After the first payout on Steemit, I wrote a post wondering what kind of insults people would hurl at Steemit. Would they call it a scam? A Ponzi scheme? I thought it would be unlikely, because it would be very difficult to stick that label to a social media site. How wrong I was.
A few days ago, I entered a discussion with a friend about the merits of Steemit and Steem. He'd been listening to The Bitcoin Group and so he'd heard Tone Vays say a few times that Steemit was a Ponzi scheme, and knowing Tone's reputation for technical analysis, he'd put a lot of weight on that opinion. These are a few comments my friend made, with my responses.
"Early adopters get money from a larger base of later adopters."
I can say the same thing about Bitcoin. Of course, many people did say the same thing about Bitcoin, because they couldn't understand where the demand or the value would come from. Bitcoin has now demonstrated some staying power, and so of course people have to recognise that it has value beyond buying and selling - sending money pseudonymously or even mostly anonymously across the world, evading capital controls, and eventually, maintaining value better than the USD or even gold.
Steemit also offers value beyond getting paid out from later adopters - a social platform where a lot of the good content rises to the top, a social platform where people are rewarded, a community where people are incentivised to be cool to each other.
"Content creation is great but it doesn't create new money out of nothing."
Nobody is really saying that the money comes out of nothing.
With Bitcoin, if a miner obtained 1,000 bitcoins paying only his $100 electricity bill, but later sells them for $1,000 apiece, he certainly made what seems to be a disproportionate profit.
My claim in my article "Steemit's new economic paradigm" was that when people see the value of a system, shares in that system are valuable. With my example of the Bitcoin miner, where does the money come from? When he sells the coins, is it because the money comes out of nothing? Is it because Bitcoin is a Ponzi scheme, merely rewarding the early adopters with the money of the late adopters? Or is it because more people see the value, and the demand increases, thereby increasing the price? The asset is more or less the same, but the perception is different, and of course, the only way we can determine whether something is valuable, is through our own subjective perception.
"The payment/reward system is overly complicated and strongly incentive locking money into the system (over 2 years!) instead of cashing out."
To clarify, the first thing is, when you get paid for blogging, you get 50% in liquid Steem dollars, and 50% in illiquid Steem power - which can be cashed out in one-week intervals over a period of two years. Yes, it incentivises you to lock money into the system, but people don't just voluntarily lock money or keep money in the site for no reason, or merely because of the expectation of a greater payout like in a Ponzi scheme. They also do it to gain influence on the site immediately.
Is an annuity a Ponzi scheme? An annuity can be a Ponzi scheme, but just for the fact of it being an annuity doesn't make it a Ponzi scheme. Is a term deposit a Ponzi scheme?
Is a term deposit a Ponzi scheme? It incentivises you to put money into the bank for a fixed period - even more limiting than Steem power, because with Steem power you can start to cash out at any time. Again, a term deposit can be a Ponzi scheme, but just because it limits liquidity doesn't make it a Ponzi scheme.
"Even if you decide to cash out directly instead you are not allowed to do that, the money is locked in the system for 1 week as I understand it. A reason for this could be that that gives some time for new users to enter the base of the pyramid so that you that are a bit earlier/higher in the hierarchy and can get the new money that they put into the system."
This is incomplete information, which has unfortunately been spread by someone who didn't fully understand the system.
Yes, you have the option of converting Steem dollars to Steem over 7 days, giving you an average price over that week. But you don't have to do that. You can sell Steem dollars for Steem immediately on the internal exchange, or you can transfer them to Bittrex or Poloniex or Blocktrades and sell them for bitcoins immediately.
"The Steem that you are payed in has a very high inflation rate (0.19% per day)."
Not quite. As I said, you get paid in Steem dollars and Steem power. If you hold Steem dollars on the site, you receive interest of 10% per annum. If you hold Steem power on the site, you receive a lot of the inflation. At the moment I receive about 80 Steem per day for leaving that money vested in the site.
