Brave & BAT: A Dark Horse Worth Paying Attention To

June 19th, 2019

Alex Gedevani
Jun 19, 2019 · 61 min read

Table of Contents:


  1. Purpose
  2. Executive Summary
  3. Investment Thesis
  4. Team Background

Define the problem

  1. Headwinds facing users, publishers, and advertisers

Learn from past failures, identify secular trends, and understand the current market pulse

  1. AllAdvantage: A Case Study on Pay to Surf Models
  2. Thematic investing: Narratives to monitor
  3. Market Pulse

Evaluate Blockchain Fit, Opportunity and Competitive Landscape

  1. Why blockchain-based digital advertising?
  2. Market opportunity
  3. Beyond the browser: Expansion of SDKs
  4. Competitive landscape

Brave & BAT — Deep Dive

  1. ICO and BAT Distribution Over Time
  2. Governance
  3. Technology Overview
  4. Paradigm Shift in Advertising
  5. Value Proposition, Utility, and Functionality
  6. Privacy — ZKP protocols
  7. Fraud Prevention
  8. Security
  9. Business Evolution: Semi-Centralization to Decentralization
  10. Evaluating the Durable Competitive Advantage
  11. Growth Metrics
  12. Addressing Frequently Asked Questions
  13. Risks and Headwinds
  14. BAT Tokenomics
  15. Actionable Ideas

Wrapping Up

Brave Experiential Booth at Mobile World Congress



What do companies like Facebook and Google have in common? As best-selling author Tim Wu says, they are “attention merchants” that have succeeded in capturing your mental space and selling it to advertisers. You are giving up your privacy for their services as your information is auctioned across the internet for targeting. The killer product is not necessarily the apps themselves but your attention.

The growth of the internet has far outpaced regulatory infrastructure and as a result, tech giants have reaped the benefits of the growing data economy as you are constantly being tracked across the web. The negative ramifications of years of negligence around consumers’ data and privacy are catching up to firms like Google and Facebook that are in the cross-hairs of regulators. We have been ushered into the privacy era. People want to take back control of their data and are demanding more transparency from leading companies.

The goal of this report is to spark a greater discussion around the problems facing the digital advertising industry today, how it will be disrupted, and why Brave and BAT are in a strong position to emerge as some of the biggest long-term winners in the space.

“As users become more aware of surveillance capitalism, solutions that put the user first will reshape the landscape,” — Brave CEO Brendan Eich in “Mary Meeker’s 2019 Internet Trends Report: 11 highlights”

Let’s dig into the relationship between Brave and BAT. There’s a common misconception that Brave browser is anti-ads and contradicting BAT, a token earned for viewing ads.

Think of Brave as a pro-privacy and pro-consent browser. By default, Brave blocks third party ads and trackers that are embedded into webpages you visit because it believes you have no consensual relationship with them and they violate one’s privacy. However, when you choose to visit a first party website, Brave leaves the first party ads alone because you’ve established a consensual relationship with the site.

BAT is a pro-privacy and pro-consent advertising platform with client-side (on-device) ad technology. It is opt-in by design rather than opt-out meaning the user is back in control. When you opt-in to Brave Rewards, you receive 70% of the ad revenue for private ads and 15% for publisher ads. BAT uses local data and machine learning algorithms to match these ads to you. At no point in the process does a third party or Brave Software itself collect your data.

Executive Summary:

: Basic Attention Token (BAT) is a revolutionary digital advertising and rewards platform from the inventor of JavaScript and founder of Mozilla & Firefox, that rewards users in ERC-20 BAT tokens for any ads they opt into seeing. BAT ads platform locally match ads to users without any tracking or data collection required. Brave is a BAT-enabled open source privacy browser that blocks all third party ads and trackers by default.

Brave is on a mission to fix the web by giving users a safer, faster and better browsing experience while growing support for content creators through a new attention-based ecosystem of rewards.

Per Messari, BAT currently trades at $0.341 and has a market cap of $435 million. 1,268,938,630 (84.6%) of the total BAT supply of 1,500,000,000 is in circulation.

· Similar to how Bitcoin was born out of the global financial crisis, Brave was born out of the advertising crisis and is leading the charge as the privacy era takes shape. It was founded on the principles of GDPR with the interests of consumer rights in mind and has developed a new approach to advertising that is private by design.

· Brave is one of the best positioned companies to lead the cryptocurrency industry across the chasm to mainstream adoption. It has designed a vehicle (Browser) with a built-in cryptocurrency (BAT) for mainstream use, offering a stronger value proposition than its competition right out the box.

· You can fork BAT and even the Brave Browser, but you can’t fork the service that’s been built around it. Brave Software has a first mover advantage as it has built out an entire digital advertising ecosystem around its native token, BAT.

· Superior ad targeting and more accurately priced attention will drive advertisers’ demand for BAT ad campaigns.

· The value proposition for BAT and subsequently opt-in rate to Brave rewards should increase as new use cases for BAT increase utility.

· Compounding network effects as the three-pronged network of users, publishers, and advertisers grows, lead to sustained demand for BAT.

· In the next bull cycle, Brave experiences massive growth across all fronts thanks to differentiating itself from the rest of the crypto industry having designed a product for the mainstream, and then decentralizes over time as the tech catches up.

· BAT becomes the de-facto internet currency for “attention” with multi-purpose functionality appealing to many different cohorts. Brave reshapes the advertising industry standard with a new way to target users without collecting data.

· Regulatory tailwinds and users drive flight to privacy and consent driven products like Brave.

· The ML layer for ad delivery based on on-device attribution doesn’t develop enough to deliver better ad targeting than traditional service side advertising, driving early adopters of BAT back to existing alternatives.

· Once the 2-way wallet is enabled, the proportion of low-income demographic users solely viewing BAT ads on a recurring basis to earn BAT for cashing out could become significant enough to damage the balance in the Brave ecosystem.

· It’s only year 3 for the project. Brave could encounter difficulties ranging from bugs, keeping up with Chromium code base changes, third party KYC reputational risk, and scalability issues that result in user churn and deter new entrants.

— Dominance in market share of ad revenue by Facebook and Google has reached a tipping point and in this new privacy era led by users and tailing regulations, there is opportunity to capture a sizeable slice of that share in addition to share of incremental ad dollars as the market grows. Google built a business off your data. Brave built a business without collecting your data.

— The veteran team led by Brendan Eich brings instants credibility and has created a honey pot effect, attracting forward thinking partners, a strong talent pool, and ecosystem participants. Shipping product via a rolling thunder approach to go along with a tight feedback loop with the end user allows Brave to go beyond open source and into “open process”, with the users’ interests in mind.

— The easily scalable product (Brave Browser) is likely to be one of the first to introduce the mainstream to crypto via its built-in ads reward platform (BAT). The scope of the BAT ads platform will extend far beyond the browser via the BAT SDK, creating a large TAM.

Investment Thesis:

The Brave Browser will be the vehicle to mass adoption of BAT. Strong fundamentals and expansion of the Brave network will be value accretive for BAT as advertisers onboard to the ads platform at a high rate and increase ad spend in line with the ML layer accurately pricing attention and honing ad targeting. On the sell side, the multi-layered plumbing structure creates token sink given the time it takes users to accumulate varying amounts of BAT to spend on an assortment of use cases involving BAT flow to publishers. The value of BAT will become more denominated by utility than speculation over time. From the maturity cycle onwards, BAT is likely to become more favorable to advertisers given the reduced volatility and from an investment standpoint stands to provide diminishing marginal returns.

As Brave is the first mover in its approach to digital advertising, BAT price will largely be driven by speculation to start. Investors holding BAT reduce the supply, while advertisers drive the price up as they have to buy BAT via a 3rd party to run ad campaigns. In the next crypto bull market, BAT can comfortably reach $1 with potential to climb up to $5 during the market cycle. This estimated price range indicates a market cap between $1.5 billion and $7.5 billion, assuming a fully circulating supply at the time. BAT has one of the highest floors out of all altcoins and on a long term time horizon, operating in a multi-billion $ industry ripe for disruption, bodes well for upside opportunity.

Team background:

Nobody has the time to evaluate every project in an industry that has a high proportion of useless ideas and scams to hidden gems, but one of the many filtering layers can be the human capital behind a project. Objectively speaking, Brave has one of the most experienced CEOs and an all-star team with the relevant credentials needed to tackle a goal as massive as fixing the advertising industry.

I like Richard Burton’s mental model of “Aliens, Jedis, and Cults” that he’s used to identify high potential projects like Stripe, Bitcoin, Ethereum, SpaceX, and more. Let’s apply it to Brave.

— Brave is led by tech pioneer Brendan Eich, the co-founder of Mozilla & Firefox and creator of JavaScript. If anyone knows how to build a quality web browser from the ground up it is him. He’s already had a direct impact on one of the turning points in web history while at Netscape. In 1995, when the tech industry was working in overdrive to catch up with the pace of web innovation, Netscape needed a language that would complement Java and appeal to beginning programmers, just like Microsoft’s Visual Basic. Brendan worked overdrive and created JavaScript in 10 days, giving people that write a web page the ability to program it. Fast forwarding to today, JavaScript is enabled behind the scenes of almost every website. Brendan has come full circle with his project to create a more sustainable web.

