It’s no secret that digital advertising is riddled with fraudsters and scammers who do everything from running phantom ads never viewed by a human being to injecting malware-laden ads into websites. That’s the problem that a startup called MetaX hopes to solve using blockchain, the distributed ledger technology behind bitcoin.

Fraud and lack of transparency are large and growing problems in display advertising, threatening to cause advertisers to pull budgets out of online advertising and prompt governments from France to the United States to put new restrictions on advertising practices. Even giants such as Google Inc. and Facebook Inc., whose walled gardens are seen as more well-tended than many other sites, must continually play cat and mouse with fraudsters as new ad formats, new and opaque ways of buying and selling ads automatically and a fragmented media landscape leave a lot of room to fool advertisers, publishers and users.

That’s why MetaX, a four-month-old self-funded startup in Los Angeles, today introduced adChain, which it says is the first solution using blockchain to coordinate and track the entire digital ad supply chain. It’s actually a protocol, built with the blockchain software company ConsenSys, that is specific to the online ad industry.

“The industry needs an upgrade to its backbone,” said MetaX co-founder and Chief Executive Ken Brook, an ad tech serial entrepreneur who is still CEO of video ad tech firm VidRoll LLC. “And blockchain is the upgrade.”

Essentially, adChain provides a single database, shared among all parties to an advertising campaign, for information such as impressions, clicks, geographic location, purchases and audience segments. This creates a “single source of truth for everything related to an ad impression,” MetaX said.

It works something like this: A brand or retailer buys ad impressions through a real-time buying platform such as a demand-side platform, or DSP, that finds target audiences in ad exchanges, which pool ad inventory from hundreds or thousands of online publishers. AdChain adds a tracking beacon, a commonly used way of tracking whether someone viewed the ad. The impressions are encrypted and represented as a “block,” broadcast to each participant in the blockchain, and participants approve the impression. The block becomes part of the permanent ledger, unable to be altered by the participants, and the impressions are verified and cleared.

The adChain protocol is already in production in a private beta test with unnamed companies, including one DSP. MetaX doesn’t intend to own adChain, instead planning to make it not-for-profit and run by a foundation, so more companies will be inclined to use it.

MetaX itself provides a dashboard to access the adChain protocol. It’s also building applications on top of adChain, such as a blockchain bidder with what it says is better targeting, security and auditability, and a header bidding application to allow individual, larger publishers to sell their own inventory automatically, or “programmatically,” like the big ad exchanges run by Google and others. It plans to make money from software-as-a-service subscriptions to those applications.

Remaking the entire digital ad system is a big ask at the outset, so MetaX is focusing first on fraud, the one area that nearly all the participants in the market agree is a bad thing. And not just because advertisers, publishers and users suffer from the billions of dollars in fraud believed to be happening annually. “We need to show the government, the Federal Trade Commission, that we have fraud under control,” said Brook, or the industry could find itself the target of onerous regulations.

MetaX faces at least a couple of big challenges. For one, it essentially needs persuade the entire display advertising industry, minus runaway leaders Google and Facebook, to go along with its protocol. That’s a heavy lift for any one company, let alone an unknown startup. But Brook’s other company VidRoll, is providing a helping hand, helping develop adChain and testing it in production, so it’s not starting from scratch.

MetaX CEO Ken Brook

Anyway, some marketers are intrigued. “We get more transparency, and our clients love that,” said Fred Askham, associate director of data analytics and decision sciences at the ad agency IMM in Boulder, Colorado. Even better, he said, adChain can provide more granular data that can be used to target audiences or track ad impact better.

IMM plans to set up tests in the next few quarters to see how the system fares. He’s hopeful that if adChain works and it gets widely adopted, it could force out bad actors, and even “eat away at the advantage” Google and Facebook have. But that’s a big if. Askham noted that “there are a lot of moving parts here” that could take MetaX an extended period to bring together.

Another issue is that the nearly all the players in the digital advertising ecosystem have a vested interest in the lack of transparency MetaX hopes to end with adChain. In particular, many middlemen in the system, from DSPs to ad exchanges and ad networks, profit from high volumes of ads running through their system regardless of whether those ads are viewed or appear next to sketchy content or contain malware. Many publishers, especially smaller ones, are also only too happy to take the money they get from running ads no matter whether or not they’re effective or even fraudulent.

Not least, the two biggest players won’t be part of the initiative, at least at the outset. Google and Facebook already operate mostly independently of the rest of the display ad ecosystem because they have massive scale of audiences and ad technologies. Indeed, one of the reasons that the pair have become dominant in digital advertising is that generally they have provided at least somewhat more of a trusted environment.

Still, the timing could be good for MetaX, as both Google and Facebook have been dealing with their own transparency issues. The Times of London recently reported that ads from several large brands in the United Kingdom ran alongside YouTube videos of jihadists and neo-Nazis, causing some brands and the large agency holding company Havas to stop spending on YouTube and the Google Display Network in the U.K. Google today announced new safeguards against ads appearing next to offensive content. For its part, Facebook in recent months has had issues with inaccuracies on its ad metrics.

Brook said he’s talking with trade associations such as the Interactive Advertising Bureau and the Data & Marketing Association to back adChain. For its own business, MetaX is working with Microsoft Corp., whose Azure cloud is providing the infrastructure as well as Azure credits to run the pilot program.

But in the end, it will come down to advertiser support. “The mandate is coming from the advertisers,” Brook said. “When Google and Facebook drive 90 percent of the industry’s growth, that’s not sustainable.”

Images: MetaX