Almost everyone on the planet has heard about the Facebook-Cambridge Analytica Data scandal, in which the personal data of up to 87 million Facebook users was harvested without consent. Cambridge Analytica used the data to provide analytical assistance to the 2016 presidential campaigns of Ted Cruz and Donald Trump.

This incident really opened the eyes of many people. It became evident that to these social media giants, we are merely products up for sale to the highest bidder, and there is really nothing we can do about it. We have no stake and no ownership, so even though our data and activity on these apps are valuable, we have nothing to show for it. These are the issues that SocialFi addresses.

It has become evident that even social media needs to be decentralized in order to put power back in the hands of the people.

To truly understand SocialFi's role, we need to first discuss what it is.

What is SocialFi?

SocialFi is effectively an umbrella term that represents the combination of the fundamentals of traditional social media and the fundamentals of decentralised finance (DeFi). Now, I understand that may be a bit wordy, but it really isn’t complex in truth.

The whole point is to bridge the gap between the standard type of social media that we have all become accustomed to and decentralisation.

Now, if you are not too familiar with these concepts, you may wonder how all this works and if it is even achievable. So let’s get into that.

How does SocialFi work?

The general idea behind SocialFi is to create decentralised social media platforms. It aims to improve network security and incentivise content creation in a way that empowers users to control data, moderation, and revenue.

With SocialFi, no individual or centralised authority controls how content on the platform is moderated or how users' data is managed. Decisions are taken through a DAO(Decentralized Autonomous Organization) to ensure decentralisation.

DAOs represent the decentralised governance model that enables SocialFi platforms to operate. They allow everyone to have a say, as decisions are made through a voting system rather than a central authority making a decision that all users have to live with.

New updates, policies, and anything that affects users' experiences are decided through the DAO, allowing everyone to have their say.

Now that we know what SocialFi is and how it works, let’s discuss why Web3 enthusiasts believe it is an upgrade on social media that predominantly exists on Web2.

Benefits of SocialFi

Greater opportunity to earn

Most people have been using social media for years without earning a dime. In traditional social media, you ideally need to be really popular or have viral content for you to earn. This is different in SocialFi where you can earn from something as simple as engaging with the community. The incentivisation in SocialFi encourages more people to post content, creating a better content ecosystem and less content saturation.

Digital Ownership

‘Ownership’ is a big part of everything Web3 is about. It is especially relevant to social media because, for far too long, users have been pawns in the hands of powerful social media companies; bottom line, in SocialFi, there is no Facebook that can send your data to another company for millions of dollars.

SocialFi uses non-fungible tokens (NFTs), which are effectively certificates of ownership for digital assets. This is a new approach to digital ownership that was not explored before Web3. NFTs cannot be reproduced, so they ensure that users and creators have complete control of their work on the platform. So, within all this decentralisation, there is still authentication.

Freedom of Speech

The level of censorship on SocialFi platforms is decided by DAO votes, which means that overbearing moderation will not prevent free speech. Freedom of speech is a right of every individual, and no individual or organisation should be able to suppress it.

The other side of the coin is that people may want to post harmful or discriminatory content, but if the DAO is functioning as it should, that will not be a problem.

Challenges of SocialFi

Although SocialFi definitely has its benefits, it isn’t perfect. At least not yet; it still has a scalability issue. Web3 is still a work in progress, and the blockchain technology that SocialFi relies on hasn’t reached the point where picking SocialFi over traditional social media is a no-brainer.

The development of blockchain technology still has some way to go to ensure it can handle vast volumes of interactions without compromising on speed or cost, which is essential for user satisfaction and platform growth.

Conclusion

People generally agree that the current social media model is not as good as it can get, and SocialFi looks like the answer, in theory. That being said, SocialFi has some way to go before it can dethrone the juggernaut— Traditional social media.