Recent events have made it clear that social media has problems. Blockchain has powerful solutions for the big companies behind our favourite platforms – and it’s possible that a decentralised model is the only long-term way to create social media that is fit for purpose.
Social media companies are already showing considerable interest in blockchain technology. It’s not always clear why — where the motives are apparent, they differ widely — but it makes intuitive sense. Social networks are designed to connect humans on a peer-to-peer level. Blockchain serves the same purpose. The match is a natural one – and if Telegram’s $1.7 billion token sale is anything to go by, there will be plenty more headlines to come on that theme.
However, there’s a bigger picture and a bigger prize here. Blockchain could not only solve serious problems faced by social media companies. It could open a new chapter on the history of social networks entirely.
A new business model
Almost three months ago now, news broke that UK-based company Cambridge Analytica had harvested data from over 50 million Facebook accounts without the owners’ explicit permission, using the information they collected to attempt to influence the US Presidential Election.
The immediate fallout from the Cambridge Analytica scandal may have gone quiet, but the episode illustrated a fundamental tension at the heart of all conventional social media. On one level, social networks exist to connect users with one another. But, like all public companies, they answer to their owners and have a fiduciary duty to maximise shareholder revenues. And when you don’t charge your users a subscription fee, there are only so many ways of generating that income.
This dynamic has resulted in users being monetised by harvesting their personal data for use in advertising, including political campaigns. One of the reasons the backlash against Facebook was so intense this time was because that process has now become so sophisticated that it’s possible to target very niche demographics on issues that even they might not have realised are important to them. The scope for manipulation is very real. As whistleblower Christopher Wylie said, Cambridge Analytica ‘built models to exploit what we knew about them and target their inner demons’.
There is, simply, a conflict of interests between those who use and those who own social media platforms.
Along with the rise of distributed file storage, blockchain technology opens the way for a fully decentralised model: user-owned social media that does not have shareholders or even a traditional company structure. But while this is now possible in theory, creating and launching such a network from scratch would be a huge undertaking. More likely is that we will see cryptocurrency wallets incrementally integrating social media-like features, from messaging and news feeds to image storage.
The big social media companies obviously won’t go down the opposite route of decentralising their operations in this way. But blockchain still offers enormous advantages — as well as a new source of revenues that doesn’t rely on harvesting personal data.
As we noted above, a peer-to-peer currency is a natural fit for a peer-to-peer communication platform. Integrating blockchain into a social media platform offers users a way not only to share images, updates and other information, but to pay each other and for various online services. It also holds out a new way of monetising a platform. A large social network represents an immediate userbase of tens or even hundreds of millions of potential customers — more than even the largest existing blockchain platform, including bitcoin — meaning that any degree of adoption could result in substantial revenues for the company.
An integrated cryptocurrency would enable instant payments between users, wherever they are in the world, from micropayments right up to settling up for big-ticket items like cars and houses. It would be the default form of cash for everything within the platform’s wider ecosystem: tipping, remittance, paying for adverts and publicity campaigns, for apps/games/upgrades, sourcing workers for short-term and freelance positions, and just about everything else. It shouldn’t be hard for social network companies to see the value of this. They already serve so many purposes in the lives of their users that becoming an online wallet is a natural step. An example using the fictional cryptocurrency of ‘Facebucks’ should illustrate why:
You want to organise a meet-up with a few friends. Facebook is already the way you’d start the process. You create a new group, invite everyone and then search for a good restaurant in a location convenient to all of you. In your search results, several adverts (paid for in Facebucks) appear for suitable places. The reviews for one are particularly good, and a number of visitors have been tipped by other users for taking the time to offer helpful information about when to go and what dishes to try. You duly book the restaurant, have a great time with your friends and pay the bill in Facebucks from your smartphone at the end of the evening. The next day, you settle the bill between your friends, again in Facebucks. In other words, the whole process, from convening a group through to paying, is conducted on the same social network and in the same integrated digital currency.
A new revenue model
Whilst this is a powerful idea in principle, there remain questions about the right kind of blockchain solution, what type of currency model would work best, and how exactly it would be monetised by the social networks.
A high-throughput blockchain is a pre-requisite for a mass-market application like a social network. The fastest blockchains are now capable of supporting hundreds of transactions per second (see Waves-NG), though sidechains would likely be needed to provide the necessary capacity. There are also questions around financial privacy, so some degree of anonymity may be required. At the same time, the social media company may need to maintain some control and/or oversight of the blockchain in order to meet compliance requirements. Either a private or open blockchain may be suitable — the advantage of a permissioned ledger being not only control but speed and throughput. Fiat will need to be moved into and out of the blockchain ecosystem smoothly, and gateways represent a natural point for KYC in the case of an open blockchain implementation.
There are at least two ways a social network might provide a blockchain currency. The first is a more traditional, bitcoin-like approach which would see the coin’s value determined by the open market. This removes certain responsibilities from the company, but means additional complexity in pricing items, and greater risk assumed by users due to volatility. A more widely-acceptable approach would be to maintain a treasury and issue a coin that was backed 1:1 by reserves, received through dedicated payment gateways and held in audited, insured accounts. One Facebuck would then be redeemable for one US dollar or equivalent.
Assuming that Facebook was not minting its own currency (in which case it would receive seigniorage in the form of block rewards or otherwise newly-created coins), there are several ways that a blockchain system could be monetised. Gateways will be responsible for converting fiat money into Facebucks, and there could be a spread or commission fee on those exchanges. There might also be small transaction fees every time a user sent money to another user — whether that took the form of a flat fee, a percentage of the total amount, or some combination of the two (e.g. 1% up to a maximum of $100).
Given the sheer size of the market and userbase of a major social network, it’s reasonable to expect considerable revenues from such everyday operations — especially as a growing proportion of economic activity moves from the legacy financial system into social networks and their integrated blockchain currencies. Both the business and philosophical cases are strong, and it’s surely only a matter of time before the first implementations appear.