How Blockchain Invalidates and Disrupts Facebook’s Business Model

Zuck’s recent essay “A Privacy Focused Vision for Social Networking” is a carefully worded response to the litany of privacy and governance problems users are experiencing on Facebook’s platforms.  He suggests some remedies which include more encryption, shorter data retention periods, universal identity across all Facebook platforms and how to manage the balance between privacy and public safety.  This is all well and good except that nothing in Zuck’s essay addressed the elephant in the room, Facebook’s advertising-based business model.     

Here’s the first line of article 2. of Facebook’s Terms of Service

The Data Policy referenced in the Terms of Service, outlines in general terms what they track, which is essentially anything you do or say on the platform or the device you use to access the platform.   Even anything that your camera reveals while you are using Facebook.      

Anything you put on Facebook effectively becomes their property to use as they see fit, which is, of course, the real problem with Facebook. 

Before the advent of Blockchain, Facebook could plausibly make the case that a centrally governed data store that monetized user data by selling it to third parties was the only viable business model for free social networking.   But that argument is no longer valid.   Blockchain represents a new way to implement social platforms allowing users to network without giving up control of their data.   A decentralized blockchain has no central authority, so there is no mechanism to collect and use your personal data for profit.   Facebook knows this, of course, and has been busy hiring developers to build their own blockchain which is rumored to be launching in mid-2019.   They are fundamentally disrupting themselves to compete in the coming era of blockchain based social networking.    

David vs Goliath 

Here are a few examples of platforms that have developed or are developing blockchain based models that benefit the users and support the platform as a whole without selling user data. 

Steem.it  

Steem.it is one of the first successful attempts to create a decentralized social media platform.    Steem.it uses an inflationary monetary policy much like Bitcoin, except it pays people for providing and curating content instead of mining. 

The model consists of three tokens:   Steem,  Steem Power and Steam Dollars.   Each designed to create a specific economic incentive for its holders and benefit the platform as a whole.     Here’s a link to a more in-depth explanation of how the Steemit economic model works.   

KIK 

KIK is a Canadian social messaging platform with over 300 MM registered users.   The company made a philosophical decision to move away from the attention-based advertising model to a token-based model that rewards content providers.    Their ICO raised over $98MM and after some scaling difficulty with the Ethereum blockchain, KIK’s new blockchain based model is set to launch on Stellar sometime this year.      

MEOS 

Currently, the top five blockchains by transaction volume according to Blocktivity are EOS, TRON, Telos,  BitShares, and Steemit.    A fellow named Dan Larimer led the development of 4 of these (Telos is a fork of EOS).    His first attempt to create a blockchain based social network gave us Steemit.   Dan Larimer is one of the most experienced blockchain developers on the planet.   He, along with his co-founder Brendan Blumer, raised an unprecedented $4 Billion to develop the EOS Blockchain.     Now, with EOS in production and scaling rapidly, Larimer is rumored to have turned his attention to creating a second generation blockchain based social network on EOS.    The “MEOS” project has the team, technology, and resources and most importantly the economic model to become a credible threat to Facebook.    Coincidentally, MEOS is rumored to be launching mid-2019 about the same time as Facebook’s blockchain.     We don’t know the specifics of the MEOS economic model at this point but we can assume that it is an adaptation of the Steem.it model for the delegated proof of stake consensus method that drives EOS.    

Technological challenges 

  • Scalability 
    It has yet to be seen if any blockchain can scale to support Facebook’s 2.5 Billion users.   Third generation blockchains like EOS,  Hashgraph and Dfinity all claim to theoretically support hundreds of thousands of transactions per second, but none has achieved anything close to that in a production setting. 
  • Usability 
    Problems with latency and cryptographic key management make blockchain difficult if not impossible for the average user.   It’s simply too easy to make a mistake and lose your money.   Worse still, current blockchains offer little to no recourse should a problem arise.   
  • Storage 
    Blockchains are essentially distributed databases.   As they scale to support larger and larger user bases, the amount of data required to maintain a complete history increases dramatically.    The larger it becomes, the more expensive it is to maintain a node.   If the token does not maintain or increase in value; the number of node operators could shrink dramatically and create s systemic risk for the platform.    EOS is already facing this problem as its blockchain expands rapidly.   There are currently only two nodes with complete transactional histories operating on the EOS network today.   
  • Governance  
    Most blockchain governance systems are based on majority rules voting systems.   But most users don’t vote, so participation is very low.   It is also not ideal to ask users to vote on the technical system modification when they may have little or no competency.    Public safety is also an issue.   How does a decentralized organization respond to a government request to take down content?    Or a valid request for encrypted information that is related to criminal activity?    

The End of An Era 

Blockchain in one form or another will replace all types of centralized public databases.   Why?  Because the handful of people who control most of the world’s user’s data have shown again, and again and again that they cannot be trusted.    Token based economic models show great promise in solving the “trust problem” by enabling the creation of trustless economic models.   Projects like Steemit, KIK and MEOS probably won’t take down Facebook, but they have already succeeded in disrupting it to the point where Facebook itself may need to transform into Blockchain to survive.      Facebook is just the first in a long list of centralized organizations that have abused the trust of their users for profit.   When a credible blockchain alternative emerges, expect users to adopt it swiftly.   Facebook without Facebook, Google without Google,  Ebay without Ebay.   So began the era of decentralization and the restoration of personal privacy.             

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