Basic Attention Token: What is It? How Does it Work?
The Basic Attention Token (BAT) is a token for a blockchain-based ad platform. The project aims to improve online advertising by cutting out third party ad exchanges, protecting user privacy, reducing ad fraud, and sharing revenue with users to reward them for their attention. The project combines a new browser, Brave, and a utility token based on the Ethereum, BAT, to create a decentralized online advertising platform. Participants in the ecosystem transact with the BAT token : on one side of the exchange, advertisers pay with BAT, and on the other side, publishers and users can earn with BAT.
How does Basic Attention Token work?
BAT operates on the thesis that attention, described as “focused mental engagement,” is a scarce resource. The number of users in the world is limited, and the time each consumer has to delegate attention towards something is also limited. At its core, the advertising industry, which is predominantly online, is a market for consumer attention. The team behind BAT believes this market is fundamentally broken: the users who “own attention” – the scarce resource that advertisers and publishers compete for – are largely left out of transactions. Users only give their attention and receive little in return. There are a myriad of other problems tethered to this market that the BAT whitepaper meticulously documents. They include:
- Large middlemen costs placed on publishers and advertisers (e.g. costs from ad exchanges, data suppliers and management platforms, and verification services)
- Privacy loss for users
- Ad fraud
- Increasing ad load times and data costs
The goal of the BAT project is to improve online advertising by developing a new advertising platform that combines the Brave browser with the BAT token. Brave is an open source, fast, privacy-focused browser that blocks ads and trackers from the existing online advertising system. It also anonymously measures user behavior locally. Locally measuring a user’s behavior allows Brave to use rich and complex metrics for attention which results in more accurate payments to publishers and users. The browser protects a user’s privacy through data anonymization, storing user data locally, and blocking ads and trackers. Currently, Brave has over 3 million monthly active users.
Brave Payments is a micropayments system that allows users to automatically and anonymously donate to websites that, literally speaking, capture their attention. A user simply needs to load BAT into their Brave browser’s integrated wallet, and, as they browse websites, Brave measures attention spent on each and automatically pays out those websites. The system anonymizes payments to prevent external entities from correlating a user’s payments with pageviews. State channels are used to support high volume micropayments.
Only websites that are approved as Brave publishers are able to receive payments through Brave Payments. As of July 2018, over 13,500 YouTube channels and Twitch channels, and over 4,500 websiteshave been verified for Brave Payments. Notable verified media sites include The Washington Post, the Guardian, and Dow Jones Media Group, a Dow Jones subsidiary that operates Barron’s and MarketWatch.
Ads through Brave, powered by BAT
Currently, Brave is capable of blocking ads and trackers and supporting Brave Payments. The team eventually wants to enable advertising through Brave, and user trials are underway. More details are available here: https://brave.com/brave-launches-user-trials-for-opt-in-ads/ The specifics on this initiative are currently vague. The guidance from the team is that Brave will store a user’s browsing behavior and will use machine learning to enable ad suppliers to effectively target ads towards the user. The browser’s behavior monitoring will also allow it to verify that an ad was seen and engaged with. The team will likely stress that all this personal data stored by the browser is secure and private, and since Brave is open source, anyone can verify that this is true.
The team plans to show ads on Brave in two ways. The first way renders ads in private tabs (user opt-in). The second way (not available yet) renders ads directly on the website of Brave publishers, with the publisher’s consent. In the first case, the user will receive 70% of the ad revenue. In the second case, the publisher will receive 70% of the ad revenue, the user gets 15%, and the team gets 15%.
Ads on Brave closes an important supply and demand problem for BAT and greatly enriches the BAT ecosystem. No longer will the demand for BAT come from the charitable inclinations of Brave’s users, the demand will come from a real business need – the need to advertise. Advertisers purchase BAT to pay publishers to surface their ads and a portion of that also goes to users for their attention.
Although BAT can be a better alternative to the existing online advertising system, building such a system is incredibly difficult. The team has glossed over the details on such a system leaving many open questions that I outline below in the Project concerns section.
BAT is issued on Ethereum as an ERC20 token, and there is at most 1.5 billion BAT. In the ICO, 1 billion BAT was sold. 500 million BAT has been set aside to be used in a Development Pool (133.65 million BAT) and a User Growth Pool (366.35 million BAT). The BAT in the Development Pool is locked for 180 days before being given to the development team as a reward. The BAT in the User Growth Pool is currently used to incentivize users to join the BAT platform and jumpstart adoption with monthly BAT grants to Brave users. There is also a referral program for publishers:
The team behind BAT
Image credit: Conectica
Brendan and Brian have assembled a strong team to build BAT. The team is staffed with experienced software engineers and ad tech experts.
Difficult problems in creating a successful ad platform
Advertising is critical to BAT’s ecosystem. It gives value to the token by attaching it to a real business need. There are many difficult challenges that the team needs to solve to make BAT a viable online advertising platform. Unfortunately, the team has so far glossed over the details of such an important initiative. This leaves many open questions. But, user trials are already underway, and a forthcoming white paper about Brave ads is planned to answer these questions.
- How can advertisers perform real-time bidding (RTB) through Brave? RTB, although not perfect, allows buying an individual ad impression in real time and allows for direct targeting of individual users. This significantly increases the efficiency of advertising. RTB is one of the hallmark improvements to advertising that was introduced with online advertising. Can this even be done in a decentralized manner such that the middleman ad exchanges are made obsolete?
- Users often do not use just one device. They tend to cycle through smartphones and also own computers. If user data is kept within one Brave installation, how do advertisers efficiently reach a user across all these devices?
- Native in-app ads greatly increase advertising efficiency and effectiveness. They represent a large subset of the online advertising market. How will BAT support native in-app ads?
- How does the system defend against client-side attacks such as if a user hacks Brave (e.g. through botting) and earns a large amount of money from advertisers without actually viewing the ads?
- Will advertisers and publishers accept taking on the risk of owning a volatile asset, BAT? BAT has a fixed supply while the supply and demand for advertising is very elastic.
Every one of these questions represent an important problem the team needs to solve to make Brave a better online advertising platform than existing platforms. Left unsolved, it’ll be difficult for BAT to see any advertising adoption, which is a must for the success of the project.
That said, the BAT team plans to release an upcoming white paper on advertising that will answer some of these questions. The whitepaper is a good first step in tackling these problems. The real challenge comes with implementing functional solutions that make BAT a better online advertising system and align incentives with advertisers and publishers. If not, it’ll be an uphill battle for BAT to gain adoption.
15% of ad revenue on BAT goes to the team
A defining rally cry behind the cryptocurrency movement is the desire to cut out the middleman. In fact in BAT’s whitepaper, the team states that the existing online advertising system “has become overrun by ‘middlemen.'”However, BAT’s team has decided to take a 15% cut of ad revenue on BAT, effectively making them the middleman. What’s more, the team also received funding via their ICO and the 133.65 million BAT reserved in the Developer Pool. I find this excessive, and it runs orthogonal to the spirit of cryptocurrencies. When asked about revenue allocation, the team has noted that the bulk of the revenue (70%) goes to users or publishers, which is significantly higher than what the current system pays them. And that the system’s 15% cut, used for operating costs, is lower than the industry average.
However, there are also important project concerns. A key concern is the many unanswered questions on the implementation of advertising on BAT. Building a decentralized online advertising platform is difficult but crucial to the success of BAT. The team needs to have a solid plan to tackle these questions.