Brave has assembled an all-star team of around 95 people led by some prominent executives and has about 10 researchers per the latest AMA with Ben Livshits, Chief Scientist at Brave.

Brave’s mission has become larger than itself. An important voice on privacy and the hazards of AdTech, Dr. Johnny Ryan and the Brave team have already engaged on multiple regulatory fronts advocating for stricter privacy laws with the consumers’ interests in mind. He recently delivered a testimony at the US Senate Judiciary Committee and vouched for GDPR-like regulation for the US. The team has been absolutely relentless across the regulatory, advertising, and browser fronts. Brave’s Github remains one of the most active in the space, constantly shipping product.

From day 1, Brave has had a laser-like focus on meeting and adapting to customer needs 24/7. This is especially important as consumer feedback on ad delivery and browser UX can help the team identify areas needing improvement prior to a marketing push to the mainstream. Two examples in particular stand out to me:

1. User complains off high BAT withdrawal fees on Uphold. Team responds within same day and the day after Uphold waives the BAT withdrawal fees. Uphold partnership in action.

2. YouTuber Tom Scott complained that users were tipping him BAT without his “consent” and Brave was stealing the funds as he’s not a verified Brave publisher. Oh no…free money! The team explained that funds are held in escrow and amended the policy shortly afterwards so that instead of funds being held indefinitely until creators becomes verified, funds would be returned after 90 days if not claimed.

Positioned as the good guy, Brave’s foundational principles have struck a chord with a quickly growing community which started off as primarily a tech savvy crowd, now expanding to the average browser user. Digging into community led projects like GiveBat and, you can get a view of the breadth of content creators hoping to play a role in fundamentally changing the web. As a consumer and close observer, I’ve noticed firsthand the excitement behind a browser, historically a dull product. Brave has gamified a browser with its rewards system. With a 4.4 star rating on the App store, momentum is picking up. Browser innovation is finally back.

Digging into the open job listings at Brave, there’s a heavy focus on building out departments across engineering, ledger, marketing, fraud, analytics, and research. With a working product, Brave is gearing up for the next big marketing push and hiring for a Director of Marketing and Marketing Manager. The Product Manager, BAT Fraud and Analytics role, which appears to have been filled recently, fits in nicely with the team’s vision to evolve the BAT ecosystem around fraud systems, expanding analytics capabilities, and scaling the BAT app ecosystem to a fully decentralized implementation.

Define the problems

Users are abused

Consumer’s privacy is being violated for better targeting, which has drawn increased attention from the regulators triggering GDPR in the EU and the Consumer Privacy Act of 2018. As a means of defense, adoption of ad blocking software has skyrocketed globally, meaning users are removing themselves from the advertising revenue cycle.

Who gets left behind to deal with the “electronic pollution” from the advertising industry? It’s you, me, and the millions of other people who confronted with a plethora of ads on a daily basis. Users suffer from the negative externalities of the current system such as financial costs from extra mobile fees, slower download times, threats to security, and threats to privacy. Advertising is just another form of information clutter and users increasingly are showing signs of banner blindness, tuning out the noise.

Brave experiential booth at Mobile World Congress

Every time you visit a website that shows behavioral ads, personal data about you is broadcast in “bad requests” to tens or hundreds of companies. Ad tech companies broadcast this data to solicit potential advertiser’s bids for attention of the specific individual visiting the site. Under GDPR, this is unlawful as the broadcast fails to protect intimate user data against unauthorized access. The below diagram from the Economist, depicts the free for all for user’s data.

The Economist’s “Data protection-free zone” diagram of online ad auctions.

Advertisers are losing

Advertising has long enabled the free exchange of information the web has represented. However, the industry has been spiraled into a crisis due to a number of problems, mainly stemming from the opaque supply chain. Difficult “viewability” metrics assessing campaign effectiveness create conflicts between both advertisers and publishers. Advertisers are lacking good information on what they are paying for.

For publishers, the ad sell side process for decision making revolves around driving traffic to the domains and this often involves third parties many of whom have fraudulent, nonhuman traffic. Fake sites are created solely to run ads and commit ad fraud. Marketers are getting fooled by fake sites and bots that commit fraud.

Juniper Research forecasts that in 2019, advertisers will lose $42 billion of ad spend due to ad fraud. This is a 21% increase y/y from the $35 billion in 2018. Fraudulent actors are shifting to more advanced techniques like spoofing advertiser networks to misrepresent ad clicks and displayed ads. They project that by 2023, advertisers’ total loss to fraud will rise to $100 billion.

Dr. Augustine Fou Independent Ad Fraud Researcher

The days of giving digital a pass are over. It’s time to grow up. It’s time for action” — Marc Pritchard, Chief Brand Officer of Proctor & Gamble

Publishers are hurting

As a Google and Facebook continue to take up the lion’s share of digital ad revenue and middlemen siphon profits, publishers are scrambling to reinvent themselves. A recent academic study shows that behavioral targeting has been overhyped in value for publishers since day 1. A study by Howard Beales showed that advertisers are willing to pay up to 2.68 times more for a behaviorally targeted ad than one that wasn’t. The recent academic study indicates that publishers only get about 4% incremental revenue for an ad impression that has a cookie enabled than for one that doesn’t.

The supply chain has become more complex and opaque over time. Middlemen are siphoning profits away from publishers. The demand side planners, supply side planners, buy & sell ad servers all have different reporting infrastructures as opposed to an industry wide standard. New companies or “3rd party verifiers” have spawned to solve the problem of settling disputes and in return are capturing revenue share.

Today’s complex supply chain

Publishers are struggling from the “ad tech tax” comprising 55% of programmatic ad spend. In worst case scenarios, publishers like the Guardian have seen paltry revenues of only 30% after a 70% ad tax. Publishers across the board such as BuzzFeed and Vice are falling well short of revenue goals. Publisher revenue as a whole is recently down around 66%.

Five Charts Explaining the Ad Tech Tax

To add to digital publishers’ woes, ad-blocking usage is a headwind to revenues as well. The publishers’ defense mechanism of setting up ad block walls hasn’t proven to be effective given that 74% of ad-block users say websites with ad-block walls make them want to leave.

Learn from past failures, identify secular trends, and understand the current market pulse

AllAdvantage: A Case Study on Pay to Surf Models

AllAdvantage was one of the first true “pay to surf” models emerging from the dot com bubble. The internet advertising company paid participants 50 cents an hour to download a “view bar” on the browser with a changing rotation of ads. Although it paid users for their “attention”, the system was easily abused as it attracted a low income demographic looking to make a quick buck. In almost 2 years of operation, the infomediary raised $200m in VC funding and grew to over 10 million members in large part from its pyramid scheme referral program. Ad fraud was rampant as click models were set up to game the system and the company ultimately paid out most of its VC money to a bunch of high school kids surfing the internet. AllAdvantage aimed to harvest attention but instead harvested millions of meaningless clicks.

Terrible ad targeting, a weak fraud prevention system, and the attraction of unwanted demographics were some of the primary reasons for the company’s downfall. Brave builds upon the very primitive concept of “pay to surf”, addresses the pain points of its predecessors, and has created a much stronger value proposition. AllAdvantage can serve as a really valuable case study for Brave in what not to do. A strong fraud prevention system and calibrated ad rewards based off targeted demographics are two areas where Brave needs to continue tightening the screws.

Thematic Investing: Narratives to monitor

Growth of data driven economy exposing lack of infrastructure

Some of the most valuable companies in the world rose to the top by leveraging data-driven business models to take advantage of the growing data economy. For years, technology, marketing, and digital media platforms have harvested and monetized data without the knowledge and consent of users. Data has become the new oil.

What Happens in an Internet Minute in 2019?

Internet companies with concentrated data power have struggled to properly manage the data, resulting in frequent digital oil spills, further widening the lack of trust between users and companies. The internet has reached a stage where it needs more regulation in order to ensure a sustainable future for the digital economy. As education around data privacy and user’s rights spreads with increased scandals and data breaches, the question is how can one gain back control of one’s data?

World’s Biggest Data Breaches & Hacks

Shifting regulatory landscape represents a tailwind for Brave and a threat to the traditional digital advertising model

The implementation of GDPR in Europe was the beginning of the rise of e-regulation. The Cambridge Analytica scandal where data of millions of FB users’ profiles was harvested without consent and used for political advertising purposes, accelerated the debate around increased regulation for tech companies. Future regulations on the US front, ePrivacy, and digital taxes represent headwinds mainly across advertising, social media, and e-commerce. It has placed the cross-hairs directly on the media & internet sector, with scrutiny on the practices of Google & Facebook.

One of the key features of GDPR around advertising tracking is that now explicit consent is required to collect and process personal data. This area of traditional advertising has historically relied on 3rd parties and with users increasingly choosing to opt out, it’s a prime candidate for disruption. Other GDPR components are around data portability, breach policy & fines, and deletion of data.

While Facebook & Google have a limited ability to disrupt themselves, Brave has the opportunity to be the poster child for the next generation of companies emerging on the back of the rise of e-regulation. Brave has gone on a full-scale attack and has engaged with the US Senate to present the case for GDPR-like regulations in the United States in order to protect the privacy of users which in effect would spur innovation and prevent anti-competitive behavior by large platforms. It has also warned the FTC about how big tech companies are “cross-using” user data from one part of their business to prop up others which stifles competition and consumer choice. Numerous regulatory complaints concerning data breaches by ad-tech companies under Europe’s GDPR have been filed as well.