The other way of looking at it is, you pay inflation instead of transfer fees. Considering I'm normally the recipient of 10 or more transactions per day, plus the transactions in which I'm the sender, is it unreasonable to charge 0.19%?
Anything can be a Ponzi scheme. A trading platform/exchange can be a Ponzi scheme, as we saw with Mt.Gox. That doesn't mean that all exchanges are Ponzi schemes. With Mt.Gox, the withdrawal times grew and grew until nobody could get the money out, but that's a qualitatively different thing, from setting rules from the beginning on how the money may be withdrawn, deliberately, with the consent of the users, to increase stability.
It all comes down to this: Do you think that a system where people can create content and get paid, and people are incentivised to create good content, and good content rises to the top, where people can pay for influence on the site, is a valuable system? If such a thing is valuable, more valuable than the money being paid out, and the perception of its value is increasing faster than the money being paid out, then it is not a Ponzi scheme. People are signing up to the site, around 1000 per day. What is their perception of the value of the system?
If you say that the value of the system, and the perception of its value doesn't affect the fact that it is a Ponzi scheme, then you'll have to bite the bullet and say that Bitcoin is also a Ponzi scheme. Remember, Bitcoin doesn't make a profit. Bitcoin doesn't sell ads. Does the money paid out to miners come from nowhere? Or does it come from somewhere?
If you enjoyed this article, feel free to enjoy some others by me
Steemit's new economic paradigm: Why Steemit might just work
Steemit is not about luck: principles of successful Steemians
Several reasons why a mandatory minimum wage is a bad idea
When I hear the word Ponzi
It is not to the gangly mug shot I'm drawn
Instead my mind flashes to Fonzi
Steemit does not make me feel a pawn
No dime from my pocket or bank have I spent
So when they say Ponzi I am uncertain what they meant
So some are wealthy as they sit
How has that harmed anyone, even a bit?
Whether the money comes from mathematics of zero through nine
or from great content created from the heart and the mind
Any backed currency math or creation should be fine
Any new paradigm resistance to change you find
You sir are a god among mongoloids.
Draw me
Show me
So I can see
Me
Some people are buying into steem, those are paying for all the others. People who pay to power up are the ones who will be the losers.
When from your pocket a dollar bill you pull
Do you then also feel yourself a fool
Crypto-Currency may not be backed by gold
Yet neither is that bill that you now hold
A Banking Cartel that yanks the chain
Or other people with whom we gain
Whether something has value is from the people
It does not exist solely in the governments steeple
Sure some people do on journey us take
A journey that will end up being fake
Yet when the blockchain contains your stake
Will your head swivel as you look for a snake
If you still have a concern
From the white paper you should learn
If still you find yourself on the fence
That is for you, I'm not here to convince
I don't believe more in the dollar than in any blockchain. I know the dollar system is biased too.
That's not a good reason to buy into ponzi like schemes on the internet.
Ponzi LIKE is a better term
is the foundation firm
Yet even that does not mean it will fail
The schemes seem like they could be well
Schemes of the past that demanded you buy in
This you must do before you even begin
Then they continue and promise you fame
Yet all you end up doing is selling the same
If more people you convince spend their wealth
Supposedly you'll earn more almost by stealth
You can come here and spend not a thing
And you earn money for that which you bring
It is based on community and what its worth
For steem itself is a glorious new birth
Yeah, USD is not only fiat, it's in a lot worse of a situation that STEEM will ever be. Did some comparison at the end of this post just the other day. I like what you're saying.
In love with steemit!
My love for steemit is so great,
my heart melts for it 'til the dusk of day.
The night generates when it's away,
coins, loves 'til day's dawn.
Its beauty is great,
Wondering mind 'til it sees,
creating is all I do,
While waiting for the moment, for it to say "I do."
