Blockchain and cryptocurrencies have been presented as a disruptive technology that could overturn the digital economy. But what should marketers be aware of before jumping on the bandwagon?
What is it and why should marketing care?
In essence, blockchain is a long strand of data that exists on a network of peer-to-peer computers on the internet. It contains a record of all the transactions of a given type across the network. It is never deleted and continually growing longer as new information is added to the end. The chain is made up of ‘blocks’ of data; the specific design of the code ensures that the blocks cannot be removed or altered without affecting every single subsequent block in the chain. As such, the tight interdependency between blocks in the chain effectively means the information stored in the blocks cannot be altered or tampered with.
Creating a seismic shift
Most traditional currency systems are underpinned by ledgers – the documents held by banks that record money going in and going out. Traditionally, these records were held in a small number of locations, usually in the bank’s own systems. One of the key functions of the ledger system is that it prevents currency from being duplicated.
Due to its watertight security protocols (and its ability to indelibly store information), blockchain can also be used as a ledger – but one that is ‘distributed’ across a network, made up of hundreds or even thousands of individuals. In this model, centralised institutions, such as banks, are not required to maintain the ledger. It is this feature of the technology that has given rise to claims that blockchain could cause a seismic shift for monetary systems worldwide.
What are the benefits?
Since blockchain is maintained across a network of individual computers, the transaction record is completely transparent. It’s almost impossible for anyone to alter the blockchain without the entire network noticing (and automatically rejecting the conflicting record). Not only does this make the record (and therefore institutions) more resistant to hacking and malicious cyber-attacks, it also means it is much harder to manipulate accounts for criminal purposes. This could make financial fraud of all kinds harder to perpetrate,especially if used in conjunction with system such as Fully-Verified, and even make elections more fair and democratic.
How to save marketing $7.2 billion each year
In 2016, a major report found that ad fraud – whereby data is falsified by an advertiser to make marketing activity appear more effective – costs the industry $7.2bn every year. To put it another way, two-thirds of digital display advertising budgets are lost to fraud. Some believe that using blockchain technology could make it impossible for web stats to be manipulated. The promise of a verified, trustworthy data record becomes even more compelling when multiple parties are involved; due to the fractured nature of the industry, modern marketing campaigns often involve many different organisations (the brand, creative agency, digital agency, social media agency, out of home agency and so on). One reliable record of performance data could revolutionise these relationships.
Product, ethics and brand authenticity
Consumers, too, could benefit directly from blockchain. For instance, as a permanent digital ledger, the technology could offer a ‘chain-of-custody’ log that provides a complete record of the supply chain, or a product history, from the point of origin to the checkout. Not only could this give customers certainty over product authenticity, but it could help brands to prove their ethical credentials, a subject of great importance to the younger generation of consumers. It’s significant that Coca-Cola has embraced blockchain in an attempt to crack down on forced labour in its supply chain, in collaboration with the US State Department.
Over time, blockchain technology could help to re-establish trust in brands, and in institutions, so often thought to be declining. Kodak recently launched an online image rights management platform, KodakOne, which is powered by blockchain. It enables photographers to register image rights on an encrypted digital ledger to protect their intellectual property.
A brand’s view
Alongside the platform, Kodak launched its own cryptocurrency, the KodakCoin, that customers can use to pay for the image rights. And trust translates to business performance: in response to these moves, Kodak’s stock price more than tripled.
Other brands that have dabbled in cryptocurrency are KFC, which launched a promotional campaign called ‘The Bitcoin Bucket’, and Burger King, also joining the fray, with its ‘WhopperCoin’.
Some early-stage businesses are also encouraging the public to invest in firms through Initial Coin Offerings (ICOs) as an alternative to traditional capital investment. The idea is that individuals who put up cash early on will be rewarded when the company (and the value of the coins) grows.
Social media acts
However, Twitter, Google and Facebook have all now banned adverts promoting ICOs and cryptocurrencies in an effort to protect the public from scams. And that’s not the only problem. Quite aside from the inherent risks of trading in bitcoins, several significant concerns have been raised about the technology.
For example, the process of creating new blocks in the blockchain – called ‘mining’ – is very complicated and requires enormous processing power. In February, an Icelandic energy company claimed the country would soon be spending more energy mining bitcoins than it would heating homes (with its cold climate and cheap electricity, Iceland has become a focal point for bitcoin mining).
Watch this space
Unlike many tools and technologies that receive the epithet, blockchain appears to be a truly ‘disruptive’ innovation. While it’s true that the attempts by some brands to adopt a form of cryptocurrency to generate customer loyalty are a rather superficial application of the technology, the efforts of Coca-Cola to use it to guarantee an ethical supply chain are far more exciting. On an industry level, marketers could one day even find themselves using a form of blockchain on a daily basis to validate web traffic and campaign results. It remains to be seen exactly how this would be managed on a technological level, but the all-but unbreakable security of blockchain could provide the key to analysing the impact of a marketing campaign. However, until the ‘growing pains’ witnessed in recent months have been surmounted, many brands may think twice before leaping aboard the cryptocurrency bandwagon.
James Richards, CIM Exchange
Available at: http://www.exchange.cim.co.uk/blog [Accessed 26 Apr 2018]
Booking consultant now if you need some advice!