems more resilient and reduce fraud.

When delivering an ad, the advertisers send BAT tokens in a locked state using a smart contract. If and when users view the ads, the smart contract unlocks the BAT tokens, which compensate the user with up to 70 percent of the advertising revenue. The publisher hosting the advertisement receives the rest, which could incentivize them to deliver relevant quality content instead of random spamming with irrelevant ads.

Users can get compensated for their time and attention, and in turn, spend these tokens for other online activities, such as tipping artists and content creators for their free online content. BAT tokens can also be used for charity donations to thrid-party organizations.

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[^1]: “Zero Marginal Cost Society” is the title of a book by Jeremy Rifkin, describing how emerging technologies are speeding us to an era of nearly free goods and services, precipitating the meteoric rise of a global so-called “Collaborative Commons.” The book describes the paradox that capitalism has become so efficient that it is abolishing itself. While economists have always promoted a reduction in marginal cost, they probably did not anticipate the possibility of a technological revolution that might bring marginal costs near zero, nearly free, and abundant, and no longer subject to market forces.

[^2]: Due to the General Data Protection Regulation (GDPR) that was passed by the European Union, previous practices are becoming problematic in certain jurisdictions. A recent treatment on the consequences of the GDPR on data analytics one can find in: Wieringa, J., Kannan, P.K., Ma, X., Reutterer, T., Risselada, H., and B. Skiera (2019): Data Analytics in a Privacy-Concerned World. Journal of Business Research (forthcoming).