In 2004, Facebook’s founders launched the first version of the social network on a college campus. In 20 short years, the platform has transformed societies and the digital landscape, growing into a tech giant with a USD 960B market cap and over 2 billion monthly active users. YouTube’s growth experienced a similar trajectory.
Now, the social media industry is witnessing the growth of decentralized social media platforms. This shift is towards decentralized social media platforms (DSMs), a new breed of networks that promise to address the growing concerns and limitations inherent in traditional, centralized platforms.
The two graphs below give an early 2023 snapshot of the social media landscape. They also illustrate how early we are in the evolution of decentralized social media.
Odysee is a decentralized social video platform with 5.3 million monthly users.
That may seem impressive, but with its massive head start, YouTube has 2.5 billion monthly users. Even so, like Goliath, the social giants have their weak spots.
The Problem with Web2 Social Media
Following the traditional trajectory of capitalistic market development, the Web2 social media landscape consolidated over the last few years, shaking out to today’s industry dominated by major tech companies like Meta (Facebook, IG, WhatsApp), Alphabet (Google’s parent who owns YouTube), Twitter/X, Bytedance (TikTok). That list and the graphic below doesn’t even include the emerging social giants like Tencent in the Chinese market.
Existing centralized social media platforms, despite their widespread use and undeniable impact on global communication, are plagued with several significant drawbacks. These include:
- Data Privacy, control, and user exploitation: Users have minimal control over their data. The Web2 social platforms have profited from user data for years without compensating individuals.
- Censorship: Despite censorship resistance in certain parts of society, Web2 platforms can unilaterally decide what content is permissible, leading to potential censorship and a lack of diverse viewpoints.
- Algorithmic bias: The algorithms dictate what content users see and prioritize certain content over others, leading to bias that can skew public perception and discourse.
- Security risks: Centralized databases are prime targets for hackers, putting sensitive data at risk of breaches and unauthorized access.
- Monopolistic behavior: The dominance of a few large platforms stifles competition and innovation in the social media space, leading to a homogeneous online experience.
One user, multiple accounts, limited control: In today’s world, users must maintain different profiles for each social platform. The team behind the Lens Protocol project seeks to create a solution where you own and “port” the same profile to different platforms in the decentralized space.
These issues highlight the growing need for an alternative approach to social media.
What Is a Decentralized Social Media Platform?
People talking about Web3 social media usually refer to a few specific characteristics. A decentralized platform operates on a blockchain-based social media distributed network, empowering users by spreading control and decision-making among users rather than being held by a single central authority.
In a DSM platform, data is distributed across numerous nodes, usually run by users, which can significantly reduce the risks of data breaches and censorship.
Blockchain Technology and Decentralized Platforms
At the heart of many decentralized social network platforms is blockchain technology. Blockchain enables enhanced controls with identity verification, authentication, and even building reputation systems.
These systems for verification and trust are crucial in creating a more secure, transparent, and fair social media environment, contrasting sharply with the closed, top-down traditional platforms.
What Are the Benefits of Decentralized Social Networks?
A decentralized social network represents a fundamental shift in online social ecosystems. Unlike traditional, centralized platforms, where a single company owns and controls the network, DSMs distribute this control across a network of users. This approach leads to several key differences:
- Enhanced Security: Decentralized social networks leverage advanced encryption and blockchain to secure user data. Unlike centralized platforms, where data is stored on central servers, making it vulnerable to breaches and misuse, decentralized networks distribute data across a network, ensuring that it is not centrally held and, therefore, much more challenging to hack or misuse. Additionally, the use of blockchain enhances security. Any data transaction or modification is transparent and tamper-proof, providing an added layer of security and trust.
- User Data Protection and Privacy: Decentralized identity can enhance users’ privacy. Also, a single entity does not control personal data, and users have greater control over who accesses their information.
- User Empowerment: Users often have a say in the governance and evolution of the platform, leading to a more democratic and user-focused environment.
- Data Ownership: Social network users retain control over their data, as it is not stored on central servers but distributed across the network, often encrypted for additional security.
- Reduced Censorship: With no central authority to dictate content policies, these platforms tend to have less censorship. However, as Facebook has learned, open expression is a double-edged sword. DSM companies must find a way to balance free speech, content moderation, and protecting all community members.
- Community-Driven Content Moderation: Content moderation can be managed by the community itself, using consensus mechanisms rather than being subject to the biases of a central authority.
Monetization of Decentralized Content and Incentive Mechanisms
Distributed social media platforms’ monetization strategies and incentive mechanisms represent a significant shift from traditional models. These new approaches empower content creators and ensure a more equitable value distribution. Key aspects of this include:
1. Cryptocurrency and Tokenization: The direct monetization model allows creators to earn from their contributions without intermediaries like advertisers.
2. Smart Contracts for Revenue Sharing: Digital contracts enable automatic and transparent revenue-sharing models.
3. User Participation Incentives: DSMs often incentivize users for content creation and activities like moderation, curation, and community engagement.
4. Micropayments and Tip Jars: Cryptocurrencies facilitate micropayments, allowing users to tip or pay small amounts to content creators without high transaction fees.
5. Equity and Stakeholding: In some models, active users and content creators can earn a stake or ownership in the platform.
6. Ad Revenue Sharing Models: Unlike centralized platforms where ad revenue primarily goes to the platform, DSMs can offer creators equitable ad revenue-sharing models.
These monetization and incentive mechanisms provide a more direct and fair way for creators to earn from their content and foster a more engaged and vibrant community, as users have a stake in the platform’s success.
Challenges to the Growth of Decentralized Social Media Platforms
While decentralized social media platforms offer numerous benefits, several challenges hinder their widespread adoption. They must address these challenges to enable these platforms to compete effectively with established social media giants. Key challenges include:
- User Experience and Interface: This is probably the number one stumbling block. Similar to the UX in decentralized finance, the UX for crypto-driven social platforms still has a ton of user friction on the front end.
- No built-in community: a major Catch-22 for building any social network is having people on the network to attract more people. Members quickly abandon new social networks with few users and scattered communities.
- Pay to Play: What if you had to pay minting and gas fees every time you posted to FB or Instagram? In Web3 social, you may have to pay to play every time you post.
- Scalability Issues: Blockchain networks, which form the backbone of many decentralized platforms, can face scalability issues.
- Financial Volatility: Many decentralized social media platforms integrate with cryptocurrencies, which can be highly volatile. This volatility can affect the platform’s monetization models and the perceived stability of the platform for both users and investors.
- Regulatory Uncertainty: The regulatory environment for blockchain and cryptocurrency is still evolving. Decentralized SM relies heavily on NFTS. The IRS has updated its regulations, ruling that NFTs are taxable digital assets. Depending on the activity and changing regulations, this could mean a significant tax headache for members of DSM platforms, especially early adopters who may not be aware of the tax implications.
- Network Effects: Decentralized platforms often struggle to build a critical mass of users, which is essential for a social network’s success.
Addressing these challenges requires concerted efforts from all stakeholders in the ecosystem.
Moving Ahead with Decentralized Social Media
Are you ready to delete your Web2 social accounts, dive into Mastodon, or post on Steemit? There are opportunities and risks to being an early adopter of Web3 social, a sector that could one day be even bigger than Web2 social is today. Like any community, asking questions and spending time lurking before you go all in makes the best sense.
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This material has been prepared for informational purposes only and should not be interpreted as professional or legal advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.