Basic Attention Token (BAT)
Blockchain Based Digital Advertising
Brave Software
February 10, 2021

Abstract
Digital advertising is broken. The marketplace for online advertising, once dominated by advertisers, publishers and users, has become overrun by “middleman” adexchanges, audience segmentation, complicated behavioral and cross-device user
tracking, and opaque cross-party sharing through data management platforms.
Users face unprecedented levels of malvertisements and privacy violations. Mobile advertising results in as much as $23 per month in data charges on the averageuser’s data plan, slow page loads, and as much as 21% less battery life. In response,
over 600 million mobile devices and desktops (globally) employ ad blocking software and this number is growing. Traditional publishers have lost approximately
66% of their revenue over the past decade, adjusted for inflation. Publishers face
falling revenue, users feel increasingly violated, and advertisers’ ability to assess
effectiveness is diminished. The solution is a decentralized, transparent digital ad
exchange based on Blockchain. The first component is Brave, a fast, open source,
privacy-focused browser that blocks third party ads and trackers, and builds in aledger system that measures user attention to reward publishers accordingly. Brave
will now introduce BAT (Basic Attention Token), a token for a decentralized ad
exchange. It compensates the browser user for attention while protecting privacy.
BAT connects advertisers, publishers, and users and is denominated by relevantuser attention, while removing social and economic costs associated with existing
ad networks, e.g., fraud, privacy violations, and malvertising. BAT is a payment
system that rewards and protects the user while giving better conversion to advertisers and higher yield to publishers. We see BAT and associated technologies
as a future part of web standards, solving the important problem of monetizing
publisher content while protecting user privacy.

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Contents
1 Value Proposition

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2 Introduction
2.1 An Inefficient and Troubled Market . . . . . . . . . . . . . . . . . . . . .
2.2 The Attention Marketplace: . . . . . . . . . . . . . . . . . . . . . . . . .

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3 A New Deal: Attention-based Economics on Blockchain
3.1 Basic Attention Metrics (BAM) . . . . . . . . . . . . . . . . . . . . . . .
3.2 Token Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Tokens Used as Publisher Payment . . . . . . . . . . . . . . . . . . . . .
3.4 Tokens for User Applications . . . . . . . . . . . . . . . . . . . . . . . .
3.5 Roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4 Business landscape
4.1 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 BAT Advantage Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 BAT Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4 Key Team Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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5 Token Launch
5.1 Token Launch summary . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.2 Token Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.3 User Growth Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.4 Budget Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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6 BAT FAQs

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7 Appendix
7.1 A More Efficient Market: Coase Theorem . . . . . . . . . . . . . . . . .
7.2 A Three-Way Coasean Bargain . . . . . . . . . . . . . . . . . . . . . . .
7.3 An Analysis of the Stability of the BAT . . . . . . . . . . . . . . . . . .

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1

Value Proposition

We propose the BAT as a token of exchange in a secure, anonymous, opt-in advertisingsystem based in the browser and the mobile app webview. The BAT system provides:• Users: strong privacy and security when viewing advertisements, improved relevance and performance, and a share of tokens.
• Publishers: improved revenue, better reporting, and less fraud.
• Advertisers: less expensive customer attention, less fraud, and better attribution.

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Introduction“Attention has been widely recognized as a commodity, like wheat, pork bellies
or crude oil. Existing industries have long depended on it to drive sales. And
the new industries of the twentieth century turned it into a form of currency
they could mint. Beginning with radio, each new medium would attain its
commercial viability through the resale of what attention it could capture in
exchange for its ’free’ content.” -Tim Wu, Attention Brokers

The promise of advertising technology (“ad-tech”) was to create a more efficient
marketplace for attention. The hope was that the Internet, the latest kind of “newmedium,” would arrive with a transparent and efficient ad marketplace.
In theory, excellence would be rewarded. The best journalism and entertainment
would receive the attention and funding it deserved. Ad tech would “get marketers
closer to their users via data analysis, immediate valuation and distribution.” Data
would be used to “accurately identify audiences, determine the value of those audiences,and deliver the right messages to them instantly.”[1] In short, users’ attention would bevalued properly.
That didn’t happen. Instead, the ad-tech ecosystem that has evolved over the lasttwo decades is a bewildering variety of middlemen and complexity. Worse, ad-tech
introduced a host of correlated problems for publishers, advertisers and users. Users
have lost their privacy, face increasing malware, pay high charges to download ads, andsuffer slow speeds. Publishers have lost billions in revenue while fraud has skyrocketed.
And advertisers face poor reporting and targeting.
This paper will review the current state of ad-tech and the predicament of content producers. It will outline a new solution that creates a transparent and efficient
Blockchain-based marketplace for publishers, advertisers and users, accurately valuing
and rewarding the key driver of Internet content: durable user attention.

2.1

An Inefficient and Troubled Market

Thomas Davenport and JC Beck note that “attention is focused mental engagement
on a particular item of information. Items come into our awareness, we attend to a3

particular item, and then we decide whether to act.”[2] Attention is, in this sense, aform of scarcity, which raises fundamental economic questions, which we shall address
momentarily.
Advertising, throughout history, has been used as the primary mechanism to capture
Attention, raise it to a level of Interest to incite some Desire that can then translate
it into Action – otherwise known as AIDA.[3] The earliest forms of advertising dateto ancient China, Egypt and the Middle Ages in Europe. The print form of advertising began to expand widely with the growth of 19th Century printed products. This
marketplace of advertisers, publishers and users remained relatively straightforward –despite some additions – even as the new media of radio and television arose.
The rise of the Internet brought the development of a new level of advertising technology with the promise of higher speed and better information, two critical elementsthat had the potential to radically improve the efficiency of the attention marketplace.
Somewhat counter-intuitively, the sheer complexity and opacity that organically developed has brought the opposite result. The system isn’t working as it should. As theChief Brand officer of the largest advertiser, P&G, said recently:“The days of giving digital a pass are over. It’s time to grow up. It’s time
for action.”[4]Especially in the last decade, the advertising ecosystem has become more complex
and crowded, with many more players taking a piece of the advertising pie, either
directly or indirectly. The complexity of this ecosystem increases the cost in headcountand difficulty of the tasks for the digital marketing teams on the advertiser’s side. At
the other end of the system, the typical publisher faces both a shrinking market for thead-blocker-free attention, and a shrinking slice of the advertising revenue pie due to themultitude of third party players who act as economic middlemen in the transaction.

2.2

The Attention Marketplace:

Sales planners currently budgeting for brand advertising are required to account foran excessive number of intermediaries that stand between the ad and the end user.
Agencies, trading desks, demand side platforms, desktop and mobile network exchanges,
yield optimization, rich media vendors and partnered services often consume significant
portions of creative and delivery ad budget. It is also common for agencies in chargeof packaging brand campaigns to use data aggregators, data management platforms,
data suppliers, analytics, measurement and verification services to fight fraud, enhancetargeting, and confirm attribution. These factors add up to a high transaction cost on
the efficient provision of attention to brand ad campaigns.

