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I’ve spent a lot of time talking about the history of the internet and what I believe is its inevitable evolution into a decentralized state, aka web3. 60% of the letters I’ve sent out have centered around web3 and/or crypto. This is not a quarter life crisis where I think the sky is falling and the world is ending; in fact, I think the incumbents facing disruption are stronger than ever.
Confusing? Let me explain.
Crypto has the potential to underwrite the biggest disruption the world has ever seen, but a lot still has to be done for that to come to fruition. No industry will ever be so important that merely being in it is sufficient to create a successful company. The focus should always be on utilizing a new technology to create a superior user experience, rather than building just because it’s uncharted territory. Jeff Bezos summed it up by saying, “if you can do things using a more traditional method, you should probably use the more traditional method.” For web3 to go mainstream, developers will need to leverage the unique capabilities of the blockchain to create a user experience that literally cannot be replicated without crypto infrastructure.
Centralization is not failing or existentially flawed. Centralized organizations have created some of the most popular and successful products and platforms ever by offering incredibly low prices, convenience, personalized services, and robust marketplaces. Products that have become a part of our lives like Netflix, Spotify, Amazon, Apple, and Facebook are all examples of fantastically successful centralization that provides irreplaceable value every single day.
However, centralized platforms are not beyond reproach, and in the last 12 months we have gotten a glimpse of where fault lines may lie. I believe that on balance social media is a net positive to society; it has connected the world in a way that was never before possible. But, with great power comes great responsibility.
This week, on top of fighting a major whistleblower case before Congress, Facebook and its suite of products fell offline for more than 6 hours on Wednesday, locking out 3.5 billion users and reminding the world just how deep the social site has embedded itself into people’s lives. In the fashion of never letting a good crisis go to waste, I opportunistically jumped at the chance to write about the problems inherent with centralized social platforms and the potential for decentralized social media applications to offer a solution.
Let’s get into it.
Social media platforms like Facebook (+ Instagram and WhatsApp), Twitter, TikTok, and others have become the scapegoats in conversations surrounding misinformation, censorship, privacy concerns, and data usage. Despite Section 230 of the Communications Decency Act, which frees the platform from being responsible for the content posted by its users, executives from these corporations are often called to testify on Capitol Hill regarding content moderation and censorship, or lack thereof. The problem with Section 230 lies in determining who the information publisher is. Said another way, it would be unreasonable to hold the newsstand responsible for the content in the magazines on the stand, but in the digital era the point of controversy is now related to the algorithms driving content recommendations to users.
Paradoxically, regulators oppose subjective censorship by the centralized platforms themselves, but then turn around and call for greater ad hoc censorship based on their own agendas. Social media has ushered in new mediums of communication and thereby redefined freedom of speech. The first amendment not only grants free speech, but also grants the right for people to peaceably assemble. In the 18th century when the Constitution was written, peaceably assembling meant gathering for debate in the town square; in the 21st century, the town square has been privatized and digitized by the monopolistic cartel of Big Tech. Censoring speech protected by the first amendment is infringing on constitutional rights, but censorship is not solely defined by deplatforming a user. Nowadays, censorship could be algorithmically demoting a post such that it is hidden from a large audience.
Here’s the thing, social media platforms cannot be the gatekeepers of truth. Regardless of where you stand, it is fundamentally flawed for truth to be determined by a small group of product managers in San Francisco. The subjectivity left in the equation is extremely dangerous and forces the political biases of the people with power.
The goal of social networking applications should be to keep censorship roughly in line with the constitution.
This is easily accomplished in web 3. Instead of having content monitored by a corporation, a decentralized social network can establish acceptable behavior up front. This fosters transparency as the data can be viewed in real time by anyone on the network.
Well how do you fight misinformation?
Just like how sunlight is the best disinfectant, the only way to counter misinformation, is with more information. Decentralization offers the means to create a public, open forum where anyone in the world can have a voice and communicate freely. Crypto is the kryptonite to centralized social platforms and has the potential to cultivate a fair, transparent, and secure peer-to-peer community that allows discourse not intermediated by any centralized entity.
Censorship is only one issue facing centralized platforms. The Facebook Files, are a collection of internal research documents leaked to the Wall Street Journal that provide an unparalleled look inside the social media giant.
The documents as well as the whistleblower’s claims state that Facebook knows it is causing harm and eliciting toxicity but is doing nothing to fix it. This should not come as a surprise; strife and controversy are convenient artifacts of social media business models.
In 2019 Jack Dorsey laid out the need for a decentralized social media application, I’ve included the two most insightful tweets, below:
Facebook’s incentive to increase usage and profits is misaligned with the idea of caring for the well-being of its users. Virality and polarizing content are sure fire ways to increase user engagement and ensure the maximum amount of time is spent on the site. Mark Zuckerberg has said that Facebook allows users to speak on equal footing with the elites of politics, culture, and business, and that its standards apply to everyone. The Facebook Files reveal that the opposite is true; the company has built a system that exempts high profile users from some or all of the rules even when those users are posting material of harassment and inciting violence that would normally lead to sanctions.
