Web 2 companies have dominated the online landscape for pretty much the whole 21st century to date, first bringing the joys of search engines, then social media to the world. When they discovered the latter and reinforced that the “money is indeed in the list” (translation: user data is the most valuable commodity), these tech giants began to reinvent themselves, blurring the distinction between hardware manufacturer (Apple), software creator (Microsoft), online marketplace (Amazon) or search engine (Google) as they realized that their users were in fact, the product.
Social media has undoubtedly been the most successful creation of Web 2, bringing in hundreds of billions in ad revenue and subscription fees for those who crack it. Unfortunately, the companies that profit from social interaction and content creation have become tech behemoths that basically run a monopoly on how revenue is created and distributed amongst themselves.
User information has also become a commodity to be traded and sold to companies without the user’s consent, leading to outcries over data privacy, such as during Facebook’s Cambridge Analytica scandal a few years back.
Roll on 2022, and the future of the internet, based on the decentralized vision of Web 3, is becoming clearer.
- Web 1 could be described as Read-only (static web pages)
- Web 2 was Read-Write (interactive web pages like blogs or social media where you can upload content, post, or comment)
- Web 3 is Read-Write-Own.
In this case, Own refers to more than just a few risky Web3 tokens, but also, ownership of your personal data and the tools to monetize it for your own pocket if needed.
This new freedom to own your data and fruits of labor, then monetize it, is creating unique new technology fields that combine decentralized finance (DeFi) elements to blur the lines between crypto and Web 2, such as GameFi, and now also SocialFi.
What is SocialFi?
As the name suggests, SocialFi is adding a financial layer to social media platforms, allowing them to behave in a decentralized manner. By using the blockchain to incentivize content creation and secure the network, no single entity has control over revenue, user data, or moderation. These social media platforms have no middle man to become the target of regulations or profit from information normally stored on centralized servers.
If users can demonstrate that their content contributes to the SocialFi platform, they’re rewarded in tokens from the protocol, which can be used to unlock advanced features or pay for goods or services.
Incentivising content creation with cryptocurrency native to the platform cuts out unnecessary middlemen, makes encouraging new content easier, and helps attract new users by making the community user-owned.
How does SocialFi work?
SocialFi is about empowering users, and helping them share in the revenue of every interaction. Users can communicate, mint NFTs, advertise or host a livestream to earn income from SocialFi activities, Revenue from content creation and general advertiser revenue can be fairly distributed without a central figure taking a lion’s share of the profit. Content posted to the platform is free from overreaching moderation or targeted censorship. A fair share of revenue and the freedom to post without overreach make SocialFi platforms a great opportunity to create a passive income through social activity.
Blockchain technology is still new. While it has brought a tone of innovation to the finance and information sectors, its use-case beyond this has not been enough to bring over new users from Web2 applications. While GameFi has raised huge sums of capital to revolutionize ownership and incentive models in video games, there are not enough success cases to say it has been an instant success. NFTs have become another example of emerging blockchain opportunities that have yet to gain traction with the general public, even if they have extremely active niche communities.
Owning digital artwork or assets within a video game is new to the average internet user, but everyone understands how to promote themselves or their content on social media. Creating a financial model around getting likes or followers could be an amazing opportunity to showcase how blockchain technology can improve an existing platform we already use every day like Instagram or YouTube.
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SocialFi and its role in mass adoption
Convincing the majority of the population to adopt technology that’s very likely in its infancy is no easy task. Blockchain technology may take years or even multiple generations to be fully utilized by the average person or company, despite the popularity of Bitcoin and layer-1 networks like Ethereum, Polkadot, Binance Smart Chain, Cosmos and Avalanche, to name a few.
Introducing elements of the blockchain such as tokenomics or earning mechanics to users through a medium they understand (social media) could be a great way to begin the journey to mass adoption.
Blockchain transactions are not private, but the personal data of the person or entity making those transactions is not known by anyone except exchanges.
Adding a financial layer to social media will create a healthy relationship between users and the platform and empower contributors with an incentive for contributing content that is well-liked.
What will drive users to new SocialFi apps?
NFT protocols, GameFi, and DApps will have a huge opportunity to promote and market themselves on SocialFi platforms. Social apps such and Discord and Twitter are already important communication tools for Web3 builders and traders. A SocialFi app that incorporates NFT, blockchain games, or crypto wallets could immediately become popular enough to get the attention of non-crypto natives that see an opportunity to take back control of their data and earn a passive income.
Have modern Social Apps reached the end of their lifespan?
Instagram, Facebook, TikTok, Twitter, Snapchat, and many more apps have had little innovation over the last five years. While new apps do surface, such as Tiktok, their ingenuity has more to do with attracting a new userbase and a new income model rather than fundamental changes that improve the user experience.
Sharing pictures, videos, or a piece of written content has been at the core of each app created since social media apps took the internet by storm around 2009. Rarely though do we see the algorithms that sort content, the price 3rd parties pay for our personal data, or receive a reasonable share of the revenue generated by our social interactions.
SocialFi creates an opportunity to improve the basic mechanics of social media applications instead of migrating to a new platform with the same features and tools but a different logo and company to profit from content.
However, with deep pockets, entrenched market share and strong network effect with existing users, don’t expect Web2 to just go away. Instead, they will likely begin to loosen their grip on data and privacy, in an effort to get ahead of the SocialFi revolution. One only needs to look at Mark Zuckerberg, Meta CEO, and and the 6 promises he posted recently, where he promised greater control and revenue sharing for Instagram and Facebook content creators.
The future of SocialFi
Similar to how staking and yield farming regained control of liquidity from banks, SocialFi has the ability to take control of content and social interactions from traditional platforms. Introducing these investment strategies through the medium of social media could be just the start of using the blockchain to improve already existing systems.
Social media sites such as Twitter and Facebook have already started to incorporate blockchain mechanics such as verified NFT profile pictures, NFt marketplaces, and creating their own cryptocurrency wallets to attract new users. Blockchain mechanics are already being added to social media by multi-billion-dollar companies, but the financial component of SocialFi will require an entirely new application and users to power it.
There’s no way to guarantee SocialFi will become the new norm for sharing pictures of food or messaging your family members, but reclaiming power over content, moderation, and personal data could become a hot enough topic to warrant users to rethink where they spend their time online.