If married to steemit so too are you
o' lordy o' lordy what shall we do
are we at one in polygamy
I the spouse shaped pygmy
With this I am open as long as its free
a choice is given and given to thee
Life seems short and life seems long
Yet often tis such a somber song
@chaospoet I love that you dropped a few rhymes here and made like $800. How much does Tech-Nine get for a guest spot? You might be close
Is that truly the amount I should get?
That is more than I would have bet
I only thought I'd get one of them
And the rest would end up with him
Stealing his thunder was certainly no plan today
It is hard work to fashion a response this way
I normally in my other account you see
am long winded and talk endlessly
Here in this style it slows me down
It really makes me think and fashion my sound
If it ends up crazy as it may
I'll send some SBD your way
@chaospoet Thanks for the tip, much appreciated
Haha. Appreciate it, but you did well here today, so don't feel obligated.
In the modern age there are those who believe
That a cause is a thing to be worn on one's sleeve.
And so, we sell a cause. It's called a scause.
And wearing a scause gets you lots of applause.
We start with some plastic which is shirped by our shirpist
Then dip it in colors that show off your purpose.
There are green scauses for recycling, blue scauses for kitties,
And pink scauses that focus on nothing but titties.
Do you hate abortion? Ah! Then a white scause is for you!
Why not champion your scause with some sparkles and glue?
We make scauses for this! We make scauses for that!
Why there's even a scause for just being fat!
What's the matter? Can't think of a scause?
How about raising awareness for the hairs in your schnozz?
Let's just think of the thing that you care about most.
Then let's make it orange, like marmalade toast!
And now I'd like to say "thank you" for your coming down.
I'm off to go sell these in your little town!
South Park makes up things not so typical
Everything I have said here has been original
A scheme where previous owners sell an asset to later owners is not a Ponzie scheme. It's simply capitalism.
You can tell the difference between a Ponzi scheme and capitalism with the following test: what happens when the money stops coming in? In a Ponzi scheme the system collapses. No one has any asset of any value at all. In capitalism the asset just costs less.
An example is bitcoin. When people flee bitcoin after an exchange goes down or China passes an unfavorable law, bitcoin still has value. In all cases bitcoin holders have been able to go to an exchange and trade bitcoin for some other asset.
In a Ponzi scheme this can't be done--the asset is literally worthless.
I hope that helps.
Thanks @affiliate. That's a simple rule of thumb that anyone can apply to find out what's really going on.
Great post! Though I would phrase the Steem Power dynamic differently. Steem Power is not a currency so it is incapable of inflating or deflating. It is a direct, 1-to-1 IOU for the cryptocurrency (which would more accurately be described in this system as a crypto-commodity-money) called Steem. As more Steem are generated by the Steem algorithm, more IOUs can be distributed. The majority of those IOUs take the form of Steem Power. But just because IOUs are distributed, that does not mean that the underlying commodity-money will inflate or deflate in value just like distributing derivatives (which technically Steem Dollars and Steem Power ARE) does not necessarily create inflation. The question is whether the growing population and the value it produces will create sufficient demand for the underlying Steem to counter the increasing money supply. The fact that none of the criticisms of Steem involve productivity or population growth shows how unsophisticated they are. Video about this coming shortly :)
Brilliant, that's another great way to look at it. Thanks Andrew.
👍great article @churdtzu
Thank you sir! (or is it madam)
@churdtzu steps up to the plate. He's been pretty hot so far this season...
Pitcher winds up and the pitch!
Wow. Back, back.. that ball is GONE.
Hahaha thanks Blake. Much respect! You know, I almost didn't post this one because I thought people might be tired of the topic. I'm glad that people gained so much from it.
Steemit is not a Ponzi scheme, because by definition, a Ponzi scheme implies that new users are paying for the old users to cash out. This clearly isn't true. Steemit is not a scam by intent, however, there are still many questions about how it might grow and sustain.