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Publishers also face a number of costs and intermediaries on the receiving side of
the ads served. Publishers pay ad serving fees, operational fees for campaign setup,
deployment and monitoring, publisher analytics tools; also they give up substantial
revenue to some of the same intermediaries that the brand advertisers use via programmatic ads. Publishers face direct costs of user complaints when malvertising spreads
from exchanges to loyal readers, often with little or no idea of origin and with no help
from the ad exchanges responsible for allowing such ads to serve from their systems.
These diminish net revenue as the overall complexity of the advertising ecosystem raises
headcount and expense.
There is a hidden cost to this complexity. A single ad unit may bounce across
many networks, buy and sell-side ad servers, verification partners and data management
platforms. Publishers lose revenue from each middleman transaction. Each one ofthese transactions also detracts from the user experience. Many of the middle players
involve data transfers, which add latency. Any transfers done via script on page eat
into the user’s data plan and battery life on mobile. Users often find their experience
further diminished when the results finally arrive, confounded by a bewildering arrayof distracting ads the publisher allowed to be placed in hope of greater revenue.
In addition, the violation of user privacy exacts a significant social cost; economists
have compared violations of user privacy as analogous to environmental pollution.[5]According to Pew Research, “Fully 91% of adults agree or strongly agree that users havelost control of how personal information is collected and used by companies.”[6] A large
majority, 64%, believe that the “government should do more to regulate advertisers”
regarding how they use and store personal information. This is not surprising, giventhat a visit to a popular media site can often have 70 trackers set loose on the reader.
Fraud is also a major problem afflicting the advertising marketplace. Hackers create malicious bots that produce bogus websites that fool advertisers. Internet “bots,”5Figure 1: Typical Digital Ad Flow

Figure 2: Typical Tracking on Large Content Sites6

Figure 3: Data Transferred by Data Elements on News Sites

remote-controlled software running on compromised personal computers or cloud infrastructure programmed to engage in criminal activities -siphon billions of dollars eachyear from the ad industry. According to Business Intelligence: “These bots create websites filled with infringed content and generate fake traffic through a complex networkof infected computers. In 2016, ad fraud created by internet bots is expected to costadvertisers $7.2 billion, up from $6.3 billion in 2015, according to a report from the
Association of National Advertises (ANA) and White Ops.”[7] There is no sign of thislevel of fraud leveling off or reducing.
Advertisers face fraud, while users are increasingly encountering malvertisements.
Malvertisements are fake ads that trick users into clicking on them and then downloading
malicious code, including ransomware. They can also entice users to visit fake domains
used to steal financial information. According to a RiskIQ report released last year,“malvertising advert rates [rose] by 132% from 2015 to 2016.” The sites most frequently
hit by malvertising, according to Bromium[8], are news and entertainment sites.
Web users are also not fully aware of the costs they pay for privilege of seeing
advertisements. According to Business Intelligence, one study found that up to 79%
of mobile data transferred during visits to popular publishers was a result of ads. The
researchers compared data usage when a full page loaded without an ad blocker, withan ad blocker, and with an ad blocker and JavaScript disabled.
The article noted that the researchers concluded that “advertising accounts for halfof all the data used by publisher pages loaded over mobile data networks” during thetests. The average smartphone user consumes 1.8GB a month. Based on carrier plansfor 2Gb, this means that average users end up paying up to $23 a month to downloadads, trackers, scripts and other related data.[9]7Figure 4: Sites Most Frequently Hit By Malvertising

Figure 5: Content Loading Cost Comparison

8Figure 6: Ad Blocker Growth by Device

A study by the New York Times found the data used by advertising resulted insignificant download times and costs across 50 top publishing sites. On one extreme,www.boston.com took 30.8 seconds for advertising and 8.2 seconds for editorial. The
article concluded that removing ads saved “more than five seconds of loading time overa typical cell connection” for the articles studied. The data to load the ads came witha financial cost as well – the price for the advertising content often outweighs that ofeditorial material.
The sum total of malvertisements, load times, data costs, battery life, and privacy
loss has driven users to adopt ad-blocking software. This further reduces publisher
revenues and leaves the remaining ad-viewing audience even harder to target.
Ad blockers are a growing problem for publishers. Studies confirm that users of ad
blocking software prefer the simplicity of navigation of ad-free or nearly ad-free content.
Over 600 million mobile and desktop devices now use ad blocking, according toPagefair. It is projected that 86.6M Americans will use an ad blocker in 2017[10].
Younger users are also more likely to adopt ad blocking technology, making the longterm financial impact of this technology worse than it appears at first glance[11].
This “perfect storm” for publishers has only gotten worse over the last few years
as Google and Facebook have taken more and more share of advertising revenues. Together they claim over 73% of online digital ad revenue, and an astounding 99% of all
growth from 2015 to 2016 in US total online ad budget[12]. The increased attention
for publishers brought by Google and Facebook would seem to be a net positive. But
the traffic driven by social media is of lower quality than direct links. Users who arrive at a news site from social media typically only engage with the site for a third[13]9Figure 7: Demographics of Ad Blocker Usageof the time compared to those who are direct visitors. Distributed content hosting
makes up only 14% of publisher revenues, with the majority of the revenue coming from
Youtube[14]; many publishers have experienced serious commodification problems withthese platforms.
Advertisers on these platforms also face serious challenges. The sheer size of theplatforms make them opaque and difficult to assess the effectiveness of advertising campaigns on their platforms. Since most of the analytics products targeting these platforms
are provided by the platform owner, principal-agent conflicts arise. Some advertisers
have decided that traffic coming from the walled gardens isn’t worth the trouble. Somehave even suggested based on third party analytics that a large proportion of the traffic
is without value to the advertiser[15].
In an effort to expand their walled gardens and to reinforce market dominance bytraffic and data otherwise ingested from users directly on the publisher domain, major
platform players have begun offering alternative content delivery channels with claimsof incentivized placement and a faster, more secure user experience. While Facebook
Instant Articles, Google AMP project and Apple News delivery channels were initiallypresented to publishers as opportunities to extend reach and visibility, they ultimately
diminish publishers’ control of their brand narratives and reader relationships, anddivert direct attention away from publisher sites over the long run.
Generally speaking, the publishing industry faces an existential threat. Legacy
publishers have faced declining revenues for decades. Pressures on publishers to create
content optimized for clicks has resulted in cut-backs to long form articles, investigative
journalism, and foreign news bureaus, and has spawned the much lamented social costrevealingly named “clickbait.” This dysfunctional dynamic has been noticed across theindustry. Marketing budgets continue to climb[16], yet publisher revenues are static or
shrinking[17]. This indicates serious market inefficiencies which can be repaired with a10

Figure 8: Ad Revenue for Google vs Facebook vs Others

Figure 9: The Fall of Newspaper Ad Revenue

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simplified and more efficient economic system based on new technologies.

