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Relevance of SocialFi

Co-written by Raphael Bustamante, James de Jesus, and Gabriel Paningbatan
Key Takeaways
  • SocialFi has its own set of benefits and challenges that contribute to its relevance. 
  • Some benefits of SocialFi include digital ownership, censorship resistance, and digital identity
  • Some challenges of SocialFi include scalability and economic sustainability

If you’ve delved into SocialFi and find yourself pondering its practicality, fear not! We’ve got you covered. Let’s first check out some specific benefits SocialFi gives us and delve into some challenges it encounters! 

Benefits of SocialFi

Digital Ownership: Bringing together all the previously discussed key features drives users into the heart of SocialFi, digital ownership. SocialFi is about putting you in control. Whether it’s images, videos, music, art, or written content, whatever you create and put out on SocialFi platforms belongs to you. You get to decide if you want to keep it private or share it. Tokenization even lets you monetize any data you own and choose to share. 

If one of your posts generates a lot of engagement on traditional social media, the centralized company will place ads beside it to generate income while you gain nothing from those ads. On the other hand, owning that same sort of post on a SocialFi platform lets you benefit from ads since companies will have to negotiate with you. SocialFi also ensures that no one can sell your personal information to other companies without your permission. 

But it doesn’t stop there – even the rules of SocialFi are in your hands. By joining DAOs and voting for the future of your chosen SocialFi network, you are able to shape the community into what you wish it to be. Truly, the power of decentralized digital ownership! 

Censorship Resistance: In SocialFi, your content is safe from being taken down or censored easily. Unlike regular social media, where platforms can delete posts or ban users for various reasons, SocialFi is different.

Imagine you post something controversial on a regular social media platform, and it gets reported by others who disagree with you. The platform might remove your post or even ban you, even if you didn’t do anything wrong. It’s like being silenced without a fair trial. But in SocialFi, it’s harder for your content to be censored. Your posts stay up unless you decide to take them down. If there’s a need for moderation, it’s not decided by one person. Instead, the community votes on it together, often through DAOs. Plus, your data is stored safely, so you won’t lose it easily. So, in SocialFi, you have more control over what you share, and you’re less likely to be silenced unfairly.

Digital Identity: Due to SocialFi and the Web3 ethos as a whole not requiring you to dox yourself (reveal your real identity), you can interact online with having the freedom to be whoever you want. A possibility coming from this notion is the ability to create an entirely new identity to show a different part of yourself, a digital identity. 

Think of it as stepping into someone else’s shoes through books or video games. If you’re shy in real life, you can become a confident person online and feel more self-assured. The flexibility of SocialFi allows you to choose what parts of yourself to showcase in your new online identity. For example, you can display an NFT on your SocialFi profile of a frog to show that you’re a frog lover, or you can tokenize your experience of going to a Taylor Swift concert and express your Swiftie side. You can also simply create content about stuff you identify with. The cool part? No one, not even the platform developers, will know any more about you than you wish them to know.

And here’s where it gets even better – the privacy and pseudonymity of digital identities can be a game-changer for marginalized groups. For instance, a woman might prefer not to reveal that she’s a woman to avoid harassment. A man belonging to an ethnic minority may not want everyone to know his race to avoid potential racism. Digital identities become a shield against hate and unwanted attention, giving you the power to control what you share with the online world. 

Challenges in SocialFi

Scalability: Though SocialFi offers many benefits, it may be a challenge to get them to work efficiently all the time since blockchains still encounter scalability issues. Scalability refers to the system’s ability to handle increased work or demand. Imagine your usual work week – if your boss adds a bit more work and you can still handle it effectively, that’s scalability. 

In the context of a blockchain, scalability means coping with an increasing volume of transactions and data storage requirements without compromising performance or security. SocialFi relies on scalable blockchains to connect as many users as possible in its social networks. While a non-scalable blockchain might support a SocialFi network initially, as it gains more users, the network could slow down. Non-scalable blockchains often suffer from network congestion, leading to higher transaction fees, an overloaded network, and potential security vulnerabilities.

Unlike traditional Web2 businesses, like social media networks that are already scalable, the challenge for SocialFi networks is to achieve scalability without compromising user security or platform decentralization. As more users enter the SocialFi space, we’ll be able to see if they really can handle the congestion coming from a growing network. 

Economic sustainability:  Another challenge for SocialFi is building a sustainable economy, something that Web3 communities are still figuring out. While there are many ways to use tokens for monetizing SocialFi content, it is still in its early stages, and users are testing different economic models. You could monetize content for a certain amount of tokens, but what if users just aren’t interested and would prefer interacting with the Web2 model since that’s what’s familiar? 

Adding to the challenge, the value of tokens issued by SocialFi platforms is often highly speculative and can be volatile, making it difficult for creators to rely on them for a stable income. Creators must depend on the popularity of the SocialFi network, the number of users, and interest in their work to receive an arbitrary value. Furthermore, creator tokens and social tokens need to find more practical uses, or else the creators will just dump the tokens upon receiving them as payment for content. While SocialFi aims for ambitious monetization, there are still a lot of innovations to be made before these networks can establish an efficient working economy. 

Now, let’s quickly go over some precautions and safety tips to make sure we can make the most of SocialFi platforms! 

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