However, there's still a real risk of the system collapsing under itself due to bad inflation and content incentivization issues. Now, are these concerns real? That's debatable. Perhaps inflation won't be a problem because the value of the network grows faster than the inflation rate. Tweaks to website itself, the flood of new users, and outside developers are already changing the meta-game of what kinds of content are incentivized on the platform. If the amount of good output greatly outweighs the amount of bad output, it is possible that Steemit can reach an escape velocity to truly take off and sustain.
This is a huge experimental system that has never been done before, so nobody really knows how this will turn out. But I'm very intrigued by the experiment and I'm looking forward to seeing how it will turn out.
Yes, that's right. Who can know if the parameters and incentives are set exactly right, though @dan and @ned have obviously designed the system very well. Maybe it will take a few tries to get it right, but as they say, the cat is out of the bag. This method of structuring a currency and service is most likely going to have a big effect on the world in the future no matter what.
Well said! It has opened my eyes up to crazy opportunities!
Hi @churdtzu,
Thanks for writing and sharing this with us, and what a great title. Is Steemit a Ponzi Scheme is worth a discussion, especially for those just joining Steemit, or for those who have been on the sidelines uncertain whether or not to join or participate by contributing to the community.
I'd have to agree with @chaospoet, I don't feel like a pawn at all. We are all working together to help build and establish the platform and currency. When we contribute to Steemit, we not only contribute to the community by being helpful and sharing our expertises, experiences, and strengths, but we are also helping build the cryptocurrency as well.
The definition of Ponzi Scheme according to Google is: a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
With that being said, and I'm not sure about everyone else, but I haven't invested any money in the platform, but I'm still reaping the benefits, so how can Steemit be a Ponzi Scheme when it doesn't even remotely come close to the definition of a Ponzi Scheme?
And then we have those who complain about the whales, but why even complain when they aren't taking any money from us. If anything, the whales are helping. Yeah, some of us started with nothing but I guarantee you that if you stick with Steemit and contribute regularly, you will eventually have a breakthrough and reap the benefits that the platform gives so freely.
My suggestion to anyone who is doubtful of the platform, try it and give it time. Post content regularly, join the conversation, share and upvote content that you love,and you will be successful on Steemit in some way, form or shape.
Upvoted!
Thanks again for writing this and sharing it with us.
Thanks @albertfall. I agree, we are building something here, and that's something which a lot of the critics are quick to overlook. People are putting in hard work to construct something, and it happens to be a site with a lot of content that search engines love.
I just did a little test, googling "how to make peanut butter fudge prison", to find an article that I read on Steemit earlier, that was posted about 8 hours ago. It came up eighth on the front page. This article comes up second on Google when I search for "Steemit Ponzi scheme". This platform really has the power to dominate search engines, and that's definitely something that not a lot of Ponzi schemes can do, or even most businesses.
Re: whales... I've read that, when you ask someone why their idea failed, people generally respond in one of two ways:
According to this little idea, the people who talk more about their own actions are the people who tend to be more successful. Seems to ring true in my experience, and it's also much more satisfying to focus on my own actions than wonder what could have happened if some external factor were changed.
Thanks for your comment and upvote, and have a good one!
You nailed it again @churdtzu,
Critics are overlooking that we are indeed helping build a social media platform as well as a cryptocurrency.
If we go back in time, circa 2004, a social media platform had just launched in beta, and its future was undecided. Critics weren't sure if the platform had any validity, and some betted against its success. That platform is Facebook, and today it boasts over 1.7 billion users.
Just like all new platforms that emerge, there will be critics and they will be silenced when the platform is successful.
Ranking on Google quickly isn't easy, and I didn't realize that Steemit content ranked so well on Google. This is great news because Google tends to love you (websites) when everyone else (users) loves you first. This tells me that Steemit is on the right road.
When it comes to whales and people criticizing the reward aspect of the platform, you're right. People tend to give things a try, but not long enough to allow themselves to succeed, or they cite other cases where people failed. There is a small subset however who do put in work and hustle every day until they succeeded or have a breakthrough, and that subset is us and the others who contribute to Steemit.
