It’s not difficult to imagine what Facebook might look like today if a cryptocurrency had been embedded in the business plan from the beginning.
The only thing that might have changed is the underlying technology of the platform and whatever effects that would have on user experience. Otherwise, Facebook could theoretically operate much the same way it does today with the added benefit to users that they could earn cryptocurrency from the content they post on the website.
Let’s start with the meat and potatoes of our fictional Facebook’s value proposition.
As a social media website, the platform exists solely to allow users an opportunity to post content that is important to them with a few rules about community standards.
If users keep it clean, and free of hate speech and other Internet nasties, they can post whatever they want. If Facebook had a cryptocurrency, users could earn Facebit for posting cat memes and selfies with their lunch at the Bupkus Cafe.
But let’s back up a second and look at the blockchain technology itself, which generates the cryptocurrency. Every cryptosocial site has one.
Some are built on a standalone blockchain, like Steemit, while others are built on another blockchain such as Minds (on Ethereum). The difference is significant. We’ll assume Facebook built its own blockchain.
Next, we’ll need to determine the consensus mechanism for Facebook’s make-believe blockchain—we’ll call it Facechain. Let’s assume Facechain uses the delegated proof-of-stake (DPOS) consensus mechanism, which is popular in the cryptosocial space. Unless something better comes along, DPOS will likely become the standard for cryptosocial blockchains.
If you’ll recall, DPOS depends on blockchain users (in this case, that would be every user on the Facechain) voting for network validators.
The validators authorize the blocks that contain your payment data. One could conceivably make a full-time income as a Facechain validator and never post any content to the platform. It’s all based on the percentage of cryptocurrency earned among each participant on the blockchain to produce each block.
In other words, if we assume that Facechain rewarded users based on the following parameters, then we could assume that Facechain validators may earn doggone good money just validating blocks.
Poster—Let’s assume posters earn 60 percent of each Facebit created from their content on Facechain.
Engaged Facechainers—When someone on Facebook comments on a post, likes it, or shares it, they’re called an engaged Facechainer (my term). Such individuals divide amongst themselves 20 percent of all Facebit created by a post they engage with on the blockchain.
Validators—Validators earn 15 percent of Facebit created by blocks they validate on the blockchain. Most of that, two-thirds, goes to the first validator to approve a block.
Facebook—Facebook itself earns the remaining 5 percent for each Facebit created on the blockchain.
One further assumption needs to be made. If you don’t set a payout period, every single post could feasibly earn cryptocurrency in perpetuity. To prevent that from happening, let’s assume Facebook caps payouts to one month.
No post older than one month earns any Facebit no matter how much engagement it has.
This forces all users to continue creating new content rather than reposting or re-engaging with old content just for the purpose of earning Facebit (who wants to see a two-year-old video of Old Knockbunyan’s Siamese cat drinking milk from a tennis shoe for the 1,000th time?).
It also means that each creator wouldn’t see payment for their posts for a month after the validation of the blocks containing those posts.
That’s not a bad thing, but it’s worth noting.
In January 2021, Facebook users posted more than 100 billion messages every day. Let’s assume each post created .005 Facebits. The breakdown for each person involved in the creation of that Facebit would look like this:
Based on these numbers, Facebook would have earned 25,000,000 Facebits daily in January 2021, or 775,000,000 Facebits for the entire month.
If Facechainers posted 100 billion messages every day all year long, Facebook would earn a total of 9,125,000,000 Facebits for the entire year. If we assume Facebit’s value had risen to a modest $1.25 since 2004, Facebook’s income from posts in 2021 would amount to $11,406,250,000.
Facebook earned annual revenue of $85,695 million, or $85.6 billion in 2020. More than $84 billion of that was in advertising. Comparatively, $11.4 billion is small, but Facebook is currently earning nothing from user-generated posts apart from advertising. Besides, the platform could have earned fees for crypto transactions, advertising, peer-to-peer transactions, and other channels.
What’s far more exciting is how much income Facebook posters might have made in this scenario. At 100 billion posts per day, Facebook users would have earned a cumulative 300 million Facebits, or $375 million daily. That’s a total of $136,875,000,000 annual income for all posters combined. If we apply the 80/20 rule, the top 20 Facebook posters would earn $109.5 billion in 2021 between them, an average of $5.475 billion each.
Validators could have done well too. If we assume each validated block contained data for 5 Facebook posts, Facebook’s validators would have earned $15 million daily. Total income for all validators in 2021 would be $5.475 billion. Again, assuming the 80/20 rule, the top 20 validators would earn more than $4.3 billion, or $219 million each on average.