3

A New Deal: Attention-based Economics on Blockchain

The diversity of middle-men and the lack of value-add to the publisher and user makesome sort of simplification of the present online advertising ecosystem inevitable. Present
trends are toward an oligopoly where gatekeeper companies such as Google and Facebook control the entire online marketing budget with publishers powerless to control
their revenues. Also, as users continue to adopt ad blocking technology the consequent
shrinking of the remaining ad-funded market seems inevitable.
The reality remains: user attention is valuable, but it hasn’t been properly priced
with an efficient and transparent market system. While it has become a platitude
that vast amounts of information are generated on and by the Internet, human beings
are only able to devote a limited amount of attention to certain small subsets of theinformation. Information in the modern age is relatively cheap. Human attention paid
to the information is the rare quantity. As Herbert Simon put it in an influential 1971
article:“. . . in an information-rich world, the wealth of information means a dearthof something else: a scarcity of whatever it is that information consumes.
What information consumes is rather obvious: it consumes the attention of
its recipients. Hence a wealth of information creates a poverty of attention
and a need to allocate that attention efficiently among the overabundance of
information sources that might consume it.”
Ultimately, a publisher provides information which may be of value to the user.
Users give attention to the publisher in return for information that they value with
their attention. At present, the publisher is paid by monetizing attention via a complex
network of intermediary players through ad networks and other such tools. The publisher isn’t paid directly for the attention given by the user. The publisher is actually
paid for the indirectly measured attention given by users to ads. Publishers are used toworking with this model for print ads, but web ads remain problematic for many of thereasons stated above. Users are subjected to the negative externalities that come withthe present advertising ecosystem.
Users thus suffer a form of “electronic pollution” consisting of threats to security,
threats to privacy, costs in inefficient download times, financial costs in extra mobile datafees, and in the case of the many ads, excessive costs to their attention. Human attention
can be exhausted, until dopamine levels recover. Neurons can and do learn to ignore
ad slots (so-called “banner blindness”). Abuse of user attention and permanent lossof users, via ad-slot blindness and ad-blocker adoption, make attention different fromsubstitutable commodities such as pork bellies or crude oil, in the final analysis. Whilemost users may be willing to pay some price for access to the publisher’s information,user attention is mispriced when we sum up the growing negative externalities imposedby the present advertising ecosystem.
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3.1

Basic Attention Metrics (BAM)

To improve the efficiency of digital advertising requires a new platform and unit ofexchange. The first phase involves the roll-out of a new browser, Brave, a fast, open
source, privacy-focused browser that blocks invasive ads and trackers, and contains aledger system that anonymously measures user attention to accurately reward publishers. The next phase involves the introduction of Basic Attention Token or BAT. It isa token for the decentralized ad exchange. BAT connects advertisers, publishers, andusers, creating a new, efficient marketplace. The token is based on Ethereum technology,
an open source, blockchain-based distributed computing platform with smart contracts.
These cryptographically secure smart contracts are stateful applications stored in the
Ethereum blockchain, fully capable of enforcing performance. The token is derived
from – or denominated by – user attention. Attention is really just focused mental
engagement – on an advertisement, in this case.
The ability to privately monitor user intent at the browser level allows for the development of rich metrics for user attention. For example, it is known whether an
impression has been served to an active tab, and measure the seconds of active user
engagement. Attention is measured as viewed for content and ads only in the browser’s
active tab in real time. The Attention Value for the ad will be calculated based on incremental duration and pixels in view in proportion to relevant content, prior to any direct
engagement with the ad. We will define further anonymous cost-per-action models as
the system develops.
In-device machine learning will match truly relevant ads to content from a level that
middlemen with cookies and third party tracking are unable to achieve, regardless of
how much of the user data is extracted and monitored from external models. These
external models are still unable to track transactions well enough not to serve ads
for products users have often already purchased. User engagement through genuine
feedback mechanisms ensures that users that have opted in for BAT are getting thebest possible product match that they’re most likely to convert into a transaction.
Ultimately it comes down to trust and respect with and for the user. By keeping thedata on the device only, encrypting the data and shielding the identities of our users
as a core principle, BAT forms a bond with users that proves that not only does theirdata hold value, it holds substantial value that has been ignored and exploited by the
middlemen year after year in the current industry model.
Several scoring algorithms have been tried with the Brave donation ledger system,
which automatically donates an amount proportional to the attention given to a website.
One of the metrics suggested is 5 total views of advertising content in an active
window, for at least 5 seconds each. Hits of this nature would be calculated on a 30-day
moving window.
Another suggested metric is the “concave” score[18]. This is a score which rewards
a publisher for a thresholded and bounded function of the amount of time spent withthe open and active page. For example, one “point” could be awarded for a two second
view of the page, with two points for a 30 second view, and 3 for a 60 second view, withdiminishing or bounded returns for longer views.
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Figure 10: Basic Attention Metric Score Over Time

The present implementation of the concave score, which is being used to distributeattention metered donations to the publishers, is a thresholded, time limited quadratic
score. The formula is as follows:√−b + b2 + 4a ∗ duration
score =
2awhere a = 13000, b = 11000 and duration is measured in milliseconds. This gives aminimum threshold of 25 seconds to achieve a score of 1. The upper bound is set to bearound 12 minutes of attention given to the article, with a maximum score for a given
piece of content of 7. This can be seen in figure 10.
Another potential metric is a targeted ad based on a subset of keywords purchased
at the advertising partner end, combined with the attention metric, essentially sellingthe attention along with an advertising topic.
We expect publishers and advertisers to suggest new metrics of user attention to be
surfaced, and encourage other vendors to build on the topic as we progress.

3.2

Token Technology

The Basic Attention Token (BAT), a token based on Ethereum, is an important element of a new marketplace. Ethereum is an open source, blockchain-based, distributed
computing platform oriented towards smart contracts. Effectively, Ethereum is a dis-14

Figure 11: Value Flow of the Basic Attention Tokentributed virtual machine that allows end users to construct smart contracts for transactions. Smart contracts are stateful applications stored in the Ethereum blockchain.
These contracts are cryptographically secure and can verify or enforce performance ofthe contract. Token contracts are a standard feature of the Ethereum ecosystem.
Ethereum has been used for mobile payment systems, distributed exchanges, tokens
pegged to commodities and fiat currencies, market clearing mechanisms, micropayment
systems for distributed computing resources, commodities and securities exchanges,
crowdfunding, and legal document verification. Large firms have invested in and deployed Ethereum, with JP Morgan, Deloitte, IBM, Santander Bank, Microsoft, theLuxembourg Stock Exchange, and the Royal Bank of Scotland being key early adopters.
Micropayments using BAT will be accomplished for the first stage deployment with
the Brave Micropayments Ledger. Each viewed ad will be verified at the browser using
the BAM.
This flow shows the conceptual flow of the BAT payments. The flow of the BAT
payments will not follow this chart precisely in first iterations of the BAT payment
system as the payments will be regulated by the Brave ledger system, but the total
effect will be the same. The high-level concept is the advertiser sends a payment intoken along with ads to users in a locked state Xa. As the users view the ads, theflow of payments unlocks, keeping part of the payment for their own wallet (Xu), andpassing on shares of the payment to Brave (Xb) and passing the remainder on to the
Publisher (Xa-Xu-Xb).
The BAT will, in early stages, be specifically tied to Brave browsers and Brave15

servers, along with verified publishers. Ad fraud will be prevented or reduced by publication of source code and cryptographically secure transactions. Ads served to individual browser/users will also be rate-limited and tied to active windows and tabs.
Payments in BAT will be sent only to publishers, though a payment for viewing an adon one publisher may be used at another publisher or kept for some other premium
services supplied through the BAT system.