I’ll briefly jump into a few of the many important regulatory developments in the space. 1) Ireland’s Data Protection Commission (DPC) announced a major GDPR probe into “suspected infringement” by Google’s DoubleClick advertising business. The probe was triggered by a formal complaint from Dr. Johnny Ryan, Chief Policy Officer at Brave. 2) CNIL, a French regulator in exposed the flaws in IAB’s consent framework and real time bidding that have broader implications. They conducted an on-site inspection of small adtech firm Vectuary. CNIL discovered the personal data of 67.6 million people although it claims to delete 70% of the data it receives. 3) The Department of Justice is now preparing an antitrust case against Google, which would examine Google’s practice related to search. Gatekeepers like Google and Facebook, command almost the entire marketing budgets of companies thanks to their data gold mines, and have closed the doors on many competitors.

Examining the early results of GDPR, an unintended consequence has been the increased compliance burden which larger firms have been able to absorb while smaller ones get crushed by the added costs. Marketers have spent more of their ad money with the FB/Google given the uncertainty around how regulation will change and be enforced. However, 1 year is not a big enough sample size. In Q1 ’19, we’ve seen Y/Y ad revenue growth slowing down.

Ad-blocking as a defense mechanism

The adoption of ad blocking technology can be explained as a user’s flight to a defense mechanism to remove negative externalities associated with web browsing. It’s hurting publishers and impacting where advertisers shift their dollars to. Publishers have resorted to paywalls and requested for whitelisting but studies show the average consumer has responded poorly to them.

As seen in the globalwebindex insights report, a myriad of factors are contributing to ad-fatigue which in turn has led to higher ad-block usage.

PageFair 2017 Ad Blocking Report

From a sample size of 100k people across 52 countries, 43% of internet users had used an ad blocker in the last month. Ad-blocking is most prevalent in the Asia Pacific region where the uptick due to a regional preference for mobile browsing. On mobile, screen space is more limited and as ads take up a higher proportion of the screen, freeing up the space is deemed important. Statista Research states estimates that in 2018, ~25% of U.S. internet users were using ad-blockers on connected devices. The global rate is likely higher considering the U.S. has historically lagged behind in ad-blocking.

To put things into perspective, Informa Group’s research arm Ovum estimates that if ad-blocking rates maintain current levels, ad-blocking could cost publishers $35 billion by 2020. For that same timeframe, their best scenarios and worst scenarios estimate $16 billion to $78 billion losses respectively. Despite ad-blocking growth, two thirds of ad blocking users on computers would be willing to switch them off if changes are made that adhere to IAB’s lean principles (Light, Encrypted, AdChoice supported, and Non-invasive ads). Young, educated, and higher earning adults in the 18–34 age range are a valuable demographic known for high ad-blocking usage. Although the growth rate of ad-blocking on desktop is stabilizing, we could see more adoption on the mobile front given the increased ad spend in that area. Instead of focusing solely on containing usage, the industry should solve the underlying problem.

Takeaway: Most of the ad-blocking motivations on the user front are addressed by Brave and the BAT ads platform. The opportunity here is for Brave to reel in these users and offer a compelling argument to opt-in to Rewards, leading to incremental revenue for publishers and enabling advertisers to connect with a sought after demographic. Sustained growth in ad-blocking will nudge publishers to at least explore the BAT ads model sooner than anticipated.

Market Pulse: Publishers & Advertisers are becoming more receptive to change

  1. Power of Education

A major challenge for Brave from the onset and even today has been educating its audience — the dying publishing industry. In early April 2018, the Newspaper Association of America (NAA) sent a cease and desist letter to Brave software stating “Your plan to use our content to sell your advertising is indistinguishable from a plan to steal our content to publish on your own website”. There was even an anecdote from Brendan of an instance where during a meeting with a prominent publisher, the police got called to escort the Brave representatives out of the building.

Brave is proving that the narrative is shifting as struggling publishers are coming to acceptance with the idea that their current ad-revenue models are no longer sustainable. Bravehas managed to nail partnerships with a few of the same prominent publishers that co-signed the cease and desist letter: Dow Jones Media Group & The Washington Post.

2) Looking to expand playbook due to growing frustration with FB & Google

In April, Brave team attended and set up an experiential booth at the multi-day Mobile World Congress conference which had 100k+ attendees. I’ve expanded on some of the conference takeaways from Luke Mulks, Business Development Director at Brave, to show how the industry sentiment is playing right into Brave’s hands.

Evaluate Blockchain Fit, Opportunity and Competitive Landscape

Why blockchain-based digital advertising?

The four largest ad holding companies in the world — IPG, Publicis, Omnicom and WPP along with giants like IBM, believe that blockchain technology can massively benefit the advertising industry. They are part of AdLedger, a non-profit research and development consortium that is helping to build out the industry standard for blockchain-based digital advertising through collaborations, partnerships, and proof-of-concepts. Brave and 50+ forward thinking companies involved in the digital space are working together to ensure a sustainable ecosystem for the future of the internet. For Brave, the AdLedger consortium may serve as a breeding ground for easy partnership opportunities with like-minded companies.

Many years and dollars have been invested in the current ads system but the debate remains around whether or not to rip and replace the existing infrastructure with blockchain-based systems. Indeed there are new ad-tech companies emerging with technical solutions but these are only band aids placed on a fragmented system. The new intermediaries only further diminish the publishers’ cut of the revenue which in some cases is as low as 30 cents for each dollar spent by advertisers. The majority of executives in the AdLedger report, believe rip and replace is the best option although it may take longer. Blockchain-based digital advertising can simplify the complex supply chain that is riddled with intermediaries leeching profits and provide a better audit trail for advertising campaigns.

In collaboration with Never Stop Marketing, Brave measured the number of startups in the Blockchain Marketing Tech industry and found a staggering growth of 1,218% in 18 months. It highlights the growing demand for more balance in the industry. Decentralized Finance (DeFI) has seen impressive growth and has captured the headlines, leaving the marketing landscape flying under the radar.

Market opportunity

Over the past 2 decades, there’s been a fundamental change in ad spend by medium. The present and future will be dominated by internet advertising. Examining the advertising industry from top down we can see that total projected spend for 2019 is $589 billion. Although search comprises the majority of ad spend, segments across display, video, etc. are also growing and represent significant market opportunities. Brave can be successful even just by capturing a slice of the total addressable advertising spend. Advertising platforms over time become either underpriced or overpriced for attention. The BAT ads platform is simply a new way for advertisers to reach consumers and greatly benefits early adopters. If over time, advertising shifts from being viewed as spam to a more complementary and less intrusive service for customers, we may see increased spend by advertisers.

The top 10 leading ad-selling companies accounted for a staggering 75% of internet advertising revenues in Q4 2018. To win a sizeable market share, Brave needs to effectively sell its value proposition to advertisers ranging from small to large over the course of the next years.

In the past few years the % of time spent on mobile vs. desktop has changed dramatically. This has subsequently led to ad revenues for mobile flipping desktop from 2015–2018.

Digital usage in the US alone was up 20% and the overall market continues to climb as ad dollars chase consumers. I expect we’ll see changes in the types of ads that resonate with consumers. Over time advertising will continue to develop and shift towards more immersive experiences. Remember, when consumers are happy, advertisers make money. Minimizing intrusion and inviting participation will be a key theme. Private ads delivered directly to users through BAT ads platform will provide agencies with the opportunity to get creative with the playbook and make the most of valuable user attention. Think of private ads as a blank canvas for advertisers to serve as artists and deliver their most creative work on. Continued advancement in AI and data analytics can also create more personalized experiences rather than simply a one way street of passive ad delivery.

Beyond the browser: Expansion of BAT SDKs

Every company in the world wants to bottle up consumer attention. As discussed in the white paper, the long term vision is the BAT platform being extended to other web browsers, chat/messaging applications, games, micropayments and other attention-economic apps via open source mobile app SDKs, connected TV SDKs, and tipping across multiple platforms. Development of BAT SDKs for the public has been mentioned to be slated for as early as 2nd half of 2019 but possibly later.

Integrating this BAT functionality such as privately-matched ads with revenue shares provides developers with a cut of revenue competitive to what is made on the app store. The BAT SDK will empower developers to increasingly serve as decision makers and better monetize their apps. This reminds me a bit of Twilio’s developer driven model around its APIs, which was able to scale quickly, resulting in an industry leading Sales & Marketing to Revenue ratio. In summary, developers will serve as a sales team for Brave, driving the BAT ads platform adoption.

— Brave has previously mentioned that a podcast platform is interested and waiting for the BAT SDK. Pay attention to what platforms are commanding the most attention. According to an industry report on the podcast ecosystem by Andreessen Horowitz, over 30% of Americans now listen to podcasts. Weekly podcast consumers listen to 6+ hours per week of podcasts and on average Americans listen to 7 podcasts per week. Digital audio achieved new highs of $2.3 billion last year, a 22.9% increase Y/Y. Podcast penetration is strongest amongst the 18–34 demographic, where the average podcast listener is young, educated, and affluent. Podcast ads score higher attentiveness measures despite the average podcast ad being longer than traditional ads. As on-demand consumption of customized curation grows, so will ad revenues and ad effectiveness measurement, which will give advertisers more confidence to invest in the platform.