Facebook had 1.84 billion daily active users in December 2020, which means the average Facebook user in our fantasy scenario would earn a measly $59.51 a year. Right now, Facebook and its advertisers are the only entities making money off cat memes and selfies.
These tiny fragments of value add up over time. With 100 billion messages posted every day, users of our fantasy Facechain would earn a total of 300 million Facebits today alone while engaged Facechainers would earn 100 million Facebits. If you’re a typical Facebook user, you’d earn from both of those pools.
While it might be depressing to read what the average Facebook user could earn using these figures, keep in mind that half of them would be above the average. A good number will be in the top tier income earners. If history could be rewritten, it’s likely we’d be reading about Facebook millionaires just like we read about YouTube and Microsoft millionaires. But that’s only if Facebook posters had been generating cryptocurrencies for the past 18 years.
By the end of launch year, Facebook had 1 million active monthly users. If we assume the valuation was the same in December as in February, 1 million users earning 60 percent of the value would have tallied just $3 per month. Hardly encouraging, but let me introduce you to Bob.
Let’s say Bob joined Facebook on the day of launch. February 4, 2004. In the last month of that year, he’d have to split $3 with 1 million other users—a whopping 300 thousandth of a penny.
Of course, Bob’s no dummy. He’s got vision. He does one thing well. His one big contribution to Facebook, day in and day out, is making fun of Mark Zuckerberg. Every single post for 18 years is a satirical post about Facebook’s founder. And Bob earns 60 percent of every Facebit generated by those posts.
Let’s say he posts 50 times a day. Every day. (For comparison’s sake, the average Facebook user posts 54 times a day). How much can he earn making fun of Mark Zuckerberg 50 times a day?
On August 4, 2013, the earliest date for which CoinMarketCap has data for XRP, Ripple’s cryptocurrency was trading at a price of .005882. On April 8, 2021, it was at $1.06. Polkadot, on the other hand, launched in August 2020 at $2.90 and was at $41.71 on April 8, 2021. Different cryptocurrencies, different trajectories. To follow Bob’s progress, we’re going to assume a modest trajectory for Facebit. We’ll say it launched out of the gate at $.02 U.S. dollar (USD) and was valued at $10.50 in 2021 (Figure 6.2).
As a side note, I’ll say that, based on Facebook’s growth and reputation over the years, these valuations are very conservative.
You might notice that Facebit’s fictitious value fluctuates from year to year. That’s normal. The value of any cryptocurrency rises and falls minute to minute based on supply and demand, market activity, and significant events, both internal and external. Much like the stock market.
As Facebook’s platform grows in a number of users, it would be expected that its cryptocurrency would become more valuable as more people express an interest in it (both for investment and utility purposes). Likewise, as users begin to use the cryptocurrency and spend it on things such as advertising and buying items from other Facebook users, the more the marketplace itself values the cryptocurrency, causing dips and peaks in value.
While Facebit’s fictitious value would fluctuate from day to day, for the purpose of this case study, I’m going to assume that the values shown in Figure 6.2 are constant within the year noted.
In this scenario, Bob’s 50 Facebook posts per day in 2004 would generate a total of .25 Facebits (.005 per post). Since Bob would get 60 percent of those, his daily income would be .15 Facebits in 2004. At a value of 2 cents per Facebit, that’s a total daily income of .003 cents.
Multiply that by 365 and Bob’s first year income from making fun of Mark Zuckerberg all day every day would be a measly $1.095 (if Facebook had launched on January 1). But Bob is smart. He keeps his Facebit in his Facechain wallet and keeps posting funny pictures of Mark Zuckerberg. Zuck doesn’t care because he’s making money too.
At the end of 2005, Facebook had 5.5 million active monthly users. Throughout 2005, Bob the Facemeister continued posting 50 times a day for a total of 18,250 times that year. His posts generated a total of 91.25 Facebits valued at .39 USD each. Bob’s earnings for the year would be $21.3525 from 54.75 Facebits (60 percent of the total his posts generated).
In 2006, Bob earned $53.655 on his 54.75 Facebits.
In April 2007, when Facebook had 20 million users, Bob’s 54.75 annual Facebits earned him a total income of $72.27.
Again, because Bob is diligent, smart, and visionary, he kept his Facebits on Facebook where they belong. His total earnings so far, from 2005 to 2007, was $148.3725.
