Private Identities, Public Rewards (Part1)
Revenue Sharing and Personalized Ads with Private Identities
Introduction
Blockchain technology, fundamentally rooted in cryptographic protocols, represents a paradigm shift in how trust and value are managed and distributed. While decentralized cryptographic protocols have existed since the early days of computer science, blockchain's true innovation lies in its ability to embed trust and financial incentives directly into code, thereby creating a secure, self-sustaining, and transparent ecosystem.
The incentive design, known as "cryptoeconomics," ensures that the network is secured and functional. Participants actively contribute to value creation—performing computations, contributing data, reaching consensus, providing funding, or governing the system's evolution—while being compensated for their contributions.
Blockchain technology, with its potential to revolutionize incentive systems while ensuring privacy, is poised to transform the broken Ad Tech landscape. The current digital advertising ecosystem is characterized by inefficiencies and rampant fraud. Users' data is routinely tracked and shared with third parties, often without users’ explicit consent, leading to intrusive ads and significant privacy concerns. Moreover, advertisers face escalating acquisition costs and diminishing returns on investment due to a lack of transparency and the market power exercised by the major Ad platforms. This creates a challenging environment where publishers are increasingly squeezed, struggling with declining revenues as intermediaries dominate the value chain. In this piece, we will explore how blockchain can address these critical issues, offering a more equitable and efficient solution.
In today's "walled gardens," centralized platforms collect and curate vast amounts of consumer data while offering ostensibly free services. However, as Tristan Harris aptly put it, "if you’re not paying for the product, you are the product," underscoring how these platforms monetize user data by exerting control over advertising channels and charging fees to advertisers. This tight grip by major centralized marketing platforms has led to a loss of trust, transparency, and equitable value distribution. To address these challenges, a new framework is essential, built around three core principles:
Decentralization to promote competition, innovation, and shared governance among all participants.
Consumer ownership of personal data, ensuring that individuals can choose to make their data available for targeting while preserving their privacy.
Transparent and equitable revenue sharing from advertising, ensuring that value flows fairly to consumers for sharing their data, to data providers for contributing valuable insights, and to publishers and app developers for delivering targeted ads to their audiences. A recent reminder of the importance of fair revenue sharing is found in the announcement by Perplexity of its Publishers' Program, whereby it declares its intention to share future advertising revenues from an interaction whenever a partner publisher’s content is referenced. To implement a trustless and transparent revenue-sharing system, while preserving consumer privacy, necessitates the use of cutting-edge privacy techniques on-chain.
Brave was an early disruptor in this arena with its privacy-focused, open-source platform designed to give users control over their online experiences. Brave’s browser automatically blocks most advertisements and website trackers in its default settings. Users can turn on optional ads that reward them for their attention in the form of Basic Attention Tokens (BAT), which can be used as a cryptocurrency or to make donations to registered websites and content creators. Rewards are distributed using a privacy-preserving centralized protocol called “Privacy Pass”, to be replaced by Boomerang, a new privacy-preserving protocol.
Brave Ads pioneered a new privacy-respecting targeting that is matched directly on the user’s device (aka “client-side”), without any personal data phoning home to Brave’s servers. To achieve targeting at scale in a privacy-respecting capacity, Brave Ads uses on-device machine learning to anonymously match users to relevant ads.
While Brave Ads’ privacy-focused approach allows advertisers to target users based on keywords, contextual searches, or custom segments that combine keywords and domains, it remains limited in its ability to fully harness the richness of a consumer’s identity. This method provides a certain level of personalization while preserving privacy, but it neglects many nuanced aspects of consumer behavior and preferences, thereby missing opportunities to unlock the full value that personalized ads could offer. The real challenge lies in developing and leveraging more comprehensive consumer identities that can drive deeper personalization, all while adhering to the core principles of decentralization, privacy, and equitable revenue sharing among contributing stakeholders.
This piece will delve into developments in blockchain technology, emphasizing the core design principles of decentralized protocols. We aim to highlight how these innovations facilitate the alignment of economic incentives to encourage data sharing, all while ensuring the preservation of user privacy. Through this exploration, we will demonstrate how blockchain can transform the Ad Tech landscape into a more transparent and economically sustainable environment.
We first cover the concept of Decentralized Identity and how incentives for data provision and privacy techniques can give rise to rich consumer identities. Next, we investigate Oracles and design principles for incentive mechanisms in decentralized oracle networks and various reputation systems. Lastly, we review how transparent, yet privacy-preserving, revenue sharing arrangements can be implemented. We conclude by providing a sneak peek into how the Moojo Protocol makes use of these building blocks.
Decentralized Identities: Secure and Private Identification
In an age where digital interactions play a prominent role in our lives, our actions and interactions on the internet leave a trail of data that is collected, analyzed, and transformed into our digital identity. Our digital identity is often summarized or accompanied by a numerical or qualitative representation of our reputation, which serves as a reference for other participants to make decisions and form relationships with us.