3.3

Tokens Used as Publisher Payment

Publisher payment will be through the BAT system. For the first deployment of BAT,
the transactions in BAT will take place through the Brave Ledger system, which is an
open source Zero Knowledge Proof scheme presently deployed to allow Brave users tomake anonymous donations to publishers using bitcoin as the medium of exchange. The
Brave Ledger system uses the ANONIZE[19] algorithm to protect user privacy.
For the first incarnation of BAT, all payments in BAT must have a publisher endpoint. The publisher client as it is coded today already measures user attention as
described above. The “concave” awarding mechanism calculates an attention scorebased on a fixed threshold value for opening and viewing the page for a minimum of 25
seconds, and a bounded score for the amount of time spent on the page. A synopsis ofuser behavior is then sent back to the Brave Ledger System for recording and payments
made on the basis of the scores.
Much of the infrastructure required to deploy BAT at the back end is presently code
complete, in place and being used to distribute donations based on user attention. As
such, this infrastructure will be leveraged to deploy BAT as soon as possible for testing,user, and advertiser feedback.
A fully distributed ledger is desirable, both for public accountability and potential scalability reasons. Publishers, advertisers and users of the BAT token will have
incentive to use such a system to keep track of payments within the BAT system.
State channels allow for multiple small transactions with strong anonymity guarantees when using the correct matching algorithms. While Raiden and other state channel
schemes are becoming integrated with the Ethereum ecosystem, and new blockchainssuch as Zcash and Monero offer stronger privacy guarantees with rapidly increasing
feature sets, it is likely that a new scheme addressing the unique problems of this typeof transaction will be used for large scale multiparty transfer of BAT.
A lottery system may be used, where small payments are made probabilistically, withpayments happening essentially in the same way that coin mining works with proof of
attention instead of proof of work[20, 21], BOLT[22], Zero Knowledge SNARK[23] orSTARK[24] algorithms may become part of this stack for guarding privacy of participants. The BAT situation is mitigated by the fact that the privacy of the browser
customer is of primary importance; publishers and advertisers have fewer privacy concerns. The transactions in a fully distributed BAT system will almost always be one tomany and many to one, therefore novel zero-knowledge transactions may be suggestedby this arrangement.
As Brave moves to a fully distributed micropayment system, we expect other devel16

opers to use our free and open source infrastructure to develop their own use cases for
BAT. We want BAT and the tools associated with it to eventually become important
web standards for future development of web content. Publishers, advertisers and users
who view web content deserve a private, secure and well-engineered future.

3.4

Tokens for User Applications

As users are given access to some of the advertising spend in BAT, they will become
an important and active part of the advertising and publishing economy, rather thanthe passive participants they are presently treated as. While tokens can be donated toindividual content providers and publishers, there are any number of use cases for thetokens.
An obvious use case is for very specific targeted advertising. Many small businesses
have modest requirements which may be well served by tokens they acquire throughtheir normal browsing activities. Users may also find new uses with low barrier toentry highly targeted ads; personal ads targeting people of a religion or subculture forexample.
Some publishers may have premium content they would ordinarily only offer tosubscribers. Since subscription models are not typically favored by users on the internet,
this could unlock new revenue for premium content providers. Content may also bebought for friends using the token; if someone likes a premium article, they can make amicropayment to send it to three of their friends.
Higher quality content may also be offered to users for a BAT transaction. For
example, higher quality video or audio on an entertainment channel, or some kind ofsummary of headlines in a news source. Video or audio content in a news or otherinformation source may be restricted to people who pay a small micropayment.
Comments may be ranked or voted on using BAT tokens, similar to the “thumbsup/thumbsdown” on some comment sections. Comment votes backed by BAT may be
given more credibility due to the fact that someone cared enough to back the comment
with what would be a limited supply of token, as well as the fact that a token transfer can be verified as coming from real people rather than robots. The right to postcomments may also be purchased for some minimal payment, to cut down on abusive
commenters.
Eventually, BAT may be used within the Brave ecosystem to purchase digital goods
such as high resolution photos, data services, or publisher applications which are only
needed on a one-time basis. Many publishers have access to interesting data sets andtools which they are not able to monetize on a subscription basis, but which individuals
may wish to occasionally use. For example, firms such as Pro Publica, Citzen Audit
and Gartner contain interesting public data and premium content, but many individuals
find a subscription too costly. Small parts of news archives may also be of interest to
people who do not want to purchase access or a subscription to the entire archive.
BAT may also be used in games provided by publishers within the Brave ecosystem. While such applications are not presently popular with publishers, many platform
providers have hosted profitable gaming applications. It could create a new economy of17

app creators to go along with content. For example, ’punch the political/entertainment
figure’ games to go along with critical articles. People won’t get out their credit card touse such an application, but they may be willing to part with some value they acquiredin normal browsing activities to enjoy punching their favorite entertainment figure.
Custom news alerts may be offered as a service by news providers for a small payment
of BAT within the ecosystem. Such news alerts may be very valuable to individuals
who are concerned with current events, financial news or some anticipated event.

3.5

Roadmap• Pre 1.0 BAT: Brave already has an anonymized ledger system for making donations and payments to publishers based on user attention. The secure vault using
the ANONIZE algorithm to ensure customer privacy is an important piece of the
BAT ecosystem which is already in place and deployed in Brave. Brave is alreadymeasuring user attention at the browser level and distributing donations to the
publishers using this system.
• 1.0 BAT: BAT wallet integrated with the Brave browser. Verification and transactions to be handled by Brave’s internal Zero Knowledge Proof ledger system toprotect individual user anonymity from advertisers, publishers and third parties.
Ad inventory will be valued, and transactions will be calculated from reported
Basic Attention Metric (BAM) data.
• Beyond 1.0 BAT: Make the transfer and verification process entirely distributedon Ethereum using a state channel scheme with Zero Knowledge Proof protocol
for ensuring user privacy. Add alternate BAM metrics based on advertiser feedback. This will allow for full user privacy as well as a decentralized audit trail foradvertisers, users and publishers to ensure they received correct payments for theadvertising delivered through the BAT network.
• Browser as platform/BAT: Further BAM metrics based on advertiser feedback asneeded. Partners building applications on the BAT infrastructure. Also, at thispoint we plan to explore value-added services that can be offered to users on thebrowser platform through BAT.

4

Business landscape

4.1

Competition• Reddit Gold is a premium membership program, granting access to extra features
to improve experience. Reddit is a major publisher, but this program is designedby and limited to Reddit. It does not offer publishers a mechanism for publishers
and users to monetize through the use of Blockchain-based token.
• Steem is a social-media and blogging platform lets users earn revenue when theyreceive upvotes. It is a kind of monetized Reddit. Steem does use Blockchain, but
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it is not a generalized means for publishers and users to be rewarded for content.
In short, it is not a Blockchain-based digital ad platform. It is specific to the
Steem platform.
• Blendle is a kind of iTunes for journalism, offering micropayments on a per-story
basis. It gives readers a collection of stories based on preferences. Brave andBAT do not curate anything. Users merely go about their business on the web
and publishers are rewarded. Blendle is not a token-based digital advertising
platform.
• Google is a search engine company that makes most of its revenue from digitaladvertising. Google is at the center of the existing digital advertising ecosystem.
They benefit from the complexity and opaqueness that defines it. BAT intends toempower the very users and publishers that are receiving less than they should.
Google does not have a Blockchain-based tokenized system of offering rewards.
Users are often unaware of how their privacy is compromised using Google.