Despite the explosive growth in usage, revenue lags behind attention. Still in its early days, podcasting is a fragmented market where a clear formula for steady revenues hasn’t emerged. Spotify has acquired major podcast networks Gimlet and Anchor after recognizing the need for a footprint in the space. Podcasts monetize at only $0.01 per listener hour, on average, $0.24 less than internet. The monetization problem results from there not being a method for aggregating cross-device data across different attention mediums in a private manner to optimize ad targeting. This is where I think Brave can differentiate itself with cross-device private syncing keeping data on device and leveraging the browser to reach the last mile (consumer purchase) through private ads/offers. Brave ads can help advertisers connect with the podcaster off of the podcast platform.

— The Alexa skills store reminds me of the Apple App store in its early stages given the increase in developer activity with thousands of new skills being built. However, sustained usage of skills outside of weather, music, and reminders is lagging. Voice e-commerce is an intriguing area but voice alone is not enough to create a better shopping experience than we currently have. However, I can see Voice e-commerce combined with display as another vector advertising dollars will go to as smart device adoption grows (Think Amazon Echo Show 5).

— Consumers are more receptive towards categories like AR & VR resulting in increased engagement. Although not mainstream yet, the two platforms will heavily contribute towards increasing the amount of available advertising inventory. For example, imagine looking at a billboard in an AR/VR world, and receiving BAT for your attention. It could even scale based on how on how long you look, since the headset knows you are looking. For VR-based training courses for surgeons and other fields, equipment manufacturers can show highly targeted ads. Other far out use cases could include brand engagements in VR music videos you immerse yourself into. We’ve seen a proliferation of product placement in TV shows and movies, next we’ll be seeing them appear in virtual worlds.

If Brave indeed proves the BAT advertising model, I can envision a gradual rollout of a suite of privacy oriented products and services for the consumer. We could some parallels to Google’s family of products, except this time Brave’s open source approach and privacy focus by design may actually enable it fall under the “Can’t be evil” moniker like Google failed to do. As consumer demand for control of user data and privacy data grows, we could see BraveMail, BraveTube, Brave VPN, Brave Chat, etc. with the core feature across the suite of offerings being opt-in by design rather than opt-out. Users take back control of their data across technology platforms they use.

Competitive Landscape — Advertising & Browsers

Brave is a highly ambitious project competing in an industry dominated by Facebook & Google. Inspired by Jason Kint’s thread, I’ve updated the chart to reflect Google & FB’s dominance in Q4 ’18 with share of growth of incremental ad dollars coming in at 84%.

Sources: IAB, 10-K/10-Q filings

Brave is attacking Google’s revenue source directly, using as much chromium code as possible. The growing digital advertising industry is large enough already to the point where a multitude of winners can co-exist long term.

The distrust of Facebook and Google is at all-time highs. It took years to build up trust and just a series of bad decisions to lead to a quick erosion of consumer trust. Non-compliance continues to drive up impact reputational, legal, and market risk especially with GDPR in play.


Assessing Facebook’s Q1 ’19 earnings call, there a number of factors contributing to the forecast of revenue growth rate declining sequentially in 2019.

1) Since the adoption of GDPR in Europe, number of opt out users are increasing. This is leading to a decrease in content consumption from sites and apps, resulting in less relevant ads.

2) Changes mobile platforms are undergoing are making ad targeting and measurement more difficult.

3) Own product changes, implementation tool for clearing off browsing history, restrictions for certain targeting criteria.

Back in September 2017, Brendan actually spoke at FB headquarters regarding Brave and its privacy-oriented advertising approach. Since then a lot has changed with Facebook re-writing its own narrative and working to develop revenue streams outside of advertising. Zuckerberg is pivoting his firm towards a more privacy oriented business model with it’s new financial services subsidiary, Calibra, which aims to focus on banking the unbanked. He has mentioned before that with Facebook and Instagram serving as discovery platforms, the next step to get to the consumer purchase point would be integrating private communications with businesses, giving users the ability to make payments through Messenger and WhatsApp.

If the Calibra model turns out to be successful, the next assortment of use cases could create increased competition with Brave. Although not explicitly stated in the Libra whitepaper, Facebook might eventually extend beyond payments and integrate Libra into its ad platform to reward users for viewing ads and sharing ad-revenue with publishers. Facebook’s massive network of over 2.2 billion MAUs and 7 million advertisers across its products is its biggest edge over Brave. Also if FB were to try and copy Brave’s model, the ecosystem would only be within the FB family of products, whereas BAT will extend to wherever the BAT SDK is implemented. Thinking bigger picture, Facebook following Brave’s lead on the ad rewards angle would further validate Brave’s business model and catapult the whole concept of rewarding users for their data to the mainstream. To add to this trend, Block One is launching a blockchain powered competitor to Twitter that will reward participants for engagement using tokens that represent a portion of the ad revenue.


Chrome is the dominant browser by market share at 62.7% as of May. Historically we’ve seen that browser market share can shift quickly. Google Chrome overtook Internet Explorer and Firefox as the #1 browser globally in less than 4 years. I believe two primary catalysts leading to a decline in Chrome market share will be 1) Manifest V3 and 2) EU’s ruling to force Google to offer choice of search engines/browsers for both existing and new Android users.

  1. : — In late May, Google announced that it will be restricting ad-blocking Chrome extensions to just enterprise users. With this move it’s addressing the revenue concerns regarding content blocking as outlined in its 10k filing. However, in the process it is alienating the Chrome users who’ve gotten by with ad-blocker extensions, setting up another great opportunity for browsers like Firefox & Brave to convert disgruntled users looking for an alternative.
  2. History repeats itself. Anti-competitive actions as it relates to browsers are not new. In 2009, Microsoft and the European Commission reached an antitrust settlement that called on the company to offer Windows users in Europe a choice of web browsers instead of pushing them to Internet Explorer. It turns out that Microsoft didn’t offer those choices to users for more than a year, culminating in a fine from the European Union in 2013. Recently, Google’s practices around reportedly forcing manufacturers to preinstall certain Google Apps on Android devices have been deemed anti-competitive by EU regulators. Google now has to suggest a number of browser and search alternatives for Android users in Europe.

Google generates revenue primarily by selling online advertising over its sites and its network member sites. Over 85% of Google’s 2018 revenues came from advertising at $136 billion. Google Network is the network of third parties that use Google advertising programs to deliver relevant ads over their sites. Revenue from Google Network advertising amounted to $20 billion.

The most comparable product to Brave’s ad platform is Google AdSense. For displaying ads with AdSense for content, publishers receive 68% of the revenue recognized by Google in connection with the service. 68% of the recognized revenue is much smaller thanks to the ad-tech tax that publishers pay today. Middlemen’s fees eat upwards of 60% of every dollar spent on programmatic ads according to marketing intelligence firm Warc. Brave offers a better deal as it eliminates the need for middleman in the supply chain, allowing it to give 70% of ad revenue to publishers.

Even Google’s search business is under threat. People used to begin searches on Google but now if they want a product they can just start on Amazon. Prime members have little incentive to look on other e-commerce sites. If my blender breaks, I can go straight to my Amazon mobile app and order a replacement in under a minute and have it delivered within 24 hours. Ad budget allocation should and will be adjusted accordingly based on this type of consumer behavior as it scales. On the search engine front, Google remains the clear leader but alternatives like DuckDuckGo, a privacy-oriented search engine that’s partnered with Brave, are seeing excellent growth.

Keep an eye on Amazon

Out of the major players in advertising revenue, Amazon is probably the most overlooked. Known for its ability to enter any industry and capture market share, the firm is still primarily focused on growth rather than beefing up its margins. With the expansion of the Amazon network comes a rich set of consumer data which is becoming more and more valuable given the rise of e-commerce.

Amazon recently acquired Sizmek’s ad server giving it the second-largest ad server footprint. The more visibility on consumer behavior the bigger boon to its ecommerce functions. This pits Amazon directly against the Google’s ad server business. The firm is reportedly working on a cloud-based product that can target/measure Amazon’s user data without data leaving the platform.

Opportunity: I can see how a Brave + Amazon partnership could create synergies. I’d imagine that Amazon would first run private ad trials to get an understanding of what to expect. Brave blocks 3rd party ads and trackers, but it leaves 1st party ads untouched. It would show commitment to consumer privacy in the eyes of the regulators while simultaneously supporting a direct competitor to Google. Ad trials leverage rich consumer purchasing history with browsing history to deliver even more highly targeted ads while maintaining user anonymity. For Brave, there’s an opportunity to cross-sell the existing Prime users onto the browser. Amazon surely is monitoring the mess that Google & Facebook have gotten into and can signal to regulators it’s serious about user privacy with a Brave partnership.