This reminds me of a quote by Henry Ford that goes a little something like this "Whether you think you can, or you think you can't--you're right." And this couldn't ring truer on Steemit or any area in life where a mindset change is required to be successful.
Remember everyone that success on Steemit or anywhere else requires a mindset change. Change your mindset, and you can very well change the outcome.
Thanks again @churdtzu!
In ALL ponzi schemes the newbies have to pay money and the prior newbies are paid with these new funds. As long as new newbies are coming in, everything looks fine. As soon as it stops,or even slows down, it collapses.
With steemit, newbies are not asked to pay anything. it is the reverse, they are paid! So if steemit was trying to be a ponzi, it really did a bad job and did it backwards.
most people have not even read https://steem.io/SteemWhitePaper.pdf, but are quick to conclude it must be a ponzi as it does sound too good to be true. However steemit is not a ponzi and it is pretty good. We just have to grow the userbase faster than the inflation rate and the price of STEEM will actually go up. most people get a vested interest by vesting and we all work toward the same goal.
The only thing steemit has in common with a ponzi is both ponzi and steemit have vowels in them. also ponzi has 5 letters and steemit 7, both are prime numbers.
From this, I think we can safely say that Steemit is Illuminati confirmed.
I've been buying and trading Crypto for over 4 years. I've heard it all before.
Oh, you missed out when Bitcoin was $5? It's a Ponzi. Competing coin is interfering with a coin you are backing? It's a Ponzi
Don't understand crypto? Must be a Ponzi? It's not backed by a government? You guessed it, Ponzi
Yes. I often think about what it would be like, telling someone in 2011 that in just a few short years, a single bitcoin will be worth $600. Of course they would say it was nonsense, and they probably wouldn't even bother to say "if it sounds too good to be true, it probably is."
To find opportunities that are almost too good to be true, you do have to consider the ones which look too good to be true, and of course, not just dismiss them as Ponzi schemes.
This has been one of the best works I have seen on the topic. It is clear to me that Mr. Vay is very emotionally against steem and hasn't enough of an in depth understanding to really throw the FUD he is throwing...
Glad to see the responses are so well thought out and obviously offered up by someone who has done their homework a bit more than Mr. Vay has. Getting by as an "expert" simply because you have a soap box to sit on doesn't really help unless you have the understanding to back it up so I suspect people will lose a bit of respect for him as he attempts to eat people alive based on half-truths and mischaracterizations (not to mention the apparent inability to make connections between his arguments against steem when compared to bitcoin).
Great work and thanks for posting. I went over and put in a few words toward that gent as well. Let's see if he responds.
Thanks @officialfuzzy.
I still have a lot of respect for Tone. I saw his presentation last year at Anarchapulco, and from what I remember, his predictions were pretty accurate. Also, he seems to be a friendly guy, though I suppose he let his passions get the better of him in that debate. We're all human, so there are probably a few lessons we can learn from that.
Hopefully if Tone has criticism in the future, it's based on accurate information, and it's more incisive.
tremendous post. sharing on facebook.
Cheers!
The money comes from the inherent value of the distributed social media network. There are plenty of ways to monetize steemit and generate further revenue, but that is not to say it does not have value generated right now by the content that is published on it.
Yes, agree 100%. Steemit seems to be taking over Google search results fast. Maybe soon, instead of seeing Wikipedia as the first search result for just about everything, it will be Steemit.
That would certainly stop me from having to see wikipedia begging for money.
Steemit is absolutely brilliant. It's hard to imagine how it could fail and easy to see how it will likely have over 100,000 users in a year. Not a ponzi scheme. As you stated... any new system of money could be viewed that way. This is less of a ponzi scheme than bitcoin as this has a built in use case that is being used right out of the gate!
Yes... "You only accept dollars because you expect that someone will accept them later! Greater fool theory!"
