How Social Media Platforms Can Leverage Cryptocurrencies
By: Shaan Ray
Tags: Blockchain, Bhq Contributors, Cryptocurrency, Blockchain Development, Bitcoin

Social media platforms such as Facebook, Instagram, Twitter, Snapchat, Pinterest, and Reddit can create unique value by working with public blockchains and their associated cryptocurrencies.

Photo by Jakob Owens on Unsplash

These platforms enable engagement and transactions between different users, and between users and businesses. Many of these interactions can be enhanced by blockchain integration. This article outlines four strategies for social media companies that are considering entering the cryptocurrency space.

Strategy 1: Integrating One or More Cryptocurrencies

Platforms should consider integrating one or multiple cryptocurrencies into their platforms and allowing users to transact (using the cryptocurrencies, regular money, or a combination or the two) and to trade virtual assets with one another.

For example, platforms could allow friends to settle debts for shared dinners or taxis using cryptocurrency or tokens of equivalent market value. Facebook currently allows peer-to-peer payment through Messenger if an account is linked to PayPal or to a card. Adding cryptocurrency payments as an option would be a natural expansion of these capabilities.

Strategy 2: Building a Native Wallet

There has been speculation that Facebook may be considering building a native cryptocurrency wallet, which could be used to pay for items purchased on its online marketplace.

This would make sense, as many internet users prefer not to give their credit card information to social networking sites. Supplementing credit card transactions with a native cryptocurrency wallet could allow more users to transact on a platform with greater ease.

Strategy 3: Leveraging Game Economies

Video game environments and virtual worlds often feature intrinsic, thriving economies. Social platforms can enable users to conduct some of the commercial transactions from those worlds on the social platforms.

Facebook has already made a move in this space by launching Fb.gg, a gaming video hub that competes with Twitch. It also recently introduced Facebook Stars, a virtual tipping and payment system for gaming worlds. A Facebook user can purchase Facebook stars and use it to make micropayments to the user’s chosen game streamers. Facebook benefits by deducting a portion of the payment to creators, and the game streamers benefit through the introduction of a new stream of revenue.

Strategy 4: Acquiring a Token Exchange

A platform could consider purchasing an existing cryptocurrency exchange and integrate the functionalities of the exchange with the platform to create a more valuable user experience. Social platforms which enable users to link their personal accounts to exchanges could gain a significant advantage in the digital identity and fintech space in the long term.

I have written elsewhere about how the blockchain could power digital identity solutions. Social media platforms are already natural providers of digital identity solutions. Cryptocurrency exchanges that exchange tokens have so far mostly been used for speculative cryptocurrency trades, which have often disappointed. In the next stage, tokens traded on these exchanges are more likely to have inherent utility, such as assisting with digital identity solutions. Therefore, a social media platform looking to get out ahead of these trends could look into acquiring an exchange. Telegram Passport is an early example of a social platform making a bold move into the digital identity space.

A downside of this strategy is the significant upfront expense on upgrading platform security and creating compliance systems that are similar to those of financial institutions.

Competition

Though cryptocurrency and its underlying blockchain technology has provided major breakthroughs in contracting, it is not a solution to every problem. Online social platforms should think carefully about whether to introduce cryptocurrency and blockchain capabilities.

One compelling reason to do so is to head off competition from other platforms and from upstarts. Blockchain technology has two major advantages as far as social media users are concerned: it is very secure, and it cuts out the need to rely on an intermediary. With the introduction of Passport, Telegram has already pitched consumers on these benefits of blockchain technology. It is only a matter of time before other social platforms do so.

Though cryptocurrency has had a bumpy ride over the past couple of years, it has become mainstream. It also provides the most well-known use case for blockchain technology. Therefore, social platforms looking to adopt a long-term blockchain strategy should consider starting by integrating cryptocurrency functionality.

Regulation

Regulatory expenses and uncertainty are deterrents for any company entering the cryptocurrency arena. Since many major social platforms operate globally, they would have to consider the regulation of cryptocurrency in all major countries before making any moves in this space.

From a regulatory perspective, smaller social platforms with primarily domestic operations have less to risk in piloting cryptocurrency integration than larger, global platforms do. On the other hand, global social platforms have deeper pockets, and could likely better deal with any regulatory issues that emerge.

Conclusion

It will be interesting to see if the rumors about Facebook’s introduction of cryptocurrency functionality are true, since a move by the leading social platform would likely transform the entire industry.

Regardless of any imminent action by Facebook, social platforms should consider how cryptocurrency integration could help their users engage more fully with their platforms and pave the way for a successful long-term blockchain strategy.