Michael Zagari

The Power of a Network Effect

Today, we live in a world where large tech companies collect massive amounts of our data and in exchange, provide us with a variety of use cases, mostly at little to no cost.

We sign up for Instagram to share pictures and experiences. Pinterest to create a mood board or Uber to deliver tonight’s dinner.

Rarely do we read the fine print, yet we give away our personal information without any hesitation.

Is it because the technology is that good? Or is it because we don’t fully understand what exactly we are giving up just so that we can stay connected with each other?

If you’re on any social media platforms today, you have already experienced the power of network effects.

The Internet is a great example of a network effect. Decades ago, there were few users on the Internet since it offered little value to anyone outside of military and academics.

However, as the Internet formed into mainstream adoption, users gained access to the Internet to produce or view content and access services. The development and improvement of websites attracted more users to connect and do business with each other. As the Internet experienced increases in traffic, it offered more value, leading to a network effect.

What we have today are silos of data harvested by big tech companies all competing, simply to gain your attention and keep you engaged on their networks.

So, what exactly is the problem? First, if you are not paying for the product, you are the product.

I pulled that line from The Social Dilemma; a popular Netflix documentary and I must admit. That line really stuck with me because it made sense on so many levels.

If you think about it, it’s the advertiser on these networks that pay big tech companies. Not the users. I didn’t pay a dime to access Instagram or LinkedIn so what exactly did I give up to access these networks?

The answer is my privacy.

With social media, your buy-in is your data. But are you giving up more than you think?

Take for example Snapchat, TikTok or Apple.

Not only are you providing a variety of data to these networks, but you’re also sharing your personal location, interests, and daily routines. Your data is being shared and analyzed with potential motives such as financial interests or desire to form a network effect. In other words, making it very difficult for you to leave these networks because so many people within your own circle use the same service.

Privacy? What privacy?

If you’re wondering if your phone is actually picking up on your private conversations, the answer is yes. Mostly through virtual assistant apps, that is.

First came Siri in 2011, then came Google Assistant, and then Alexa and Microsoft’s Cortana all followed.

Each with the intent to serve users by listening to their demands, whether it’s making phone calls, sending texts, or scheduling appointments.

The last few years, data privacy has become a greater concern in response to those unintended consequences. Users like you and I, are starting to see the effects and implications of our data being shared and utilized by companies. Lawmakers and politicians are equally raising questions about the way user data is being used.

Adoption of Law

Most of the population still does not truly understand how valuable their data is. Yet, it is slowly creeping into our society through issues like polarization, misinformation, confirmation bias and other negative influences.

In response, to these unintentional consequences, regulation is forming.

Lawmakers have enforced data privacy laws such as the GDPR, which is the General Data Protection Regulation established by EU law. The CCPA is another example. The CCPA refers to the California Consumer Privacy Act. This is a state law intended to enhance privacy rights and consumer protection for residents of California.

These laws are certainly needed today and hold good intentions however they simply don’t go far enough to protect user privacy. Instead, they mostly allow businesses to check off a few boxes.

A lot more work needs to be done, and the internet will need to fundamentally change to support a healthier relationship between companies and user privacy.

This is where Web 3.0 could be the answer.

The Future of the Internet

Unlike Web 2.0, where users can read and write, in other words, view content and build applications, Web 3.0 enables a world where users can own and be properly compensated for their data.

Yes, privacy laws do enable users to have more data rights than they did prior to 2018. Users in certain regions are now able to gain access to, manage and even delete their data in certain cases. While this is a good start, it’s still often quite difficult to know how to gain access to your data, how it was used and how to restrict or delete access to it.

So, where do we go from here? How can Web 3.0 drive privacy? This is where the blockchain comes into the picture.

Imagine a future where users’ data belongs to them transparently and is not owned by any one entity, and where users can clearly see who has access to their data and what type of access they have.

The blockchain is attractive for internet users who want control over their own data.

First, blockchain is a decentralized form of technology that allows no particular person or group to have full control of an ecosystem. Rather, all users collectively can retain control. While there is no single governing entity in blockchain, blockchain is a database that holds records using algorithms to ensure security and transparency.

Secondly, the creation of proper incentives in the ecosystem.

Blockchain frameworks that have the most potential, have seriously considered the incentives to ensure that all participants, from those who maintain the ledger and power the network to the businesses that build on top of the blockchain, actually operate fairly and transparently. When they do not, these participants can be punished based on the rules of the blockchain or collective voting.

It is realistic to imagine that internet users can and will still share their data, but they will know exactly how it’s used. If blockchain is executed properly, users should decide when, how and how long to share their data. If a company sells user data to a third party, the user should know which companies it has been sold to. If searches in Google are used to predict and show internet users a particular ad, they should know this too. At least, that is my opinion.

Speaking about controlling our own data. Users can revoke the data they share at any time. If a user is not comfortable with how their data is used or is no longer interested in sharing data with a particular company, they will ideally be able to revoke access.

And finally, the blockchain is less hackable. Blockchain is designed to be computationally impossible to hack today due to several safeguards. The mass, global adoption of Bitcoin clearly shows that blockchain is impossible to hack thus far.

As the race against hackers ramps up, blockchain technology offers additional protections.

What Is This Week’s Takeaway?

While we might be years away from mass adoption of blockchain technologies, I believe businesses including big tech companies, can be ready and positioned for a privacy-driven future to survive and thrive.

Companies of all sizes who occupied space in digital world should be honest and transparent with how user data is used. The more a business shares, the more likely the user is to trust the business.

I believe Web 3.0 is the future and can solve many problems we have today, including privacy controls.

Have a great weekend!

Talk soon,

Michael Zagari

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