Why Facebook and Twitter opened the door to NFTs

Facebook and Instagram are reportedly working on ways to let users display non-fungible tokens (NFTs) on their profiles, and on building a marketplace to let users buy and sell these digital art objects and collectibles. No sooner did the Financial Times break that news last week than Twitter launched a first version of its own NFT integration that lets people use their NFTs as profile pictures.

This represents a big change for the social-media giants, which mostly earn their money by taking full control of the data that users post on their platforms and harvesting it to drive engagement and target advertising. Unlike the pictures, videos and text that swirl through most of the social media universe, NFTs are digital assets that live off-platform, in blockchain databases that are not controlled by any individual or organisation.

The Twitter feature lets users link their accounts to their crypto wallets, the blockchain apps used to manage cryptocurrencies and other digital assets. Twitter then confirms that the user’s wallet holds a given NFT, and displays that NFT in a special hexagon-shaped frame that serves as proof of legitimate ownership.

For NFT owners, the opening to social media presents an opportunity to add value to their holdings, both by providing a new way to show off what they have and by broadening the circle of engagement beyond the population of established crypto users.

For social-media companies, the cost-benefit balance is delicate. In exchange for giving up some control of users’ digital assets, they gain an opportunity to retain and pick up NFT-obsessed customers who might otherwise move to newer platforms that might be more crypto-native.

By opening an NFT marketplace, Facebook’s and Instagram’s parent company Meta Platforms Inc. presumably also hopes to capitalise on the growing value of the NFT market itself, estimated to be worth more than $40bn. Buying and selling digital assets is complicated at the moment, requiring would-be participants to pass through multiple platforms and exposing them to risks of transaction failure and fraud. Meta could at least in principle provide an easy, intuitive digital-asset marketplace for its billions of users — which could be quite lucrative, especially if can run everything through its own transaction and payment-processing infrastructure.(1)

More ambitiously, the dominant social media companies could hope to influence the evolution of the web to their advantage.

A growing movement in web development and design is built around the idea of storing user data on blockchains, in a way that makes it freely accessible to any digital platform. It’s still far too early to know whether this so-called Web3 concept will catch on, and there are plenty of reasons for skepticism. But if it does take off, it could threaten the dominance of existing social media platforms, since holding proprietary user data is their lifeblood.

A world in which users hold most of their data in personal crypto wallets that they can carry from platform to platform would be hard for a few social media giants to dominate. If a competitor to Twitter showed up that was easier or more fun to use, for example, people could just port all of their data over by linking their crypto wallet to the new platform. (Think of it as analogous to carrying cash in a physical wallet. If you’re looking at a fruit stand and a new seller shows up with higher quality or a better price, you can just walk over and take your business to them.)

By anticipating such a shift now, Meta and Twitter can try to influence the development of the technology in ways that help them keep their users engaged. For example: If Meta builds the most accessible and easy-to-use NFT-buying interface, many people will probably choose to transact their business there rather than looking for other marketplaces. Plus the same data that powers Meta’s current advertising business can also help the company figure out which NFTs their users would be most interested in buying.

Even so, the fact that these platforms are building NFT integrations means that something about the internet has already started to change.

While it’s an open question how much the web will reorient around individual ownership of data and other digital assets, the fact that social media companies are taking the possibility seriously indicates there’s significant market pressure in that direction. And that probably means that even platform giants will have to start making digital assets like NFTs far more portable than they have done with other user data in the past.