Well, isn't the world economy some sort of Ponzi scheme? One generation cashing out, leaving the debt for the next one
Pretty much, and in that case we don't even have a choice. Or we didn't; now we do.
I've had the sam3 conversation with my mate, and it all comes down to their misunderstanding of steemit. therfore my convo pretty much only is explaining how steemit works and less of a debate. any way i enjoy the points you bring up in here. thanks for the post.
Yes, it was the same with me and my friend, a very friendly conversation. It's good to have an open, amicable discussion... and actually I think Steemit is actually training me to do that - to think of ways in which I can phrase things more gently, to make people feel like they're being included and that their opinion is important. So, that's another reason to be grateful for Steemit. Cheers!
I wanted to respond but it got way too long so I posted my thoughts here
well written.
even though I learn more and more about the financial/economic model, there still are those same questions - and this post does a great job in further clarifying the matter. good stuff. :-)
Thanks @rok-sivante!
Very good article. Thank you.
I believe in Steemit and I guess we early adopters which write, comment, connect together like we do now, we all be very successul in this business here. I totally agree that everything is a Ponzisystem FIAT, Bitcoin and so on. Only the faith/ money/ time / effort which we put inside such a project that really matters.
I see many people which have allready have invested much and they all try to get more Steem Power. Me too :-)
Thanks Jo. Yes, the effort we put in, and the value that people see in the system are what's important.
lol. you are a genius!
Thanks @maykor15. I do my best!
Great post, @churdtzu! Really good questions with excellent responses. I'll keep this in mind next time I have to answer the same questions.
Thanks Luke!
Interesting post. People who don't have the time or energy to invest in investigating a system often go to the old standby of the "ponzi scheme", even with those shares that have skyrocketed, the people who had their finger on the pulse and got in early benefited the most. Of course thinking that money is the only way to add value is a fallacy. Time, creativity, attention are all equally valid currencies on the Internet. I think Steemit has struck the right balance.
Thanks @leighburke. I suppose that's something that's different in this crypto-era... With something like Facebook, or even Apple, people could see the company growing to an extent, before they could see that it had a share price, that the company had value. But with Steemit, the organisation can launch, and around the same time, the shares come out, and so it seems that the money came "out of nowhere".
James D'Angelo has a great video on this subject, talking about how the growth of a service like Twitter can happen without people knowing the value of the company, but with Bitcoin or other crypto, it's all out in the open, and so it seems very different.
There are many scammer who use the name value of Bitcoin or Blockchain. Becareful always.
How do i upvote? Can i down vote?
At the bottom of the post and of each comment, there's an arrow up button. There isn't a downvote exactly, but there is a flag button which is intended to mark spam or abusive material.
Brilliant! That's what I'm trying to understand.
In my thinking I came to the same conclusions. Thank you. I will read your other posts.
Thanks @poteshnik83, I'm glad it was illuminating for you.
Isn't technically every crypto currency a ponzi scheme?
Personally, I would say no, but I suppose it depends exactly what definition you use.
As an commoner, man from the streets, so to say, I think the ponzi-accusations come to mind when seeing all the high payouts posts are earning and even as a guy who understands all the mechanics behind the payouts and Steem Power, one just has hard time believing this all can be real. Now, I have heard of steemit being in the phase of currency distribution. If you could make a post about that and all the information available on it, I'd appreciate it greatly. I also would feel much better about the whole system, when posts are earning few k's max and not 20k's for simple introduction posts, as then the price of steem would be in place where it is supportable. And I expect this scenario to happen in coming year or two, which I personally hate as I hold steem power. Hopefully I'm totally wrong, which has happened before for me in cryptospace.
There is a book which name escapes me now, about Human thinking but all our concepts are imaginary.
NO.
https://steemit.com/introduceyourself/@charles-ponzi/charles-ponzi-businessman-and-con-artist-is-now-on-steemit
Charles P.
Thanks Charles, now we know better.