The research report also shows Facebook’s inadequate or nonexistent responses when employees flagged human traffickers in the Middle East using the site to lure women into abusive employment situations, or when armed groups in Ethiopia used the site to incite violence against ethnic minorities.
We have allowed Facebook to fuel hatred and undermine democracy. But maybe it’s not entirely their fault.
The Business Model is to Blame:
The Future of Tech Commission conducted a study that found 80% of registered voters (83% of democrats and 78% of republicans) agreed the federal government "needs to do everything it can to curb the influence of big tech companies that have grown too powerful and now use our data to reach too far into our lives."
When boiling each of these issues down to their root and analyzing the business from first principles, I quickly came to the conclusion that there is no centralized solution to these problems that is also a sustainable business model.
Before we cast blame on Facebook and frame Mark Zuckerberg as an inhumane billionaire who lacks basic empathy, we should take a second to understand the business model and recognize that we have allowed these issues to perpetuate.
In 2020 Facebook generated nearly 86 billion dollars in revenue, 98% of which came from advertising. This is a prime example that if the product is free, you are the product. Facebook’s most coveted asset is user data, so the longer users stay on the site, the more data they can collect. But it goes even further than just being on one of Facebook’s products; the company’s log in API is used by more than 200,000 other websites including Spotify, Quora, and others. The social login feature is another way of adding data ecosystems to the company’s reach. Creating this API enables Facebook to become the universal log in and grants them access to your data as you surf the web.
Facebook uses the troves of collected user data to build demographic profiles and sell targeted ads to advertisers. Regulators and the general public voice two concerns in regards to Facebook’s data collection practices:
1) Data protection
2) The economics of the user-platform relationship
Facebook’s business is built on being the owner and trustee of personal, private user data. After the infamous Cambridge Analytica scandal, where the political consulting company gained access to data on 50 million Facebook users, data protection became a focal point.
The economics of the platform are hidden to users in the sense that users think they are getting a lot of value for free, but in reality they are giving up huge amounts of data that they do not even know is valuable.
Decentralized social networking is the solution where users have control over their own data and can participate in the economic relationship with the platform by deciding what they want and what they don’t.
The Future of Social Media:
Crypto is a direct financial and emotional appeal to transition users from passive consumption to active collaboration; it is an attempt to counterbalance the massive power laws that propel centralized systems.
With centralized models, some value accrues to the 1% of creators, but the vast majority of value is captured by the platform. Whereas a decentralized social network distributes ownership to contributors. Anyone can monetize personal data and earn incentives for simple activities such as sharing, liking, commenting, and inviting new users.
Web 2 social applications benefit from extreme network effects that act like a centripetal force driving value to the platform; every new user on the network increases the value of the network for the other participants.
Network effects lock in users and make it difficult to leave the platform. Crypto architecture enables a peer-to-peer relationship facilitated by the blockchain such that scarcity does not come from locking in users, but from holding a currency (ownership stake in the network). Tokens align network participants to work together towards a common goal – the growth of the network and the appreciation of the token.
Web 3 turns social networking economics upside down; sharing your personal data with advertisers will be a choice. You can interact with the platform and other users privately, where your personal information is secure and hidden, or you can choose the information you want to share with advertisers in a way that allows you to monetize your own data.
On decentralized servers, the networks will not collect user data but will accept data shared by users. In web 2.0 the default is generally “Opt-Out”, meaning the site is collecting your information unless you say otherwise. Web 3.0 will inherently adopt a “Voluntarily Share” model.
Adding another layer to data privacy, decentralized networks allow users to create accounts without links to real world identities likes email addresses or phone numbers. Instead of using Facebook’s social login API, connecting a wallet serves as the universal log in for web 3 apps.
When you establish a connection on the network, the site will ask you a series of questions, something along the lines of:
“How are you most likely to spend your discretionary income?” and then provide multiple choices such as, travel, clothing, luxury items, investing, or other. The system will ask subsequent questions based on your previous responses.
Throughout the user’s relationship with the network, user data will always be open and transparent. In Web 2, users have no idea what the platform knows about them. In Web 3, users will have access to a dashboard of information that they can utilize to make their experience more personalized, or they can choose to hide information they do not want shared.
The UI for web 3 social applications will be vastly different than in web 2 and this is primarily because of the interoperability that is innate on a decentralized network. There will not be standalone sites where users congregate, instead there will be a network of hundreds of different communities allowing users to interact with one another. Since each user’s login information is universal, not unique to a network, users will be able to benefit from cross platform engagement; in web 2 this would be the equivalent of using Twitter to share a post with someone on Facebook – it’s not possible. Communication on a federated network will look something like email does today. To use Google and Yahoo as an example, each company sets rules for its users but does not impose those rules on users of the other system. Yet, Google users can send and receive messages from Yahoo users, and vice versa.
Social networking built on crypto infrastructure creates a more dynamic and democratic system for users that allows a more inclusive model of digital interaction and realigns the value of social media to encourage free expression, user well-being, and community governance.
The path to adoption is just starting to emerge in this space, but there are already decentralized v0’s of each centralized application.
Until next time ✌️,
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