Having been involved social media for a couple of years and approaching 300 blogs at this particular site, like most I had given little thought to any down side of social media. But an article from our American cousins—who have been typically faster than us Luddite Brits to take up whatever new technology offers—brought me up short.

Having once been a network protocol guru in a former life, I had always been aware of the mechanisms of the internet and the way that the more sophisticated software of the so-called “Upper Layers” could slice and dice all the data passing through. Without ensuring end-to-end industrial-grade encryption (128-bit key & better), the internet is an eavesdropper’s paradise; not only content but even your browsing habits reveal much about you—especially things credit and government agencies might want to know.

Before you start to dismiss me as a paranoid survivor of the sixties, I would suggest you read an interesting piece in yesterday’s New York Times Sunday Review. Facebook Is Using  You was written by  Lori Andrews, a professor at the Chicago-Kent College of Law and does not restrict its concerns to Facebook. It seems that last week’s filing with US Government of Facebook’s Initial Public Offering (IPO) on the stock market is likely to net its founders a cool $65bn and this event was the trigger for her article.

Her beef is not with the IPO itself but with the fact that 85% of Facebook’s $3.2bn income last year came from advertising to its close-to-1bn users. That in itself is hardly remarkable. But what seems less well understood is that: a) The IPO valuation is based more on its access to your personal data than its current revenue and; b) The degree of targeting of advertising to your data is astonishingly sophisticated. As Prof Andrews says:

” If you indicate that you like cupcakes, live in a certain area and have invited friends over, expect an ad from a nearby bakery to appear on your page.”

Unlike the US, residents of the EU are somewhat protected by Freedom of Information legislation which restricts what data companies can hold on you without your knowledge and/or permission. But few of us make any effort to find out what that might be and US citizens are largely defenceless in this regard anyway.

But, worse than an invasion of privacy and even distortion of records being held on you, this can have far-reaching effects on your life. Unlike fifty years ago when most operated in a cash society, paying as we went, almost everyone nowadays relies on credit to buy most things, right down to paying for groceries with a debit card. That credit is rated by agencies over whom you have little or no control—much as Moodies could downrate the mighty US Government from AAA to AA+ without the Marines storming their building.

Those credit agencies are relying more and more on the highly sophisticated data they buy from social media companies. As Prof Andrews describes it:

“Ads that pop up on your screen might seem useful, or at worst, a nuisance. But they are much more than that. The bits and bytes about your life can easily be used against you. Whether you can obtain a job, credit or insurance can be based on your digital doppelgänger—and you may never know why you’ve been turned down.”

These credit rating agencies have become or work closely with data aggregators, whose job it is to string as much information together about you as they can.  Your application for credit could be declined not on the basis of your own finances or credit history, but on the basis of aggregate data—what other people whose likes and dislikes are similar to yours have done.

Perhaps the worst thing is that they may hold any data they like and interpret is as they wish and it can have a massive effect on you and your family’s lives. Again as Andrews puts it:

“If I’ve Googled “diabetes” for a friend or “date rape drugs” for a mystery I’m writing, data aggregators assume those searches reflect my own health and proclivities.”

Online advertising companies habitually contract with ISPs (internet service providers—every online user uses one) for large sums to monitor internet users’ activities and stream the data back to their own servers for analysis.

Europe is not yet at the stage of sophistication where demographics are used to ‘redline’ people—those living in a particular area are stygmatised because they are regarded as having, say, typically low credit ratings. The state of your own may not be considered: it is assumed that, because you live in a poor neighbourhood, you cannot be credit-worthy.

We have seen the beginnings of this, with bank branches shutting down is less well-to-do parts and effectively disenfranchising locals from normal banking services, including loans. As data aggregation becomes ever more sophisticated, not only will the geography become less important but social pressures to channel ambition are likely to appear. To quote Andrews again:

“When women are shown articles about celebrities rather than stock market trends, will they be less likely to develop financial savvy?”

This is deep stuff and has huge social implications. While I would not argue that social networking is, on balance, negative, I would say that we have all moved into unfamiliar territory where $85bn corporations like Facebook, while minting the dosh, have yet to develop any conscience about how they use our personal information. As usual, the legislation to assist in protecting us is still years away.