Facebook's blockchain experiment raises eyebrows

Facebook's blockchain experiment raises eyebrows

“A lot of us got into technology because we believe it can be a decentralising force that puts more power in people’s hands,” Mark Zuckerberg wrote in his New Year message to his Facebook followers.

The Facebook founder was lamenting how, with the rise of a small number of big tech companies — not least his own — many people believe technology only centralises power, rather than decentralises it.

The remarks were largely read at the time as a riff on the political controversies engulfing his social network, but Mr Zuckerberg also vowed to explore “counter-trends” to centralisation, such as encryption and cryptocurrency.

A few months later, that exploration appears to have stepped up a gear. Mr Zuckerberg last week appointed one of his most senior lieutenants, David Marcus, to head a team to experiment with blockchain, the decentralised digital ledger technology that is exciting everyone from start-ups to big banks.

Blockchain promises a new way to record transactions, including the transfer of cryptocurrency and other digital assets, without having to go through a central authority, such as Facebook’s own servers.

What the company has not done is say anything, in public at least, about what Mr Marcus and his team will be doing — leaving others in the blockchain world to speculate, and poring over Mr Marcus’s resume for clues. The 45-year-old executive has been given his new assignment after a stint in charge of Facebook Messenger. Before Facebook, he was president of PayPal, the online payments company, and he also sits on the board of Coinbase, a US cryptocurrency exchange.

Facebook could use the technology for payments on the social network, by creating its own cryptocurrency, blockchain experts say. It could use it to try to improve privacy, by giving users a new way to own and control their personal data. Or it might think blockchain will help it fight fake accounts and provide more services by giving users a way to prove their identities.

One particular threat of blockchain to Facebook could come from people building a decentralised alternative that rewards users with a new cryptocurrency for posting on their platform.

“You’ll learn a lot about what Facebook is by what they think they are going to do with some of these technologies,” said Brewster Kahle, a digital librarian and activist trying to help build a decentralised web.

Facebook first dabbled in blockchain research led by Morgan Beller, a corporate development executive, last year.

The exploration of blockchain is about more than satisfying Mr Zuckerberg’s curiosity, or returning to his youthful dreams of giving power to the people. Facebook has long been focused on potential competitive threats, even very long-term ones, and has often moved quickly to squash them.

In the case of Instagram and WhatsApp, it bought the competition. It copied hashtags and public posts from Twitter and the “Stories” photo collection format from Snap. Blockchain cannot be bought but it can be harnessed, and Facebook may be investing in research in case a competitor uses the technology to become a threat.

Spencer Bogart, a partner at Blockchain Capital, which invests in blockchain companies and cryptocurrencies, predicted Mr Zuckerberg will want to make sure he is prepared for competition even if “there might not be an obvious and immediate slam dunk for Facebook in the space”.

And competitors do seem to be moving.

Telegram, the encrypted messaging app with 170m users — a rival to Facebook’s WhatsApp — recently raised $1.7bn through the sale of its own cryptocurrency. Telegram says it is planning to build its own blockchain.

Mr Bogart said the sale “clearly stirred waves” at Facebook, pushing them to invest more heavily.

There are other social apps exploring blockchain, too, including Kik, an ad-free messaging app. It launched its own digital token and said it started work on a blockchain-based payments system last year. Steemit, a social media platform, pays users in a cryptocurrency called Steem to produce content.

It remains unclear if any of these blockchain or cryptocurrency projects will bear fruit for Facebook’s rivals, but Sheila Warren, head of blockchain at the World Economic Forum, said she thought starting a lab to investigate blockchain was a “really smart move” for Facebook.

She said the company could look at creating a coin that would allow “micropayments” on the site, which could lead to an “explosion of applications”. Some publishers who feel that Facebook profits unfairly from their stories might welcome a way to charge readers.

In the wake of revelations that Cambridge Analytica improperly obtained the personal data of up to 87m Facebook users, the social network could also consider blockchain as a way to give uneasy users more control over their data.

A different social network that is able to help people control their data may grow into a significant threat to Facebook, Ms Warren said. “One of the things blockchain is good at doing is creating trust where trust doesn’t exist.”

Blockchain could be used to create smart contracts around who can receive personal information over the Facebook platform. “You set the permissions in such a way that if you say for cat videos, you can take all my data, but for music videos, you can only take my screen name, it is self-executed automatically,” Ms Warren explained.

Facebook could also zero in on how to prove your identity online, using blockchain for a public key to match your private information.

This is a function that would be useful for today’s social network where people are still able to spread hate speech and engage in terrorist recruitment.

Detractors point out that Facebook has so far been the opposite of a decentralised network implied by blockchain. It has 25,000 employees, mostly in California, creating one set of policies and one bank of data for more than 2.2bn monthly active users across the world. In response to controversies about the content on its site, it is taking an even more activist approach to what is, and is not, allowed to appear there.

“Facebook being a hyper-centralised entity, I’m interested to see how that fits with the philosophy of decentralisation” which underpins blockchain, said Tanner Philp, director of corporate development at Kik.

Eyal Hertzog, co-founder of Bancor Network, a blockchain start-up that specialises in digital currency conversions, thinks there is more danger than opportunity in Facebook’s experiment with blockchain.

“Facebook’s power is tied to its centralised database of user content and connections,” he said. “If this becomes decentralised as they access blockchain, Facebook will also lose its grip on users.”

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