Consumer Data in the Age of Crypto
How our approach to consumer data is being transformed
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This week we are diving into how our approach to consumer data is being transformed in the age of crypto.
Let’s get into it.
Imagine A Land Before Time
Envision yourself in the year 17,000 BCE. You and your fellow hunter-gatherers roam modern-day New Guinea in search of food and resources. As luck would have it you exist in a region packed to the brim with obsidian, the result of volcanic deposits on your island. You can use this resource to create knives to hunt food with. You are flush with animal meat and never go hungry. Unfortunately, your animal prey is very small. Impossible to skin for their fur and so your winters are very cold. Many in your tribe succumb to the frost each winter. Sad vibes all around.
Your neighbor, let’s call him Bill, has the opposite problem. You see Bill lives on a different island in New Guinea flush with huge animal prey. He’s up to his neck in it. Unfortunately, there are no volcanoes on his island and thus no obsidian to make weapons. So, Bill has the bright idea to travel to your island and see if you’d be willing to trade him some knives for animal pelts. You can not believe your luck. You jump at the opportunity. Everyone leaves happy.
Word of your trade spreads and soon tribes from all over are visiting your tiny island to trade. You can hardly keep everything straight. Your inventory. Who needs what? How often does everyone order? So you begin to record everything and without knowing it, you have created the first customer relationship management system (CRM).
In the several millennia since, humans have continued to find more efficient and robust ways to store customer information. From handbooks to punch cards, to on-prem servers, to the cloud. Now, with the arrival of permissionless, open blockchains, data has never been more democratized. But, is that a good thing?
In this week’s One Big Idea, we explore the potential outcomes and consequences of on-chain data.
How We Got Here
In a pre-blockchain world, all consumer data storage was closed. Businesses would store it on their computer, a server, or in the cloud. These permissioned, siloed, data lakes became gold mines. To be protected at all costs.
Big data became big business. Companies like Meta, Amazon, Alphabet, and Apple (who, with Netflix, make up FAANG) coupled their consumer traffic with data to sell hyper-targeted advertising slots to businesses. In 2016, Google’s ad revenue of 79.4 billion was good enough to be the second largest ad market in the world.
The progression of machine learning has extended the utility of consumer data beyond advertising. From training virtual assistants to personalizing your content feed, businesses have leveraged consumer data to build products that feel custom-made for you. For FAANG in particular, customer data has become the secret sauce to further build their positions as some of the most valuable companies in the world.
Permissioned Environments
Many businesses rely on FAANG data to understand and market to their consumers. They are thus at the mercy of the decisions these conglomerates choose to make. About what data they choose to provide and how. Decisions made by Google to eliminate third-party cookies and by Apple to give consumers more privacy options have illustrated how permissioned data can be gated at a moment’s notice.
Accessing traditional datasets requires permission. A log-in, access rights, API key, etc. The admin or controlling party dictates what is shared, when, and in what format.
For example, Spotify segments data availability and format depending on if you are a fan, artist, or distributed label. If you are a fan, your data is restricted to what you can see in-app. This includes play counts, monthly followers, and chart positions. If you are an artist you have access to an analytics dashboard (artists.spotify.com). Here, you can see data like general demographics and trends. Lastly, if you are a label that is directly distributing to Spotify, you have access to their API and monthly accounting reports. Here you can see the most amount of data like how much royalties were generated per play.
Web3 Data - Permissionless, Transparent, & Composable
Compare this experience with Web3.
By default, the stratification of data availability goes away. Transactions are posted to a public ledger for the world to see. Data abundance has led to a vibrant ecosystem of data tools emerging.
Public block explorers, like Ethereum’s Etherscan, allow anyone to view wallet addresses, transaction hashes, costs, and the smart contracts themselves. Blockchain analytics and visualization tools have emerged from companies like Dune, Nansen, Blur, and NFTnerds. More recently, CRM solutions have started to emerge from Bello, Kazm, and Metacommerce. The result? We are compounding our knowledge about how people are using blockchain technology. What they are buying. Where they are spending their time. Across an entire ecosystem of decentralized applications (Dapps). Compare this with the gated, isolated datasets of web2 and you can begin to see how an open system gives more robust insights.
A permissionless system also levels the playing field for small businesses and entrepreneurs looking to build on top of these datasets. Rather than pay conglomerates like Google for advertising using third-party cookies, these businesses can reach their audiences directly by monitoring on-chain data.
The transparency of consumer data empowers individuals to have direct relationships with their audiences. Open social graphs eliminate switching costs and rent-seeking behavior from platforms. Network effects occur at the protocol level (i.e. value comes from the growth of the blockchain ecosystem overall rather than any single Dapp).
One consequence of this audience accessibility has been the rise of a new growth tactic, vampire attacks. These retroactive airdrops enable projects to stir up interest by financially incentivizing individuals to interact. One example of a successful vampire attack came from Ethereum Name Service (ENS). The DAO reviewed on-chain data including ENS registrations, the number of domains owned, and the number of domains assigned to ETH addresses to airdrop $ENS to individuals.
Privacy Remains a Challenge
There is a dark side to this permissionless transparency. Phishing attacks are commonplace with bad actors sending unsuspecting users corrupted tokens to compromise their wallets. Many NFT collectors have dozens if not hundreds of unwanted tokens in their “hidden” folder on OpenSea.
Just like many of us do not want our purchases broadcasted for the world to see on Venmo (seriously who uses their social feature?) the idea of the world tracking our purchases is alarming. While crypto addresses are anonymous by nature, many users' identities are ultimately compromised through their participation in the social elements of crypto or by appending a recognizable ENS to their wallet.
Privacy tools like Tornado Cash, which enable users to obfuscate their transactions, were dealt a heavy blow when the Office of Foreign Assets Control (OFAC) implemented an outright ban on the service. Worse still, they threatened to blacklist any account that was found to interact with the service. Meaning if you unwillingly received a transaction from someone using Tornado Cash your account was subject to a potential penalty from the US government.
This is not to say privacy is not of concern in our current gated systems today. Many of you have likely experienced having your consumer data compromised when a centralized database was hacked. Experian, one of the largest processors of credit applications in the United States, exposed the records of 15 million people. These records included their names, social security numbers, driver’s license IDs, and home addresses.
The Road Ahead
Whether on-chain or not, privacy will continue to be an area of focused development in the years to come. Consumers are becoming more aware and concerned about the digital breadcrumbs they leave with every action online. My hope is by bringing consumer data to light through permissionless environments, we can make more informed decisions about what we choose to share with the world. By taking data out of the hand of conglomerate intermediaries we can foster a vibrant ecosystem of innovative consumer utilities and products.
Thanks for reading. Have a great week and we will see you back here Friday for another edition of Web3 Week in Review.
austin