4.2

BAT Advantage Matrix

Present ecosystem
User frustration over loading time
Walled gardens
Bandwidth wasted
Screen clutter
Irrelevant ads
Security issues
Viewability problems/attribution
Advertiser uncertainty about delivery
CPM/click based
Reader attention not valued
Publisher revenues lowering
Expensive ad buys due to middlemenComplex/expensive viewability metrics
User’s privacy violated

4.3

BAT token ad payments
Fast loads
Free software, open source infrastructure
Low bandwidth overhead
Uncluttered screen
Ads tuned to user interests
No malware
Secure attribution/attention score
Perfect delivery certainty
Attention-based
Reader is paid for attention
Larger publisher revenues
Efficient ad buys
Simple/free viewability metric
Perfect user privacy

BAT Overview

The Basic Attention Token (BAT) was developed to address the broken digital advertising market. BAT, an ERC20 token built on top of Ethereum, will be the unit ofexchange in a new, decentralized, open source and efficient blockchain-based digital advertising platform. In the ecosystem, advertisers will give publishers BATs based on themeasured attention of users. Users will also receive some BATs for participating. They
can donate them back to publishers or use them on the platform. This transparent
system keeps user data private while delivering fewer but more relevant ads. Publishers
experience less fraud while increasing their percentage of rewards. And advertisers get
19better reporting and performance. The first part of the solution, the Brave browser, isalready operational. Brave is a fast, open source, privacy-focused browser that blocks
invasive ads and trackers, and contains a ledger system that anonymously measures user
attention aggregate to accurately reward publishers. The next step is introducing BAT.
Currently, we plan to utilize the Brave Browser for BAT, but other developers arefree to utilize other browsers.
Brave is more than a browser: it defends your data on your devices and synchronizes
your personal and private browsing profile across devices using client-side encryption.
Your data, studied and abstracted by on-device-only machine learning, provides you
with private and anonymous options to get compensated for your attention. Brave cuts
out all third-party trackers and middle-players, eliminating data leakage, malware risk,
and excessive fee-taking. Brave does this while providing publishers with a substantially larger revenue share than they are receiving in existing inefficient and opaquemarketplaces.
Brave thus aims to reset the online ad-based Web ecosystem, giving advertisers, publishers and customers a win-win solution whose components and protocols can become
future Web standards.

20

4.4

Key Team Members• Brendan Eich, CEO, co-founded Brave. Created JavaScript. Co-founded Mozilla& Firefox.
• Brian Bondy, Lead Developer, co-founded Brave. Previously: Khan Academy,
Mozilla, Evernote.
• Scott Locklin, Senior Engineer, Co-founded Kerf Software. Machine Learning,
Forecasting & Quantitative Finance.
• Bradley Richter, Head of Design, Previously: EFI/Fiery, Co-creator: eBeam &Luidia, Percipo. Advising Circullio.
• Catherine Corre, Head of Communications, Previously: AOL, Netscape.
• Marshall T. Rose, Senior Engineer, PhD from UC Irvine, co-creator of SNMP and
was with the Internet Engineering Task Force.
• Brian Johnson, Senior Engineer, was previously at JD Power and Korrelate.
• Luke Mulks, Senior Ad-tech Specialist, for technical incident response, investigation, support & issue resolution for ad tech and the Brave Browser. Developing/advising on ad tech and tracking threats that Brave shields users from(pr/blog).
• Aubrey Keus, Senior Engineer, Previously: Pulse360.
• Yan Zhu, Senior Engineer, EFF Fellow. Previously: Yahoo, Tor Project, HTTPSEverywhere, Privacy Badger.

21

5

Token Launch

5.1

Token Launch summary

Our goal is to raise a maximum of $24 million USD and a minimum of $5 million USD.
Some of the numbers may change with ETH/USD exchange rates and volatility, but
the following numbers are best effort estimates as of May 28, 2017.
• Maximum financing: 156,250 ETH -this may change with exchange rates.
• Minimum financing: 27,343.8 ETH.
• Exchange rate: 1 ETH = 6,400 Basic Attention Tokens (BAT) -this may changewith ETH exchange rates.
• Token contract address: TBD (Published through various channels 48hrs before crowdsale launch date).
• Launch date and time: 8AM PST May 31, 2017 block number 3,798,640• Token launch time-frame: 30 days (based on Blocknumber 3,963,480).
• Token launch completion: Token launch will end when either the maximum
number of ETH are raised or block number 3,963,480 is reached. If less than theminimum ETH are raised, ETH can be retrieved by holders of BAT.

5.2

Token Distribution• Brave: 13.3% of max; 200 million BAT.
• User growth pool: 300 million BAT.
• Token available to public at launch: 1 billion (corresponding to the ETH raised
at token launch).

5.3

User Growth Pool

User growth fund is used to incentivize users to participate in the BAT ecosystem.
• A 300 million endowment is for early adopters of Brave and the BAT at up to 5
BAT/user.
• BAT received as a reward can only be used within the BAT ecosystem for value
added services.
• Unused BAT after 6 months will be sent back to the user growth fund which canthen be used for new users.
• Existing Brave users can get tokens by updating their app and verifying phone
number.
• No new tokens will be created once the user growth pool is exhausted.
22

Figure 12: Budget allocation of ETH raised

5.4

Budget Allocation• BAT Team: 58% of budget The team consists of just over 20 engineers. Thisfinancing allows for the rollout of the BAT solution, including the necessary adjustments to and development of the existing Brave browser technology.
• Administration: 10% of budget Consists of BAT legal, security, accounting
and other associated administration costs.
• Marketing: 12% of budget Marketing will focus on expanding awareness andadoption of the Brave browser and the BAT solution among users, publishers andadvertisers. This also includes the growth and maintenance of the world-widecommunity.
• Contractors: 13% of budget These funds will be directed at third-party
providers offering engineering, marketing, growth-hacking, PR, partnerships, affiliate programs and more.
• Contingency: 7% of budget This is a set-aside for unforseen costs.

