Facebook And The Blockchain Bandwagon

1) Not just joining the bandwagon. On first glance, Facebook’s Blockchain initiative seems to be perfectly described by this Marketoonist cartoon.

But, there’ are two reasons that lead me to believe this is not just about Facebook joining the Blockchain bandwagon. They’re i) David Marcus and ii) Kevin Weil. The former was the CEO of PayPal before he became Head of Messenger and the latter was a VP of Product at Twitter before becoming VP of Product at Instagram. There’s an old saying that you can tell how serious a company is about new initiative by looking at who they hire to run it. If a company starts a new initiative without any executive support, you have every reason to worry about the company’s desire to invest. And, by that account, the Blockchain initiative seems very high powered.

There is another angle to this. Companies also manage out some of their executives by putting them on obscure projects. So, you could also theorize that David Marcus and Kevin Weil are being managed out. But, it just seems unlikely — especially given the success of Messenger and the re-acceleration of Instagram’s growth in the last two years.

All this leads us to the likely conclusion that Facebook is actually taking the Blockchain seriously. That, then, leads us to the question — why are they doing this?

There are two ways to approach answering this question. The first is around diversifying your bets and investing in the future. And, the second is attempting to guess what they’d do with the blockchain. I think both are important.

2) Why are they doing this? — Part I -> Diversification: The five tech giants (Amazon, Apple, Google, Facebook and Microsoft) of today have all made aggressive investments in the future. All five have learnt from the follies of IBM and the old Microsoft and have embraced the idea that you’re better off disrupting yourself. They’ve invested in varying degrees in AI, AR/VR, and Quantum Computing. The blockchain, however, is a bit of weird fit in these investments — especially in the case of Facebook. That’s because the purpose of the Blockchain is to move away from the centralized web that the likes of Google and Facebook have come to dominate.

Maybe Facebook just doesn’t want to take any chances? Better to understand the enemy and all that.

The other option could be to posit that the Facebook team see some benefit in using Blockchain technology. The question, then, is what?

3) Why are they doing this? — Part II -> Utility?: Jimmy Song had an excellent post on the Blockchain (that also features the Marketoonist comic strip we started with) on Medium where he outlined what made the blockchain different from a database —

The main thing distinguishing a blockchain from a normal database is that there are specific rules about how to put data into the database. That is, it cannot conflict with some other data that’s already in the database (consistent), it’s append-only (immutable), and the data itself is locked to an owner (ownable), it’s replicable and available. Finally, everyone agrees on what the state of the things in the database are (canonical) without a central party (decentralized).

This is as good a definition as I’ve seen. So, why would Facebook want to build a database with these characteristics? (This definition is a worthwhile question to ask whenever you see an ICO looking to move an existing service on the blockchain. Why does it need all these bells and whistles when it is working well as a normal database?)

I had 5 ideas ranked from most disruptive to least disruptive -

  1. A decentralized social network token: Create a decentralized Facebook.
  2. A decentralized advertising token for consumer use: This would mean Facebook would have a stake in advertising in the decentralized web (would compete with the Basic Attention Token).
  3. Fight ad tech fraud via by forcing ad tech transactions on the blockchain: This would take out fraudulent ad tech vendors and clean up the ecosystem.
  4. Fight fake news by using an immutable database to verify the source. I’m imagining the biggest immutable database, yet, for news and articles. (We could extend this to photos)
  5. Facilitate global payments by building a new marketplace token on Ethereum. Facebook Marketplace can have trust problems in many parts of the world. Smart contracts could help ensure easy payments on sale of items.

I described this list as ordered from “most disruptive” to “least disruptive.” I could have also said “least likely” to “most likely.” (1) feel extremely unlikely. (2) feels more likely but it would mean committing to the decentralized web. I’m not clear why Facebook would want to do that? (3) is interesting but I don’t think Facebook has the heft to pull it off — maybe Google’s DoubleClick could? (4), on the other hand, feels possible — even if I’m hazy on how they’d execute — and (5) feels like the most likely immediate application.

The challenge with building these immutable blockchains is that development is slower and maintenance is expensive. I’m sure you’ve heard the crazy amounts of electricity consumed by the Bitcoin network. The way to solve this is with incentive systems. But, building such incentive systems means increasing adoption on the decentralized web.

The challenge with the decentralized web is that it isn’t convenient — at least not yet. And, if there’s anything we’ve learnt from the past couple of years, it is that people prize convenience over privacy. And, that convenience, at least for now, results in more ad dollars regardless of the issues it brings. See: recovery of Facebook stock and $134B in market cap since Cambridge Analytica.

All that said, crypto bulls will point to the fact that we’re in the investment phase and that infrastructure is being built at this point. Once we get past this, we’ll see a crypto powered internet with easy-to-use privacy driven applications built with different incentive systems. We’ve seen this happen with the internet before, after all.

Except there wasn’t an internet when the internet came around. The information system was structured very differently and, while I believe there’s something inherently powerful and disruptive about crypto (it also helps that the movement is extremely well funded), history doesn’t repeat itself.

It does rhyme, though. But, the exact nature of the rhyming is never clear until it happens. That’s what makes speculating about the future very interesting.

PS: Of course, looking forward to checking back on this post once Facebook announces what they’re building.

Links for additional reading

  • Why we expect Crypto to be a big deal — on Medium
  • The Basic Attention Token
  • Why Blockchain is Hard — by Jimmy Song on Medium
  • Facebook’s stock recovers all $134B since Cambridge Analytica — on CBS News

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