– The browsers of the future will be privacy oriented and contain web3.0 capabilities. As of today, Brave is the only browser on the market that combines both privacy and the monetization feature. Plans to implement web3.0 technologies are in the works (Brave fork of Metamask, IPFS, DAT). It’s still early with Brave market share at <1%, a drop in the bucket. Per the team, other browsers have already expressed in the BAT SDKs. Brave’s focus on UI similar to Chrome at the start with the differentiation over time is by design to aid in a user’s transition. It lowers switching costs by allowing users easily import over bookmarks, saved passwords, etc. from the prior browser.

Brave & BAT — Deep Dive

Analyzing ICO & Token Distribution Over Time

At a surface level, the headline of “BAT ICO raises $35 million in 30 seconds” sounds like a massive success, but it resulted in an uneven distribution of tokens. A few whales spent thousands more on transaction fees to be prioritized by miners (Example: 2k transaction fee). They were able to adjust the gas price to pay a higher amount for computation performed to essentially cut the line. Only 130 investors got their hands on BAT in the ICO.

A fixed supply of 1,500,000 BAT tokens was created at genesis. From that, 300 million were designated towards the BAT User Growth Pool (UGP) and 200 million towards Brave for BAT development, contingency, marketing, contractors and administrative expenses. The BAT team lockup wallet address is down to 2.25m BAT. As of 6/19, 84.6% of the supply has been issued with 1,268,938,630 BAT in circulation. The BAT UGP address now holds 228.8m BAT ($80m in USD) which provides ample ammo for the marketing campaign around the v1.0 launch and on-wards. With the inflation rate at 15.4%, I expect the UGP release into the supply to accelerate as the network grows.

Glassnode, an on-chain market intelligence platform, released a detailed report providing valuable insights into the on-chain distribution of BAT. They confirmed that as of April 4th, the distribution of BAT tokens was still largely controlled by a minority as shown by the calculated Gini coefficient of the distribution of addresses at . The Gino coefficient measures income inequality within a population and in this case is applicable for ownership of BAT vs. total circulating supply.

Since the ICO, BAT ownership has remained heavily centralized meaning that a small portion of individuals can have a large impact on the price of BAT. The combination of increasing BAT addresses, BAT Rewards, and the steady release of the remaining tokens from the UGP into the circulating supply, should slowly dilute ownership % and contribute to the spread of token distribution.

Some of GlassNode’s key findings indicate:

· top 0.01% addresses hold 30% of BAT

· top 0.1% addresses hold 70% of BAT

· top 1% addresses hold 87% of BAT

· top 5% addresses already hold more than 94% of all BAT


The less rigid a company’s governance structure is from the start the easier it is to succumb to greed, leading to decision making based off maximizing profits. Look at what happened with Google, so much for “Don’t be evil”. Although some of the largest companies today have gotten by through grading their own homework, the next generation of disruptive companies won’t have the same luxury. The shift towards open source is changing the playing field.

Brave Software is a private company and just like any other company the decision making is done at the management level. Its actions are then evaluated by the public marketplace. Brave’s commitment to transparency and open dialogue thus far with the regulators has been a welcome sight. The AdLedger consortium it’s a part of will help to build and implement standards for blockchain-based digital advertising from a clean slate. One the open source BAT SDK is rolled out, trade groups like Digital Context Next could govern the use of BAT powered-ads beyond Brave.

The commitment to open-source, flows on the public blockchain, and transparent governance, puts Brave in the spotlight to the public eye where unlike with prior companies, changes will be visible for all. For example, Brave will be able to verify the share of claims it takes and prove that it gives 70% of share to users.

Technology Overview

What gives Brave an advantage with its in-device machine learning is the data feed quality. Browsers are very valuable in that they provide insights into navigation, tab clusters, scrolling of content, etc. When onboarding users, information voluntarily provided about demographics and brand loyalty stays on the device. Cross-device attribution in a secure manner without any data at risk on servers will be possible.

“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.”- From BAT white paper

The transition from the traditional CPM/Click-based model that has viewability problems to the attention-based BAT system with attribution via attention score and perfect delivery certainty should create efficiencies for digital advertising. User engagement through genuine feedback mechanisms through the browser ensures that users that have opted in for BAT are getting the best product match that is most likely to convert into a transaction. To place ads in user-private slots from the ad catalogs, the on-device machine learning model will leverage user intent signals which can range from search queries, surfing, researching, and to purchasing. Advertisers will pay different amounts of BAT based on regional demographics. The end goal is a process leading to high-quality relevant ads that are impactful for advertisers with minimal effort on their part and less bothersome for the user. The browser sees all interactions between the user and the web giving it a more accurate picture of interactions compared to a standalone search engine.

There is an ad-blocking arms race going on between publishers and ad-blockers. Brave’s research team has developed AdGraph, a graph-based machine learning approach for detecting ads and trackers on a given website. In today’s system, crowd sourced filters used by state-of-the-art ad blockers can be handily evaded using techniques designed to confuse them. Traditional filter lists are manually curated and run into maintenance problems. AdGraph blocks ads and trackers with 97.7% accuracy. An effective ad-blocker is vital given that publishers and advertisers have the same financial motives in regards to evading ad blockers.

Paradigm Shift in Advertising

A popular industry-wide belief is that the only way to target particular niche demographics with advertising is by tracking users and collecting their data. Brave is proving this is not true and challenging traditional digital advertising.

— When you land on a website like Yahoo, it has numerous ad slots. The external ad server has private information (such as your browsing history) as it’s been tracking you across the web. Your privacy is getting violated as third parties have this user data and tracking on you via cookies. This data is aggregated and the server leverages it to perform matching which determines what is displayed to the specific user in the ad slots. The external models are far from efficient even today. For example, they still aren’t able to track transactions well enough to avoid serving ads for products users may have already purchased. Do you think user profiles based on aggregated 3rd party information scattered across the web can really be more accurate than a user profile created from a cross-device profile using client-side encryption at the browser level?

: With BAT, there is a change to the fundamental approach in delivering ads. BAT actually eliminates the need for third-party tracking and middleman by matching ads “client-side”. The browser itself (Client-side) will match ads and deliver ads. If you open up a publisher site, publisher ads (Ex. a banner on a website) will be injected by the browser itself when loading the page. The browser will contain all information necessary for matching ads to you and this information is held on your device only. At no point is an external ad-server contacted for matching. You never had to reveal personal data and more relevant ads were tailored to your interests. This transparent ad delivery approach rewards for users for their attention while shielding their identities and protecting their privacy. The same applies for private ads.

Value Proposition, Utility, & Functionality

As Brendan says, “Who owns your attention? Who owns your web browsing experience? Who gets paid? If not you, then you are the product. Time to get paid”. Users get rewarded for browsing the internet with a faster and more privacy oriented browser while earning BAT based on their attention. With time, category controls for advertising and other personalization features will be implemented.

Long run, BAT can be used to reward content creators, purchase products/services/subscriptions, apply towards discounted products, etc. An example of a BAT use case could be a scenario when an advertiser runs an ad for a product in Brave, user pins it to a dashboard, and then applies accumulated BAT as a discount toward the product purchase price. This would be similar to an Amazon prime in the browser. Another idea that’s been brought up is ads that create high value leads. Brendan offered an example of an ad for a test drive at a user’s local Mercedes dealership. If one follows through with the appointment, Mercedes would be willing to pay $75 for the lead. With the 70% revenue share for users, that’d be a reward of a $52.50 for a single engagement.

— Users take back control of data and have the freedom to adjust the sliders on their browsing experience.

Purposefully designed for a user to have a seamless transition from a browser like Chrome. In order to disrupt highly concentrated industries, the entrant must find ways to reduce the switching costs. Import all bookmarks/passwords and shortly syncing across devices will be available.

In 5–10 years, the surviving cryptocurrencies and corresponding blockchain infrastructure will all be invisible to users on the front end. Evaluating Brave and BAT today, the intuitive design of the browser and integration of its native token help with the on-boarding process. To successfully use the product, the user doesn’t have to understand the machine learning layer, how the built in-ad blocker works, the constant updates to the Chromium codebase, and when BAT is on-chain vs. off-chain.

Source: BAT White Paper

Publishers: Receive 70% revenue from publisher ads and additional revenue from user tips, reinforcing brand loyalty. Brave proposes a solution to the 600+ million phones and desktops running ad-blocking. Every ad-blocking user converted to Brave opt-in rewards is incremental revenue from 0.

Advertisers: They benefit from the transparency on the ledger as spend and smart contracts to enforce campaign requirements.

Source: Upwards of $220 by 2020

Earnings (Continued): The $70 estimate falls within the ballpark of what an average user would make with today’s payout (.05 BAT with BAT valued at $0.34 cents). There is a limit of 20 ads per day with up to 5 per hour.

Functionality: Ad rewards are live for desktop browser only in the following regions: US, UK, CAN, FRA, and GER. Mobile ad rewards are in the developer channel and the team plans to open rewards to the remaining geographies by EOY. Desktop tipping is live as well. In regards to the two way wallet, Brave is forking MetaMask, customizing it for Brave, and then integrating it into the browser. On the product front, Brave has partnered with TAP Network, which will enable users to spend BAT at over 250,000+ merchant partners.