23

6

BAT FAQs

What does BAT stand for and what is it?
Basic Attention Token. The BAT, a token based on the Ethereum technology, is aunit of exhange in a new Blockchain based digital advertising system. User attention isanonymously monitored in the Brave browser and publishers are rewarded accordinglywith BATs. Users also get a share of BATs for participating.
What do BATs represent?
BATs are tokens in a new Blockchain and attention-based digital advertising platform.
They are not refundable, nor are they securities or for speculation. There is no promiseof future performance. There is no suggestion or promise that BAT has or will hold aparticular value. BATs give no rights in the company and do not represent participationin the company. BATs are sold as a functional good. Any value received by company
may be spent without conditions. BATs are meant only for experts in cryptographic
tokens and blockchain-based software systems.
What amount is being raised? Whats the cap of tokens? Will there be afollow-on offering?
We are targeting a raise of as much as $24 million USD and a cap of 1.5 billion tokens.
We do not plan to have a follow-on offering.
What crypto-currencies are accepted in the crowdsale?
ETH will be accepted in the crowdsale. You will be required to have an Ethereum
wallet pointed at the token/crowdsale address to participate in the crowdsale. BAT are
Ethereum derived tokens. If you hold BTC or some other crypto-currency it can beexchanged for ETH and used to participate in the crowdsale.
When will the Crowdsale happen?
We’re working with security auditors to finalize the contract. When they have completed
their analysis we will announce the date. Note that the BAT crowdsale parameters will
be tied to blocknumber, so times will depend on Ethereum mining rates. The contract
will be pushed to Ethereum mainnet 3 days before the crowdsale starts. We’ll also give
people a week to interact with the contract on Ropsten/testnet.
What is the price of BAT?
BAT will be a fixed ratio to ETH. This may vary slightly with ETH volatility as we getcloser to the contract deployment date. The exchange rate will be 6400 BAT per ETH.

24

How will Brave use ETH raised during token launch?
The ETH received in the crowdsale will by used by Brave Software to build out the
Blockchain-based digital advertising system, which uses BATs as a unit of exchange.
How will Brave store ETH?
Brave will use the standard Ethereum multisig wallet to store ETH.
Are BAT tokens transferable?
Crowdsale tokens are immediately transferable. Tokens used in the Browser may only
be donated or used to pay publishers for premium content or for other services. Tokens
may also be used by publishers for promotions.

25

7

Appendix

7.1

A More Efficient Market: Coase Theorem

Problems involving social and transactions costs have been studied by economists.
Ronald H. Coase was awarded the Nobel Prize in Economics in 1991 for his work on the
allocation of radio frequency resources.[25] Modern problems in ad-tech are addressableusing the work of Coase and subsequent commenters on his idea. At present, the effects
of today’s overcomplicated advertising ecosystem is a negative externality or “social
cost” for the user. The user’s privacy is invaded, the browsing experience compromised,and even the limited supply of internet bandwidth on mobile devices is depleted by thepresent state of this ecosystem. Effectively, the market for user attention has become
inefficient; the transaction costs of advertisers purchasing attention have become too
high.
The widespread adoption of ad blocking technology adds a negative externality on
the publishers as well. If everyone blocked advertisements, there would be little content
left to exchange for user attention, as publishers go out of business. An efficient market
for attention would remove these negative externalities, or compensate all parties to thetransaction in an efficient way.
The Coase theorem states that trade in an externality or “social cost” is possible.
If there are sufficiently low transaction costs, information symmetry, and well definedproperty rights, bargaining will lead to a Pareto-efficient outcome regardless of theinitial allocation of property.
The standard textbook example of the Coase theorem consists of a factory which
produces pollution as a side-effect of the manufacturing process, and a neighboring
landowner who suffers from the pollution.
In the case where the neighbor owns the pollution rights;
Q = 1 − (P + c)
c is marginal cost of production, P is price for pollution permit, Q is marginal
cost function for the manufacturer in the case. Neighbor has valuation ν for clean
environment, and the sale of Q pollution permits entails a loss of νQ = ν(1 − (P + c)),so the neighbor finds the price of pollution permits by maximizing net benefitmax{(1 − (P + c))P − ν(1 − (P + c))}P

The benefit maximization is1 − 2P − c + ν = 0
Giving the price
P =

1−c+ν
2

Q=

1−c−ν
2

and the units bought by the factory26

If the factory has the entire property right, the neighbor effectively purchases someshare of the pollution right from the factory which it doesn’t use. The neighbor wants
to buy Q = 1 − (P − ν) units. The factory maximizes its net benefit withmax{(1 − (P − ν))P − c(1 − (P − nu))}P

The factory’s profit maximization is1 − 2P + ν − c = 0
So the price is still

1−c+ν2
For Coase’s theorem to hold symmetrically, it requires well-defined property rights.
By definition, the user’s attention is the valued quantity. The user can make the decision
to block ads from a given publisher, or choose to forgo interacting with a publisher
altogether.
This makes it obvious that attention belongs to users de facto and notwithstanding
the efforts of some publishers and advertising firms to assert ownership of user attention
de jure. Even in commonplace situations where user attention is de jure required, defacto, users still own their own attention. For example, attention is required while thesafety demonstration is given on an airline flight, but people often ignore it anyway.
Another requirement for validity of the symmetric version of Coase’s theorem isinformation symmetry. Information asymmetry between publishers, advertisers andusers has kept the existing advertising ecosystem in place for some time, but as we cansee from the growing use of ad-blockers, the information asymmetries on the user side
are crumbling.
At present, advertisers and publishers have a severe information asymmetry in thatmost of the metrics they use to assess campaign effectiveness are indirect and administered by middlemen whose interests are not aligned with the interests of one or bothparties. Complex “viewability” metrics create unnecessary conflict between advertisersand publishers. There is no technical reason for this information asymmetry; it canbe mitigated with better technology, in particular browser technology at the endpoint
where all the data can be measured privately and confirmed anonymously.
The final requirement, which is only a soft requirement for Coasean analysis in
the case of well-defined property rights, is that of low transaction costs. The Coaseantransaction cost refers to the cost of negotiating a deal which can suit all parties to a
dispute involving social costs. With the existing ecosystem, the transaction costs are
impossibly high, with advertisers, publishers and users unable to come to terms.
In our example of present-day ad networks, we have a potential Coasean bargain
between publishers and users, with a better outcome for advertisers as well. A Coasean
solution to the attention economy inefficiencies for publishers and users is for advertisers
to pay publishers by actual attention given to the publisher by the user.
Advertisers will pay the publisher for a share of the valuable attention the user pays
to the publisher. Readers also will be directly compensated for their valued attention.
P =27

Figure 13: BAT Digital Ad Flow

The “pollution” of privacy invasiveness, slow browsing and data costs can be almost
completely mitigated. Advertisers will know if their messages are delivered without having to resort to complex arguments about “viewability.” Publishers will not experience
the negative externalities from the growing problem of ad blocker adoption.
Various proxies have been developed by advertisers and publishers to attempt tomeasure user attention using indirect techniques of “viewability,” but the advent of adblocking technologies and the increasing problem of fraud from non-human entities havecast doubt on such methods. A more direct technique would be to pay publishers via
cryptographically secure methods, and serve the ad directly in the browser. Since thebrowser ultimately measures how the user interacts with the website better than any
indirect meddling by intermediaries, involving the browser software itself in the processprovides accurate measures of user attention bestowed on the publisher and advertiser.
The browser also provides a much richer data set for understanding what the individual user is interested in. The Brave browser will contain opt-in and transparent
machine learning algorithms for assessing user interests. While an ad campaign targeted
to a financial publisher may have value to the broad interests of the overall readershipof the publisher, individual readers can be given ads tailored to their individual andeven private preferences.
For example, sending an ad for discount bond brokers to people who are following themarkets in municipal bond issues. The user who is reading about tech stocks and who
has no interest in municipal bonds won’t receive the ad. The advertiser will effectively
target the precise microsegment they are interested in reaching. The user receives more
relevant ads while interest lasts, and private interests are not revealed to publishers or
advertisers.
The idea that user attention should have monetary value is familiar to both publish28

