Book excerpt: The Influencer’s Dilemma (and why Elon Musk is probably right about Twitter)
The following in an excerpt from my new book: Re-Architecting Trust, The Curse of History and the Crypto Cure for Money, Markets and Platforms. It provides context on the ongoing breakdown of traditional social medial.
The prevalence of digital fakery is an underrated contributor to the breakdown of respect in every online setting. It leads to a toxic environment where the worst behaviors are rewarded. To see why, we must first recognize that online influence is valuable. Having a lot of likes, retweets, positive reviews, and followers is an asset, one that increasingly impacts the offline economy. A restaurant that has a lot of five-star reviews is more likely to get new customers and a pundit who has a lot of Twitter subscribers is more likely to get a book deal. The digital attestations of likes and followers and so on are a form of social capital, and everyone is motivated to acquire as much as they can. The question is how.
Some people try to acquire their social capital by doing something useful, like running a quality restaurant or putting out valuable content. They hustle, put in long hours, and work to earn every like, retweet, positive review, and follower. This is the social capital equivalent of proof of work: do the work, earn the reward. Other people cheat. They don’t put in the hours or hustle, they instead buy enough fake followers and reviews on the black market to make it look like they did. This is the social capital version of a Sybil attack. On any centralized platform such as Seamless or Twitter, the second group is guaranteed to win. As the comedian Groucho Marx once said, “the secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.”
To understand why, recall that the target audience — the consumers who order food from an app, watch TikTok videos, and subscribe to Instagram feeds — have no idea what’s real and what’s fake. Facebook doesn’t tell them what percentage of an Instagram influencer’s likes were generated by a click farm (if it did, advertising revenues would plummet). This lack of information puts every would-be influencer in a bind. If viewers can’t tell the difference between what’s real and what’s fake, then what’s the best strategy for becoming popular? Should they work hard to earn real users or pay up to acquire fake ones? The answer is both. After all, those who decide to both build and buy will always be more popular than those who only do one. In game theory, this is known as the Nash equilibrium. In real life, it’s a race to the bottom.
But now we have a new problem because Instagram users aren’t that gullible. They understand that some chicanery is going on. There are too many content creators who are suspiciously popular, and the numbers only ever go up, sometimes too quickly. There are also academic studies and media reports that confirm their suspicions. But there is no obvious tell, so the most reasonable response from the users perspective is to assume that everything is a little fake, and to discount every number — every like, retweet, five-star review, and follower count — accordingly. Since tomorrow will bring more fakery, then discount a little more with each passing day. It helps that the human brain is uniquely adept at performing this invisible calculus. People have been doing it for millennia. Not with social capital of course, but with money.
Online social capital in any centralized setting is an inflationary currency. It does not enjoy scarcity of any kind and is easy to counterfeit so its purchasing power falls on a daily basis. That’s why it takes much higher numbers to impress users today than it used to. Here the world’s centralized platform operators are even more irresponsible than central banks. The Federal Reserve might be profligate with its printing, but it at least tries to preserve the integrity of its currency after it’s been issued. That’s why $100 bills are difficult to counterfeit. One hundred (or one hundred thousand) likes on any social media platform, on the other hand, are easy to counterfeit.
In economics, Gresham’s Law is the phenomenon by which “bad money eventually drives out good.” It’s more of a principle than a law but explains why lower quality representations of the same currency, like diluted coins with less gold that still have the same face value, tend to force higher quality money out of circulation. It’s best understood from the perspective of ordinary people making sensible decisions. In any economy where legal tender laws force citizens to treat coins of different metal content as having the same value, people are going to try to spend the diluted coins (to get rid of them) and save the denser ones. Maybe the laws will be changed, or the currency will fail, and all coins will have to be melted down to capture their pure metallic value. A similar phenomenon also explains why Bitcoin is increasingly viewed as a store of value, not the medium of exchange it was invented to be. The more fiat money that is printed by the world’s central banks, the greater the perception that fiat is a form of bad money, leading people to want to spend their dollars and hoard their bitcoins.
Kabessa’s Law is the social capital equivalent of this dynamic, named after a popular crypto pundit who first postulated the dilemma that every would-be influencer faces in a centralized setting — to build or to buy. This law states that counterfeit online social capital eventually drives out the quality kind, taking over. The higher the percentage of fake activity on any platform, the lower the incentive to bother trying to create the real deal. Put differently, the easier it is to buy one thousand Twitter followers, the lower the incentive to try to earn one.
About the book: Re-Architecting Trust is a thought-provoking exploration of how decentralized blockchain networks and the digital assets that they enable can reinvent our most important trust frameworks by creating new types of money, reinvigorating how we transact the old kind, disintermediating the least trustworthy financial institutions, and enabling meaningful business models for artists and influencers. You can order a copy here