Privacy — ZKP protocols

If Brave did everything on-chain, then the whole purpose of the project would be defeated as essentially every Brave user would be fingerprinting themselves on the project. You could look around in Etherscan to figure out someone’s browsing and tipping history. This is where Zero Knowledge Proofs (ZKP) come into play. In short, ZKP is a means of doing authentication where party A can prove to another party B that party A knows a value X, without conveying any information aside from the fact that party A knows the value X. These ZPK protocols mathematically guarantees anonymity and user privacy. There is no way to associate contributions with individual user wallets and no way to deduce browsing history.

Brave contribute for rewarding publishers, utilizes the ANONIZE2 ZKP protocol. To summarize what this means, Brave can’t tell which publishers you contributed to, only that someone contributed to the publisher.

Brave ads utilize the blind tokens ZKP protocol inspired by Privacy Pass, for ad confirmations for advertiser’s analytics. Brave is not able to tell which ads you viewed, only that you were paid based on the right # of ad engagements. Only categorical data is sent to advertisers, keeping user data safe. This is quite the contrast from what we have today, where a profile on each individual user is built out by aggregated 3rd party information. Brave is reshaping traditional advertiser dashboards by building out ZPK protocols for analytics.

Fraud Prevention

Ad fraud in my opinion will always be a non-zero amount. The BAT platform has proprietary fraud prevention technology designed to mitigate the fraud risk. With ad delivery done at the browser level, the advantage the BAT ads platform has is that it guarantees delivery certainty and produces accurate attention based metrics Basic Attention Metric (BAM). KYC, rate limiting, and ZKP ballots can help to current attempts at attention fraud.

The secular shift to advertising spend on mobile should make preventing fraud easier. If the BAT model proves to be successful on the browser, when the BAT SDK scales to others apps proper limits and anti-farming tech need to be enforced on mobile as well. Given mobile devices have secure built-in features built in like TrustZone, Brave can make sure the binaries running are real and increase confidence regarding whether or not the phone is real or virtualized, and check for rootkits.

Currently, Brave is in a tricky situation as it is leveraging part of its user growth pool (UGP) to give out BAT grants for users to tip creators and grow the ecosystem. Although it can spur awareness and bring in new users at low cost, it’s brought about lots of people looking to game the system by creating dummy sites/channels without content to collect BAT contributions. Also they’ve been installing multiple copies of Brave to claim more than 1 grant. According to the team, Brave has already suspended thousands of accounts as its first layer of defense flags suspicious activity such as a publisher account with minimal subscribers/views “receiving” tons of BAT tips. Luckily the grants will be only offered via the growth pool and not after depletion of it. On the payout dates of every month, you can visit the community support page where you’ll see a flood of “Admin, why was I suspended?!” posts. If Brave were to suddenly introduce a 2-way wallet while BAT promotional grants are ongoing it would trigger an even larger number of this type of audience.


BAT is an ERC-20 token built on Ethereum, which is the Layer 1 infrastructure, securing the chain against 51% attacks. Many blockchain projects are processing more transactions but at the price of sacrificing security or decentralization of the network. A layer 2 asset (BAT) is only as secure as the Layer 1 solution it’s built on. Think of it as the Layer 1 keeps things that are valuable and Layer 2 is where the action happens. Ethereum has a first mover advantage with a moat of developers and tons of legitimate companies like E&Y building on top of the network. From a security standpoint, Ethereum is in a strong position as the clear #2 in Hash Rate after BTC.

Business evolution: Semi-Centralization to Decentralization

In today’s industry, a lot of emphasis is placed on decentralization but it is not always the optimal solution to start with. Brave is playing the long game and focusing on building the core product and maintaining a flexible model to allow a transition from centralized to decentralized state over time. The aim is to become the first decentralized ZKP anonymous funding model for the web. There are several reasons why Brave started out with a semi-centralized custodial wallet system:

Educating the masses on blockchain takes a lot of time and effort. Mainstream users and publishers do not know how to interact with the blockchain directly, so Brave offers custodial wallet services like Uphold that make it easier for them. This would be similar to having account with Coinbase.

Scaling is an industry wide-problem faced by a lot cryptocurrencies. At the rate Brave users are growing, doing everything on-chain would likely cause scaling issues give the TPS limitations. The micro-transaction of tipping BAT occurs on a centralized ledger, the service’s database level. In the short term, these transactions are being done off-chain as the project grows but the team has an eye out for decentralized off-chain solutions, such as Plasma. A takeaway I got out of a recent Layer 2 scaling event is that the majority of developers are in agreement that there will be a convergence of layer 2 protocols over time to reach something closer to an industry standard. Brave can afford to stick to its current system while it waits for scaling solutions to develop.

If Brave did everything on-chain, then the purpose of the project would be defeated as essentially every Brave user would be fingerprinting themselves on the project. On Etherscan, you could figure out someone’s browsing and tipping history. This is why ZKP proofs are used.

Evaluating the Durable Competitive Advantage (Moat)

One of the beauties of the industry is that the code driving the crypto networks is open source. We have seen these lead to numerous forks of cryptocurrencies based on different visions for the future. BAT on a standalone basis is just another ERC-20 token that can easily be forked. The Brave Browser itself is open source and Chromium based. It can be forked as well although you would need sufficient resources to keep up with code base changes.

You can fork BAT, but you can’t fork the service that’s been built around it. Brave Software has a first mover advantage as it’s built out an entire digital advertising ecosystem around its native token, BAT. It’s growing network of over 1.95m Brave DAUs, 171k verified publishers, 1,300 advertisers (active +waitlisted), and alliances across the industry will only strengthen the value prop of the ads system.

Growth Metrics

Brave must first capture a sizeable browser market share and prove the BAT model on the Brave browser to advertisers before scaling BAT ads to other browsers and apps via the BAT SDK. On-site publisher ads are another big piece that is still to be added. As Brave rewards are opt-in, Brendan has previously suggested that ~15m MAU at an opt-in rate of 50% equating to ~7.5m MAU should be enough to test and prove the validity of the ads model. This is a significant enough sample size with diverse user demographics. The latest Brave Rewards opt-in rate for desktop was 40% and that number was based on just the test ads version prior to April 24th launch. The opt-in rate is a crucial metric that will determine the speed at which BAT becomes successful.

The 3 main cogs of the BAT ecosystem (User, Publishers, and Advertisers) must all receive a net benefit for long term sustainability. The long term success for BAT will be judged by the ROI advertisers get from BAT ads. User’s attention will finally properly be valued and the amount advertisers pay for this focused attention is a key metric to look out for. The % of the global advertising spend BAT captures will determine the magnitude of BAT’s success. The % of users that opt-in to Rewards to go along with overall user growth rate will determine how quickly Brave builds on its first mover advantage and extends beyond the browser.

As the # of Brave users and # of Brave publishers increase, we should expect positive network effects from Metcalfe’s Law and as the overall # of users opting in to Brave rewards increases, BAT ads become a more attractive option for advertisers. Growth of Brave users means gain in market share among more elite users that are economically valuable for advertisers. The team has provided periodic updates on MAUs but will be shifting focus towards DAUs moving forward.

I tracked down the publicly announced Brave MAU figures since Jan. ’18 and leveraged Etherscan to plot the flow of BAT funds out of the UGP contract address. Note that BAT flow out of the growth pool address doesn’t necessarily equate to immediate spend. Around the time of the latest MAU announcement of 5.9m in late March ’19, Brendan stated on Twitter that Brave aims to achieve 10m MAU by mid-2019. Assuming a monthly user growth rate of 11%, which is almost double the average rate of the previous 4 months, 10m MAUs would be reached in early August. The 11% was derived from assessing short term growth catalysts and taking the conservative approach to Brendan’s estimate.

During the bear market in 2018, Brave MAUs were primarily driven by strong organic growth as spend from the BAT User Growth Pool remained muted for the majority of the year. The uptick in Q4 2018 leads right up to the Brave test Ads launch in January. In 2019, we’ve seen a push on the gas pedal in spend in tandem with major updates like the launch of the ads platform. A $10m USD equivalent in BAT releases like the Coinbase Earn program, sponsored content, Phase 1 and user grants are few of the main uses of the growth pool that come to mind. Ad integrations for Android and iOS are coming soon and will boost mobile download growth. Favorable market conditions are aligning nicely in time for the marketing push. The big reveal aka the launch of v1.0 sets up Brave as a prime candidate to go viral.

With a free account, I’ve tracked down the daily ranks and rank history of Brave. My takeaway is that major releases with sponsored content are working. For example, on April 24th the date of the ads launch, the iOS app rank in utilities category breached top 100 at #98 as downloads spiked.

The rank of has risen from 40k to 12k YoY. This rank is calculated by using a combination of average daily visitors to the site and page-views on the site over the past 3 months. The site is the go-to source for direct Brave downloads and has a strong indicator of user growth.

Maxence Cornet has created to track verified Brave publisher growth across supported platforms by leveraging BAT’s official API, which is the same source the browser gets the publisher list from. Brave recently added Twitter publisher support in the developer channel and other platforms like Reddit and Vimeo are in the works as well. Publisher growth on all fronts has been strong. That being said, I analyzed the quality of publisher accounts on the YouTube side and found that 55k (42%) of them have <= 1 Total View. The takeaway here is that in the crypto industry you need to focus on the quality of metrics and not quantity. The growth of the quality publisher accounts with large reaches is far more important to me than the publisher growth rates across the publisher platforms. This can be tracked by following the batgrowth Twitter bot which only tweets when sizeable accounts join Brave.