ers and advertisers. The idea of publishers and particularly users being paid directly
for attention bestowed on the publisher is novel. Since the valuable commodity is user
attention, it makes economic sense that the user be compensated for their attention.
One could justify this as a compensation for the externalities imposed on users by theadvertising ecosystem. One could also justify this by the fact that one is more likely
to perform an action if one is compensated for it. There is also confirmation that theactual user attention is bestowed on the publisher via the addition of cryptographic
contracts built on blockchain to this advertising stack. The code is open source and canbe reviewed by researchers and interested parties on the advertiser and publisher sides.
Since the transactions for the first deployment of BAT will happen through the Brave
Ledger, which has privacy and deterministic user anonymity by design, full transparency
can be achieved while user privacy is maintained. While this centralized solution should
fulfill economic and technical goals, for further iterations, a decentralized solution could
be developed to allow for trustless auditable transactions.
While paying a user to look at a publisher content may seem heretical to advertisers,
the reality is the advertiser is paying someone. Removing the vast field of middlemen
who add no value to the user/publisher relationship allows for a situation where theuser may be compensated for valuable attention (made more valuable and relevant bymeasures of user interest at the browser) with no impact to advertiser costs and positive
impact to publisher revenues. From a financial point of view, this could be seen as avariation on some other kind of short term promotion: advertisers regularly provide
coupons and rebates on products. Promotions do not solve the problem of informing
the user of the advertiser’s product in the first place. Promotions also don’t induce user
loyalty or engagement. Most CMOs agree that short term sales can be improved withpromotions, but sustainable competitive advantage can’t be achieved using promotions,hence the use of advertisements.

7.2

A Three-Way Coasean Bargain

The three-way Coase theorem is a source of much research interest among economists.
The existence of “empty cores” in some situations have called into question the applicability of the Coase theorem to real world examples involving multiple distinct players[26]. While there are many more than three participants in the online ad market, we
can idealize them as consisting of three participants: the advertiser, the publisher andthe user. This analysis is useful for understanding the game theoretic considerations,for addressing any “empty core” arguments against the proposed Coasean bargain, as
well as for illustrating the dire state of the publishing industry.
We propose the Basic Attention Token (BAT), a cryptographically-secure token,
as the medium of exchange for facilitating this Coasean bargain while protecting theprivacy of the user.
The advertiser wants to purchase user attention. This is broadly analogous to the“cost of production” in the exposition of the Coase theorem above, whose notation wefollow.
The advertiser values the user attention with price Caa . The publisher wishes to29monetize the attention Cap paid to the website. The user who views the website values
the content of the website with attention Cac .
Advertisers and publishers in the present ecosystem have transaction costs associatedwith monetization of attention. Publishers are paid by advertisers to provide user
attention. The intermediaries of the present system create costs therefore Cap < Caa .
Note, when we talk about “transaction costs” apropos the Coase theorem, we referto the transaction costs for negotiating a deal between the players of the Coasean game,
therefore, rather awkwardly, the monetary costs of getting the ad to the publisher is
not considered a “transaction cost” per se.
The present advertising ecosystem produces “social costs” or attention pollution as
we have discussed above. These social costs are known to be large. For some large
fraction of users (22% Lumascape state of the ad industry), the social costs are larger
than the attention cost. We will label the pollution cost following the above example asPac . In the present situation, the user will view the publisher and advertisers content solong as Cac > Pac . Every user is different, and of course, the publishers and advertisersvary as well, but the existence and growth of a large population of users for whom
Cac < Pac indicates that we are approaching the time where this inequality is always
violated. The consequences of this are that Cap = 0 ⇐⇒ (Cac < Pac )Since Cac is proportional to Publisher profit (and advertiser profit in “attention”), any
value which keeps Cac > Pac is advantageous to the Publisher and Advertiser. Effectively
the advertiser and the publisher combined are the factory in this argument, and the userowns the pollution rights. However, the user also values the product of the publisher. In
the degenerate case where Cac < Pac the user is also eventually harmed as the attention
economy collapses, and the user takes up other hobbies.
The social cost should be decomposed into its constituent parts. We have identified
the primary components of the social cost in our exposition of the advertising industry
above. Security risk is one component, P s . Hacker networks can place ads in irresponsible ad exchanges, which could have very large costs for individual users as well as the
publisher who displays those ads.
Privacy loss is a very important social cost associated with the advertising landscapeas it presently exists, P p . Privacy invasions are presently required by advertisers to makesure the advertisement is actually viewed by a relevant user. In effect, the advertisers
are paying for something which adds value to the attention.
Data costs are also a significant part of the social cost of the present day advertising
ecosystem P d . These costs are often borne by the user as a result of the activities ofthe middlemen who serve the advertiser and publisher. These costs seem most trivial,
but for many users, they are among the top causes driving ad blocker adoption. For all
viewers of online ad funded content, considerable time is taken in dealing with the costof downloading and executing all the privacy-violating code. In addition to this cost,for those users who are using mobile devices, the monetary charges can be significant.
It has been estimated that the top 50 news sites make 16 times less than the actual
charges in data costs of delivering the advertising to the mobile user of these ads9! Since
half or more of the data delivered by the publisher is advertising-related, half of a dataplan can be hundreds of dollars a year in direct costs to the mobile user.
30

Figure 14: Top Reasons to Block Ads: User Experience and Privacy

Finally, there is the cost to attention produced by the ad itself, P a . In most cases,
this is not a large cost, but as it is the thing actually valued most by advertisers, it
should be accounted for separately. If ads can be made relevant, P a may even be
negative. Some users like looking at certain ads.
So, our total social cost for the present online ad ecosystem is
Pac = P a + P d + P p + P s
For a given value of P a which is the thing actually valued by the advertiser, Pac will
always be lower if we can eliminate the other factors. A token-based system withanonymizing features would remove P p entirely. P d will not be entirely mitigated bya token system, as some network traffic will take place to service the system and topresent the ad itself. Since only a few bytes of data will need to be transferred toservice the token, this cost will effectively only be in the downloading of the content
of the advertisement; a considerable improvement. The use of cryptographic protocols
and Zero Knowledge Proofs, as well as the use of known publishers and advertisers will
also lower P s considerably.
So, for a properly privacy protecting token system:dsPac (BAT) = P a + PBAT+ PBATTo first order approximation,dPac (BAT) = P a + PBATThe remaining social cost can be reduced or eliminated by paying the user compensation which can be used for other things (for example, paying a publisher for premium
31content or apps which relate to the content). In the simplified game-theoretic case presented here, the publisher eventually recovers this fraction of the ad spend anyway, since
the publisher is the only place the attention token can be spent. In a more extensive
case where the user can spend the tokens at other publishers, the revenues taken by the
publisher are bounded by the ratio of the user’s take. The way tokens are apportioned
in an advertising event in the proposed scheme, the publisher receives advertising spendthat is much larger than the proportion of advertising spend they currently receive.
As the user also receives something which is of utility to him, we can safely declarethat Pac (BAT) is zero or negative, which should encourage users to view more publisher
content. Some may object that the token acquired by users for their attention activity
can only be spent in the publisher’s “company store,” but as the token may be saved
and used in different ways, it does have value to the user, just as airline points andvideo game tokens do.
The advertiser’s spending for a given amount of attention should be smaller in thisecosystem, since there are fewer social costs associated with delivering the required attention. In addition, the advertiser doesn’t ever have to pay for social cost to middlemento achieve confidence their advertising content was shipped to a relevant user. Since
this situation is better for publishers, and makes for happier and more “productive”
users, advertisers should receive more benefit for their advertising spend.
To summarize, we have used the Coase theorem to demonstrate that the use of
the BAT system offers lower costs to browser users, advertisers and publishers in theattention economy. Advertisers will receive a superior share of user attention, along withsuperior proof of user engagement. Publishers will receive a larger share of advertising
revenues. Users will receive a superior experience with relevant ads and a share ofadvertising revenues.