In August 2008, Facebook had 100 million users. Bob continued his diligent publishing pace of 50 posts per day. At the end of the year, he had earned $47.085. His total Facebit income to date was $195.4575.
In 2009, Bob earned a Facebook income of $54.2025. His total Facechain income for the past five years was $249.66.
Keeping the same diligent pace, year after year, Bob continued to make fun of Mark Zuckerberg. Every time Facebook made the news, Bob created a new post and satirized Facebook and its CEO. With each post, Bob became more popular. His posts received more shares, more likes, and more comments. He never relented. His total income at the end of 2021 was $3,633.21.
If that income doesn’t impress you, ask yourself how much you are making from your Facebook posts right now. Also consider the income potential if Bob was an above-average poster? If he had posted 200 times a day instead of 50, his Facebit income would be more than $2,000 in 2021 alone.
If that still seems low, consider that Bob is making money doing something he’d already be doing. He’s not spending additional time on Facebook. He’s converting the time he’s already spent into a few extra dollars. I haven’t even talked about other income variables such as staking, how much he could have earned by liking, commenting, and sharing the posts of others, or acting as a block validator.
Also, keep in mind that Bob is one person whose productivity was slightly less than average. And keep in mind that Facechain features such as advertising, post boosting, group and page management, and other platform activities could have earned Bob even more income if he’d had the opportunity to utilize them. For the rest of this chapter, we’ll explore some of those options to see how Bob could have increased his monthly income.
Because Facechain uses the DPOS consensus mechanism, Facebit holders can stake their cryptocurrency to increase their clout on the blockchain.
What that means, in simple terms, is that if you have 500 Facebits in your account at Facechain and your buddy from the other side of town has 5,000 Facebits, his influence on the blockchain is greater than yours. But that’s true only if you are staking your holdings.
There are several ways that staking can take place on a blockchain. Steemit has users move their STEEM into a special holding category called Steem Power. Users call it SP for short. The more SP a user has, the more their votes count when they vote for content. That, in turn, earns them and the content publisher more rewards.
The math can get a little funky, but here’s the nutshell version. In the first year that Bob started posting his satirical potshots at Mark Zuckerberg, his earnings were small. Just as well, his ability to stake those earnings was almost nonexistent. Over time, as he grew his account and earned more Facebit, his ability to stake that Facebit grew. If he chose to stake it, his power and influence on Facechain could grow with it.
Suppose that when Bob joined Facebook he purchased 10,000 Facebits and staked them immediately. The result would have been an automatic increase in power and influence. Essentially, a shortcut. As Facebit’s value grew, so too would the value of Bob’s staked Facebit.
Keeping the same values mentioned above, Bob’s initial investment in Facebit would have been only $200. In one year, that would have grown to $3,900. Assuming he staked his initial investment and never withdrew any of it, in 2021, the value of Bob’s initial $200 investment would be worth $105,000. What an incredible return! Bob would have earned money even if he’d never posted on Facebook.
Let’s take it a little further. What if Bob had added 10,000 Facebits to his account every year from 2004 to 2018? He would have $1.89 million in his Facechain account.
With staking, every time a user adds the staked cryptocurrency to his account, his power and influence on the blockchain increases. If he removes any staked cryptocurrency, his power and influence on the blockchain diminishes.
With more than 100,000 Facebits in his staking account, Bob could remove some of that in increments any time he wants without diminishing his power and influence relative to the power and influence of others on the blockchain. Let’s say that in January 2021, Bob removed 50,000 Facebits, a value of $525,000, and bought a house. Because Facebits are now valued at $10.50 each, he would still have more than $1.3 million in his Facechain staking account.
There is another way that staking benefits Bob. Let’s say that Facebook, at launch, decided it wanted to reward Facechain participants who stake their Facebits. They would want to do that to incentivize keeping Facebits within the Facechain economy.
Therefore, for every 10,000 Facebits staked, Facechain rewards users with an additional 10 percent in earnings from all rewards accrued. Suddenly, because of the effect of compound interest, Bob’s earnings from making fun of Mark Zuckerberg for 18 years increases every time he stakes more Facebits.
Staking benefits users, but it also benefits the blockchain and the entire cryptoeconomy.
An excerpt from my book Cryptosocial: How Cryptocurrencies Are Changing Social Media, published by Business Expert Press on March 10, 2022.
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Also published at Cryptocracy Substack. Not to be construed as financial advice.