On Etherscan, we are already seeing highs across the board surpassing a multitude of metrics from the previous bull run.

Following the team’s Brave Github roadmap is essential for keeping up with the team’s priorities in development and BAT integrations. As Brave is open source, developer activity once the BAT SDK is public will be a good area to place focus on. The Brave team follows a rolling thunder approach as it carefully builds the browser and corresponding ads platform. Leading up to the ads launch on desktop only on April 24th, BAT experienced a massive run up from February lows of $0.128 to a short-lived high of $0.49. Given the detailed Brave Roadmap and release schedules on Github, the 0.63x release on the 24th was a highly anticipated event resulting in a sell the news situation at a time when market sentiment wasn’t as strong as it is today.

Early adopters discovering Brave get access to an untapped marketing channel. BAT ads are still new so there aren’t many public metrics to go by for now. The advertising platform won’t magically surpass traditional players overnight, but all of the ingredients are there for it become successful over the next few years.

Phase 1 FromJan. 15 to Mar. 6brands, marketers, developers, and community tested Brave Ads from Brave Ads Developer ChannelA total of over 450 ads were trafficked in phase in 1.53 campaign commitments were made in phase 1 with 25 active in rotation and 23 campaigns pending assets to serve. Campaigns varied from co-brand, direct-to-consumer, causes like nonprofits, and research. The funding mechanism for Phase 1 was BAT payouts funded by the UGP, which increased the circulating supply.

Phase 2 The ad-platform launched on April 24th and within a short time frame, Brave announced it already had 1,300+ advertisers were on the wait list. The early adopters are primarily crypto-focused but as the user base expands, we’ll see a more diversified group of advertisers. For example, Vimeo, HomeChef, Slack, Barron’s, and Indochino are a few advertisers already onboard.

Bread Crumbs — Major advertisersBack in mid-2018, Brendan gave a presentation in Seoul where he dropped another bread crumb around the types of companies that were trialing Brave ads at the time. He referenced a slide with Amazon, McDonalds, American Express, and Nike, and mentioned, “Some of these might be brands that might be in our trials. I will leave it at that”. It’s promising that this early in the company life cycle, Brave has repeatedly demonstrated the ability to draw interest from large advertisers in the space. A notable early adopter is Proctor & Gamble, one of the leading advertisers by spend at $7.1 billion in 2018. P&G is in talks with Brave and has ads “on deck” per Brendan on Twitter. Proctor & Gamble has publicly expressed concerns over the state of advertising. It remained the top US advertiser in 2018 increasing spend by 4.7% to reach $2.9 billion. Its focus is on mass one-to-one brand building fueled by data and technology, and aligns with Brave’s model of delivering private ads to users.

: With such a massive interest out the gates, the BAT ads platform is comparable to AdSense during its early stages. Except this time around, publishers receive a larger share of the revenue and advertisers get a clearer summary of where their dollars actually go. “By providing website publishers with an effective way to monetize content pages on their sites, Google AdSense strengthens the long-term business viability of content creation on the web.”, said Sergey Brin co-founder of Google back during the AdSense launch in 2013. Sound familiar? Brave aims to do it bigger and better.

Right now BAT is earned simply for impressions via private ad notifications but payouts will become differentiated over time based on levels of engagement with the ad measured by the Basic Attention Metric (BAM). We can see the rate user attention is valued at by assessing the USD value of the average BAT earned per ad. Once both Brave and early adopters provide more visibility on ad results we can get a better take of how the click through rate on ads and additional engagement compares vs. traditional advertising. In the near term, I’d expect the metrics to be skewed early on towards high engagement due to excitement around the new system. Brave will be implementing a ZPK analytics dashboard for advertisers, promoting transparency and providing valuable insights.

Addressing frequently asked questions:

Initially, BTC was used in the Brave Browser but Brave decided to move on from it as it didn’t scale, was inefficient, and users saw high transaction fees. The Lightning network is not ready yet for the masses. The BAT ICO was used a fundraising mechanism to bootstrap growth as seen with the UGP. Branding is important for participants of the ecosystem. At its core, BAT is meant to represent a unit of attention. By using BTC or any other existing coin, external events associated with the coin would impact the price. One could make the argument that Brave should have used a stablecoin but at the time of launch stable-coins weren’t a thing and the ICO fundraising mechanism without giving up equity in the company made financial sense. The decision to switch to an ERC20 token from BTC has proven to be the right one thus far based on early results.

KYC against ethos of cryptocurrencies?

KYC is required by law for those who withdraw to cash out. Advertisers want to deliver ads to real people with real browsing. For Brave, Brave publishers and only those users who wish to cash out must go through KYC. Note that you are not doing KYC with Brave, which has no interest in obtaining peoples’ information. The current solution is Uphold whose KYC process is similar to that of Coinbase. Brave is looking to add more vendors soon. The concerns over KYC are overblown at this stage especially when there is no decentralized KYC solution that is proven to work at scale for the masses today. Brave has partnered with Civic to push forward its efforts with decentralized KYC. Brave doesn’t have to build out a decentralized KYC identity solution from the ground up. It can wait on the progress of Civic and evaluate other options, ultimately choosing the most viable solution.

You can use Brave Rewards without KYC as long as you aren’t trying to withdraw funds from the platform. The in-browser BAT wallet is a custodial wallet with Uphold that requires no registration and is anonymous as it leverages public key cryptography. With your earned BAT, you can tip content creators and later on fund subscriptions or purchase products. One of the main complaints today is that the 2 way wallet hasn’t been implemented leaving users frustrated that they can’t withdraw earned BAT. Brave is working to have this available shortly. It needs to be done in advance of the v1.0 launch or the complaints will grow tenfold.

Risks & Headwinds:

Volatility risk –Brave is not planning to guarantee publisher payment in fiat but won’t rule it out if the publisher is deemed valuable to the ecosystem. It plans to use part of the UGP as a hedge to relieve publishers if the fiat amount goes down. Note that Brave does not trade any BAT directly. The volatility of BAT is a risk for advertisers as well.

Ad bias and safety control — As the ad volume scales, how will Brave avoid the same issues that Facebook and Google have around suppression? Brave could leverage a machine learning layer that funnels into human review. Other utility for BAT may emerge where people help review ads and earn BAT for it. This is a tough problem and further decentralization is likely needed.

Scaling Concerns — Brave is comfortable with Ethereum but in the case where any alarm signals arise, it would look into other alternatives. Scaling solutions are on the horizon with Ethereum 2.0. To address future volume, Layer 2 scaling solutions like the Plasma implementation are being closely followed. Other solutions like payment channels are considered as well.

Runway — Brave is reportedly looking to raise $30 million in a Series A funding round. This should help them with marketing efforts, resourcing costs, and ramping up the infrastructure/staff as they prepare for the v1.0 launch. To clear up misconceptions, the round is involving Brave’s equity and not the BAT tokens. There will be no change to the BAT supply. Brave only recently started charging advertisers for the BAT ads platform and is in the early stages where the revenue from these ads isn’t meaningful enough to fund Brave’s operations.

Fraud –It is likely that AI bots will be created to browse the ads site and earn BAT instead of a real human. Brave has accounted for this with its proprietary ad fraud prevention tech. The team conducts a settlement analysis of flows and looks for fake sites and accounts receiving grants from bots. Account suspensions are abundant even in the early stages. Buffering is done on device until reconciliation via ANONIZE. Given Brave controls the UGP, it can retrieve them back if fraud is detected. Note that user self-funded contributions are excluded. As for advertising, the same settlement analysis is leveraged with additional private measures to detect threats. I’m hoping a mechanism like rate limiting is implemented to deter low income demographics seeking to game the system. Over time, as a more varied audience joins, we should see a more normal distribution of users.

Education — Advertisers do not care about cryptocurrencies at all. Instead of spending the time & resources to educate the target audience about the space, instead Brave is taking the angle of building a product and service so easy to use that minimal knowledge is needed. Across its efforts to grow users, publishers, and advertisers, and build the browser, the common denominator is efforts to reduce friction. Despite this, it will take tremendous effort and time to on-board millions.

Code vulnerabilities — Brave is open source and can be forked but there’s a lot more complexity behind the scenes. Maintaining updates to Brave itself and the underlying Chromium code base takes up time and resources. You need to be able immediately respond to critical vulnerabilities in a timely manner. Back in March, Google urged Chrome users to immediately update browser to patch a zero day vulnerability that was being exploited by cybercriminals. Brave was able to pump out their own release quickly as they track chromium stable closely. Any large scale issues could lead to churn and deter new users from joining.

BAT Tokenomics

In this section, I’ll dive into what why has BAT value now and how will it capture value in the long run. First let’s back out and examine the participants in the BAT ecosystem. Brave is tying its business model to the user winning or at least the very least on par with, Brave winning. Brave’s payout will never exceed user payout.

Chris Burniske’s report on Value Capture & Quantification is a valuable resource for better understanding crypto classifications. As Chris mentions, the digital world has enabled perfect hardness to be achievable, which is the optimal hardness for a Store of Value (SoV). The hardness of a commodity is determined by the ability to change the inflation rate of a token. BAT representing the commodity, attention, will by definition achieve perfect hardness once the remaining supply of 15.4% is released. Per the BAT genesis contract, it’s impossible for more BAT tokens to be created.