7.3

An Analysis of the Stability of the BAT

A model for virtual currency exchange rates was postulated by Dutch economists vonOordt and Bolt in 2016[27]. The model postulates that the value of virtual currencies
consists of three major factors; the utility of the virtual currency to make payments, thedecision of forward-looking speculators to regulate the supply of virtual currency, andthe elements that drive user adoption and merchant acceptance of a virtual currency.
The argument originates with Fisher’s 1911 observation that speculators may effectively limit the money supply by withdrawing money from circulation in anticipationof higher future utility. Since this dynamic particularly applies to limited issuance currencies such as bitcoin or BAT, it can be an important factor in the pricing for token
sales and stability analysis of virtual currencies.
For a simple economic system with fixed quantity of currency tokens M BAT , we canwrite down a transaction quantity relationship:
PtBAT TtBAT = M BAT VtBAT
Where VtBAT is velocity of BAT, the average number of times each unit of BAT isused to purchase services within the defined period of time t. TtBAT is the quantity of32

services purchased with BAT over the period of time t and PtBAT is the weighted priceof the services.
Inserting the exchange rate in terms of $PtBAT BATTt
= M BAT VtBAT
Pt$
Since we can assume the legacy fiat currency is the accounting unit for all parties$

involved, we define the exchange rate StBAT , and substitute in the above equation to
give$

StBAT =TtBAT
M BAT VtBATIf we consider the fraction of currency which is not used in transfer of services, we
can postulate a velocity of the fraction of currency which is actually used for settlement
BAT . Defining Z BAT to be the number of BAT units not used in transactions.
Vdtt
Since the entire velocity of money in our economy VtBAT is an average between thecurrency units used and the units unused for transfer of services,
VtBAT =M BAT − ZtBAT d
VtBAT
M BAT

Combining these into the exchange rate
BAT
Td
t

$

StBAT =

(1)BAT
(M BAT − ZtBAT )Vdt

The exchange rate for BAT tokens is therefore proportional to the volume of services
purchased and inversely proportional to the currency not used in transactions for thetime period t. This equation encapsulates the insight that a lack of money in circulation
will raise the exchange rate.
We now turn our attention to the fraction of BAT which is not used for exchange.
Some of the ZtBAT tokens may be the result of users forgetting about the small numberof tokens they hold. Some may be due to exchange delays in settlement for legacy currencies. Overall though, the holders of inactive tokens have standard ways of evaluating
future utility of the tokens in terms of modern risk management theory.
Rational token holders expect future returns from a position in BAT to be proportional to the volatility of the position over the time period in question, scaled by a risk
aversion term γ,$

BATγσ 2 (St+1)ztBATIf we consider the future expected exchange rate:$
BAT||St+1||

33

The period t exchange rate is discounted by the risk free exchange rate operator (R)to make it comparable to the future expected exchange rate, we get the time discounted
exchange rate:$−RStBATThe difference in these two values are equivaluent to the expected returns. We reachthe efficient frontier from modern portfolio theory thusly:
$

$

$

BAT
BAT
|| − R(StBAT ) = γσ 2 (St+1)ztBAT||St+1

Using this standard result, we can solve for the optimal number of tokens held byan individual during a given time period.
$
BAT

$
BAT

||St+1 || − R(StztBAT =$BAT
γσ 2 (St+1))

If we consider all of the people holding BAT at a given time interval t to have thesame risk preferences, we get the economically efficient number of BAT held for later
use.
$

$

BAT
||St+1||ztBAT − R(StBAT )ZtBAT = Nt ztBAT =
$
γ 2
BAT
Nt σ (St+1 )Since this value can’t be negative, we assume that people who hold BAT have theposition that expected future exchange rate is
$

$

BAT
|| ≥ R(StBAT )||St+1hence, using our above relationship, we get the relationship between the expected
future value of the BAT, the interest rate and the velocity of transfers in the BAT
economy:$BAT
R−1 (||St+1||) ≥TtBAT*M BAT VtBAT

So, people hold BAT if the discounted expected value exceeds the hypothetical valueof the current exchange rate. So, the exchange rate as a function of future expectedvalue of BAT is$γ BAT 2 BAT
Zt σ (St+1 ))(2)NtThus, the BAT holdings are the discounted expected future exchange rate minus
the risk premium for the uncertainty in future value of the BAT, as expected.
If the model holds, 1 and 2 can be used to define supply and demand for BAT. Since
BAT
M
is not time dependent in the case of BAT, the time varying exchange rate can
$

$

BAT
StBAT = R−1 (||St+1
|| −

34

be readily understood in terms of BAT transactions and opinions on future utility of
BAT transactions. As BAT transactions increase, the exchange rate becomes dominatedby the transactions rather than future expectations of utility. This dynamic has been
observed in maturing virtual currencies as well as various other in-house token systems.
While models are imprecise, this model argues for long term price stability in a
token mediated economy.

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MIT Technology Review and Vigilant. “Navigating Planet Ad Tech: A Guidefor Marketers”. In: MIT Technology Review (Oct. 2013). url: https : / / www .
technologyreview.com/s/519991/navigating-planet-ad-tech/.

[2]

T. H.; Beck J. C. Davenport. The Attention Economy: Understanding the New
Currency of Business. Harvard Business School Press, 2001. isbn: 978-1578514410.

[3]

Wikipedia. AIDA (marketing). [Online; accessed 22-January-2017]. 2017. url:
https://en.wikipedia.org/wiki/AIDA_(marketing).

[4]

Jack Neff. “P&G Tells Digital to Clean Up, Lays Down New Rules for Agencies
and Ad Tech to Get Paid”. In: Advertising Age (Jan. 2017). url: http://adage.
com / article / media / p - g - s - pritchard - calls - digital - grow - up - new rules/307742/.

[5]Paul Sholtz. “Transaction Costs and the Social Costs of Online Privacy”. In: First
Monday 6.5 (May 2001). url: http://firstmonday.org/issues/issue6_5/
sholtz/index.html.

[6]

Lee Rainie. “The state of privacy in post-Snowden America”. In: Pew ResearchCenter FactTank (Sept. 2016). url: http : / / www . pewresearch . org / fact tank/2016/09/21/the-state-of-privacy-in-america/.

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