- Currently, Internet users around the world spend approximately 2.5 hours a day on social media. Social media can have a far-reaching and large impact on not only online activities but also offline behaviour and life in general.
- One criticism of Web2 social media is the centralised structure of large social media platforms like Twitter, Facebook, and Instagram. Detractors argue that centralised control of these platforms has led to problems such as the companies taking the lion’s share of the profits from user-generated content, opaque algorithms that are biased towards promoting content that can bring in the most advertising revenue, de-platforming, censorship, and privacy violations. However, with the emergence of Web3, there is an opportunity to potentially address these issues by harnessing blockchain technology’s capability for decentralisation.
- Blockchain-based social media applications are gaining traction, as seen by the rising trend of the total number of unique wallets interacting with the smart contracts of social dApps.
- The current decentralised social networks landscape can be viewed through the lens of these key layers: identity, social graph, social media, messaging, reputation and credentials, content creator economy, feed, and tools.
- Web2 is dominated by several large corporations but the Web3 landscape is much more varied:
However, while there is significant potential in Web3 social networks, they are still nascent and face several challenges, including scalability and sustainable economic models.
- Scalable infrastructure: Social media interactions require large throughputs. For example, Web2 social media platform Facebook, according to some statistics, generates 4 petabytes of data per day. Every minute, 510,000 comments are posted, 293,000 statuses are updated, 4 million posts are liked, and 136,000 photos are uploaded. The challenge for Web3 social networks is whether they can handle this magnitude of activity. The scalability problems of blockchains are well-documented and Ethereum’s much-anticipated recent transition to a proof-of-stake consensus mechanism (called The Merge), for instance, was implemented as a first step towards achieving greater scalability.
Read more in our report Ethereum: The Merge
- Some examples of technological innovations that are trying to tackle blockchain scalability problems are Layer-2 scaling solutions, sidechains, sharding, and zero-knowledge rollups.
Read more in our report Peeling Away the Layers: Introducing the New Layer-1 and Layer-2 Blockchain Landscape
Read more in our report Scaling Blockchains: Layer-1 vs Layer-2 – An Overview of Scaling Solutions
- Sustainable economic models: Similar to DeFi, another key challenge of SocialFi is creating economic models that sustain through stress and outlier scenarios. Decentralised platforms, be they DeFi or SocialFi, can offer large incentives for their participants. Yet, the jury is still out on whether these incentives are sustainable in the long run. Decentralised social networks are in their infancy and are still being experimented with on a small scale. Models must be stress tested through several market cycles and black swan events before gaining mass adoption.
- For instance, if you are invested in an influencer’s social token so that you can engage with their posts, you are exposed to the risks that they post something perceived as harmful. Such posts could lead to the devaluation of the social token and result in a cascade of losses to the participants of the system. In a social media platform, where influencers operate in echo chambers, losses to one key part of the ecosystem can potentially lead to contagion effects.
- Another adverse situation could be if short sellers intentionally undermine an influencer to crash their social token’s value.
Read the full report: Decentralised Social Networks: An Overview
Crypto.com Research and Insights team
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