BAT is not a cryptocapital asset since holding it does not provide an ongoing source of something of value (Expected returns). There is no mechanism to generate yield and there is no stake-based supply side coordinator. Instead, BAT fits the bill of a Consumable/Transformable Asset (C/T) because it has economic value, you can consume it, and transform it to another asset. I’ll make the case that it is the hybrid of a C/T and SoV asset with focus on primarily the C/T asset side. A hybrid structure results in a longer average holding period. Today we have stores of value like gold, silver, real estate, and fine arts. Why can’t there be multiple digital SoV in the long run with varying degrees of dominance? Although BTC is best positioned to be a SoV followed by Ether, could BAT be a tertiary liquid SoV given its hardness and value derived from the commodity, a unit of attention? If the BAT ads model is proven successful, the token will always have a form of value due as it would become the de-facto currency for unit of attention.

In a world where a handful of SoVs exist, BAT may serve as a good area to diversify wealth in due to the commodity and SoV overlap. Regulatory changes only strengthen Brave/BAT’s argument while hampering its main competitors’ business models.

- In the near term, price for all cryptocurrencies will largely be driven primarily by speculation and adoption. I agree with the majority in that token velocity is the primary reason why most utility tokens will not capture value in the long run. Scott Locklin has refuted this in his paper, the Effect of High Velocity on Utility Tokens . BAT token velocity should increase over time as 1) the main layer Ethereum scales/increases throughput, 2) the opt-in Rewards user-base and ad volume grows, and 3) payout speed of BAT settlements increases. However, the plumbing system of BAT is constructed differently than other utility tokens, hampering velocity relative to other utility tokens. In the next few years, it will be out-weighed by buying pressure from investors and a growing number of advertisers. As stated in Section 7.3 of the white paper, the value of BAT will become increasingly dominated by the transactions than future expectations of utility.

I’ll now dive into the factors affecting velocity sinks with BAT. The payout settlement for publishers & users is currently only 1x a month, creating a tailwind in the near term due to less frequent sell pressures. Once the ads ecosystem is mature and more BAT use cases are integrated, utility & transactions drive the price.

I charted out from a user perspective, the various levers each user controls in regards to holding periods for earned BAT.

Likely Low to High Holding Period Duration for Earned BAT by Use Case

Using micro-payments to unlock content is still an unproven concept where psychological friction has historically been a limiting factor. Publishers will be able to customize the sizes of micro-tips they can receive. We can look at Patreon as a comparable for tipping amounts. Monthly, the top Patreon creators average $2-$6 per user in user funded tips. Both tipping and unlocking content should be fairly quick user actions as they require minimal BAT.

It will take time for users to accrue a meaningful amount of BAT for the remaining use cases. Having to go through KYC is a layer of friction for users wanting to cash out. In today’s setup, we’ve seen the gamification of traditional points and cash back programs. Unlike how credit card spend by low income vs. high income users creates larger variances in rewards, there will be less variance in earned BAT rewards as there are limits in place. We’ve seen with credit card rewards that it’s psychologically more rewarding to cash out larger multiples than smaller increments. Applying the same to BAT, the same behavior creates less friction when compared to cashing out frequently. The demographic that is involved solely for passive income from BAT will likely experience longer holding periods than the power users contributing to the BAT ecosystem with small tips, etc.

Recurring subscriptions to go along with purchasing goods/services should have larger average payment sizes in BAT compared to other use cases. The impact here once again is a longer holding period of BAT. As more dynamic business models emerge, we’ll see more aggregation platforms personalizing and curating content as a bundling of services. Publishers previously solely relying on pure play advertising are trying to pivot to models with multiple revenue streams, with subscriptions being one of them. As with most crypto investments, there will always be long term investors holding and as the network grows, there is increased demand for a smaller supply, causing the price to rise.

– Despite strong publisher growth so far, monthly payments on the 8th are still small as expected given the ads platform recently launched. There haven’t been any noticeable price impacts around the payout date thus far. Similar to the example with users, it will take time for the small to mid-size publishers to accrue a meaningful amount of BAT worth cashing out. However, with compounding network effects over time, publishers are likely to cash out more frequently given larger BAT payments and to avoid volatility risk. The team has mentioned before that in time they will make settlement roll as often as possible, randomized if needed, to avoid sell pressure and gaming.

The payouts to publishers will consist of tips from user claimed BAT from UGP, user-funded BAT, and earned BAT from publisher ads which by the way haven’t launched yet. We won’t see meaningful sell pressure from publishers for quite some time. Right now advertisers are being carefully on-boarded and these early adopters are likely to be more cautious with ad campaign spending as the BAT ads platform is only a few months old.

To nobody’s surprise, most advertisers are very new to crypto and aren’t properly educated in the space. You may ask, if ad campaigns require BAT then how will advertisers seamlessly be on-boarded to the platform? Brave’s 3rd party buy side platform handles the invoicing and billing, along with the buyer preferences. An advertiser’s spend of $1k would be utilized as $1k USD equivalent in BAT on the platform. Throughout the entire process, an advertiser only needs to transact in USD which is an appealing on-ramp for newcomers to the space.

From the Brave terms of service, advertisers receive a Brave Ads Rate Card upon creating an account. Brave typically sends an IO for the advertiser to fill out, which along with the Rate card includes targeting options as well. When the Brave browser displays of the ads or processes any other Billable Event, it reports that Billable Event to Brave. Every month, Brave verifies and tallies the Billable Events associated with the active ad campaigns and issues an invoice. Full amount of invoice is to be paid within 30 days of receipt.

Advertisers that are early adopters benefit greatly. An advertiser could take advantage of price dips by loading up on BAT or even buy BAT for use far out, with the expectation that the ad campaign spending power rises as the BAT price increases.

Actionable Ideas

Outside the strong fundamentals of the project across all operating metrics, I’ve split out upcoming catalysts for BAT price by short, medium, and long term. The launch of v1.0 and the rollout of the BAT SDK for the public are the two biggest price catalysts for BAT.

(0–3 months)

o Full Android ads integration — Currently in developer channel

o Twitter tipping — In developer channel. Platform for raising awareness & social proof of Brave/BAT

o iOS ads integration — Capitalizing on shift to mobile browsing and ad spend

(3–6 months)

o v1.0 launch: Ramifications of the launch include mass exposure to the Brave browser and BAT Ads platform. It will be the largest Brave marketing campaign to date and will expedite the growth of advertisers, users, and publishers in the ecosystem.

o Partnership with site that has 80m ad-blocking monthly users: Given the site has a high ad-blocking demographic, assuming an ad-block rate of 25%, this equates to ~320m unique MAU. This was hinted at back in Nov. 2018 and I think there’s a decent chance the announcement coincides with the v1.0 launch.

(6–12 months)

o BAT SDK rollout for public use — This would mark an inflection point for the project as proving the ad model on the Brave browser would have other browsers and apps wanting to come on board to adopt BAT ads through BAT SDK integration.

  • The listed timelines are not official and are simply estimated based off the information I’ve gathered since covering the project

Wrapping Up

Brave Software was built on the principles of privacy and consumer protection. It was born out of a landscape shift towards privacy and putting the user back in control. As the control of data is placed back into the user’s hands, the level at which these privacy controls are toggled benefits browsers and mobile devices. Apple is pushing forward the narrative with their proposed ad technology (Privacy Preserving Ad Click Attribution) that privacy and innovation are compatible. Amazon is reportedly working on a cloud-based product that can target/measure Amazon’s user data without data leaving the platform. Browsers like Firefox and Safari are following Brave’s lead with 3rd party tracking and cookie blocking. Watch the narratives.

Investing in BAT is investing in a new attention-based economy where the user takes back control of their data and web browsing experience while getting rewarded for their attention. Brave is driving a shift from external value capture to internal value capture. The transition is from invasive ads and trackers following you across the web to privacy and consent driven client-side advertising where user data is kept on-device. With the bases loaded, Brave is next up at bat, going for a grand slam to bring home the users, advertisers, and publishers. Brave has designed an ecosystem where all parties can score.

While most of the of coverage these days is on Bitcoin and Ethereum, I think the market is overlooking what Brave has accomplished thus far with its browser and native token BAT, and most importantly the future growth isn’t priced in. BAT is one of the few altcoins out of thousands that actually solves a problem and has long term viability. For those looking to diversify their crypto portfolios, BAT is a unique mid-cap altcoin positioned to disrupt digital advertising and likely won’t be discovered by the mainstream until the v1.0 campaign. Instead of looking at BAT as a standalone puzzle piece, to understand the potential of Brave and BAT you need to finish the puzzle first. The advertising, regulatory, technology, privacy, monetization, and consumer pieces are all part of the bigger picture.

Keep it simple. The Brave browser is in strong position to serve as the vehicle to introduce many to their first experience with crypto, BAT. What will be the first crypto product that turns everybody in your family into a DAU? Brave & BAT comes to mind for me.

Disclaimers: I own some BAT. The above references an opinion and is for informational purposes only. It is not intended to be investment advice.

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