Decentralized identity is a management system that operates independently of a central authority or single platform. It leverages blockchain technology to shift control back to individuals, ensuring their ownership and ability to manage their own reputation data. Use cases for decentralized identity are diverse, encompassing secure identity verification for financial services, supply-chain traceability, healthcare records, academic and professional credentials.
The core principles of decentralized identity systems are portability, privacy, and security.
Portability - Individuals (or entities) can carry their identity and reputation across multiple platforms seamlessly.
Privacy - Individuals personal information is kept private. While blockchain technology upholds the value of transparency through public ledger systems, the exposure of personal information raises serious privacy concerns. Decentralized identity systems should employ privacy-preserving technologies and concepts.
Security - Identity data is immutable and tamper-proof, accessible only with user consent. This is achieved through blockchain's cryptographic security and decentralized consensus, safeguarding against unauthorized access and identity theft.
Decentralized identity solutions let users store their personally identifiable information (PII) in a decentralized identity wallet on a blockchain. Like cryptocurrency wallets, these apps have cryptographic keys that secure their contents. When a user authenticates their identity, they use their private key to sign a message, which is validated by the blockchain. Users control what and how they share aspects of their identities with websites and businesses, eliminating the need for these businesses to store users’ addresses, phone numbers, and credit card information.
Blockchain identity systems collect various types of personal data to build on-chain identities, including names, birthdates, addresses, email addresses and social media accounts. To make decentralized identity useful and widespread, it is important to introduce on-ramps for people to record their experiences and affinities on the blockchain, such as their educational accomplishments, professional achievements, interests, fanships and ownership of various real-world assets.
An a16z report maintains that there are two approaches to recording people’s activities and affinities on-chain: active and passive. Proof of Attendance Protocols (POAPs), which enable event organizers to produce tokens that attendees can collect, are an example of active recording. When people claim these tokens, they’re purposely recording a “life event” on-chain, making it a part of their digital identity in the process. Similarly, people might make active testaments of other people’s skills, character traits, or accomplishments by sending them tokens; these testaments can be verified through peer review or an assessment of activities on-chain. Alternatively, when a person’s wallet interacts with apps or sites, information about those interactions might be recorded passively. For example, if your wallet were attached to Discord and you earned server badges, those badges could be added to your on-chain collection.
The Building Blocks of a Decentralized Identity
The World Wide Web Consortium (W3C) has a recommended data model that is composed of two building blocks - Decentralized Identifiers (DIDs) and Verifiable Credentials (VCs) which together enable users to create, control, and share their digital identities securely -
Decentralized Identifiers (DIDs) are issued, held, and controlled by individuals, in contrast to traditional identifiers (such as your email address or legal name) which rely on third parties such as governments and email providers. DIDs are globally unique, cryptographically verifiable and resolvable with high availability. They can be associated with various entities, including people, organizations, or government institutions.
Verifiable Credentials are a digital, cryptographically secure version of digital credentials that people can present to organizations that need them for verification. In the Verifiable Credentials ecosystem, there is an issuer, holder, and verifier. One of the main benefits of Verifiable Credentials is that issuing entities can generate fraud-proof digital credentials and verifying organizations can instantly check the authenticity of those credentials. Individuals have full ownership and control of their data while preserving privacy as well as providing improved security.
Ethereum Attestation Service (EAS) is an open-source infrastructure public good for making attestations on-chain or off-chain. Similarly to the W3C decentralized identity data model, its primary purpose is to serve as a protocol that facilitates the creation of digital signatures on structured information, enhancing both their composability and interoperability, trust, and validation. EAS offers a base layer that's suitable to a wide variety of applications and does not make assumptions about how it will be used or the appropriate schema structure for a particular use case. EAS service runs on two simple smart contracts: one for registering a Schema, which defines the structure and format of the desired attestation data, and another for making attestations.
Various implementations of decentralized identity can have advanced privacy features in how data is stored and shared. Selective disclosure enables the user to share only specific aspects of their identity with certain parties. A higher degree of privacy can be achieved whereby a user’s identity can be queried without revealing the information about the user. That is, the user can prove certain properties without having to reveal the specific details, e.g., verifiably prove that they are above 18 years old without revealing their exact age. This requires the use of various cryptographic techniques, such as Zero-Knowledge proofs or Homomorphic Encryption, or the use of hardware-based solutions such as Trusted Execution Environment (TEEs). We discuss these techniques in more detail in a later chapter.
Decentralized Identity provides a framework for bringing consumer identity on-chain, balancing transparency and verifiability with privacy. Combining this framework with a well designed economic incentive system for data provision is key to unlocking real-world applications.
In the next chapter we explore the incentive design principles underlying oracles and reputation systems. These systems serve as pipes for truthful and meaningful data to flow from various real-world sources on-chain, thus enabling the construction of privacy-preserving rich consumer identities.