I've heard the term Ponzi Scheme thrown around as a means to defame Steem(it) since I started using the platform 2-3 months ago. A number of users have addressed this critique very eloquently in the past, and some not so eloquently, but I thought I would revisit this in light of the user base increasing by around 1,000 users per day, and this query arising more than Streem(it) deserves.
I will be going as far to say that, if Steem(it) is a Ponzi Scheme, all monetary systems on the planet must be Ponzi Schemes. Users who refer to Steem(it) as a Ponzi scheme, clearly don’t know what one is…
What is a Ponzi scheme
A Ponzi scheme is a fraud where by promises of high returns and quick payouts in a non-existent enterprise are fostered by early investors being paid out by money invested by later investors.
Example;
Bernie Madoff: He created a fake Options Trading Fund, which promised investors consistent 7-10% return no matter the market conditions. The fund in fact never traded, and he helped himself to the money of the investors, whilst supporting payouts, and the interest owed by bringing in more and more money from new investors. This all blew up when, the market crash in 2007, and he took on too much money (as he was seen as a safe haven). When people began to request their funds back in 2008, everything unraveled..
Watch 'Chasing Madoff' on Netflix is you would like to learn more (Great Documentary)
What is Steemit
Steemit is an economic system which rewards users contribution (Time/Labour) to the platform with Steem (Cryptocurrency).
It's essentially very similar to all monetary economic systems, at their simplest level, you put labour in, you get 'money' out which is exchangeable for goods and services. Depending on the trust in the system, the 'currency' buys you more or less goods and services.
All currencies experience a level of dilution set by (usually) the central bank. The central bank does this to try to control inflation, and economic prosperity. Steem is slightly different to a conventional currency, because the dilution rate is set at a high fixed amount per year, being 100%. This 100% is rewarded to;
90% goes to Users who have committed a Steem Investment for long term. This is kind of like, a company paying an interest rate on restricted stock, because it stabilises their share price in tumultuous times, preventing big holders dumping
10% goes to the Steemit 'workers'. The guys that keep the system moving, the Curators and Creators of Content.
The reason the inflation rate is high, is to incentivise users to contribute and stay with the project, and not just cash in quick and get out. It's also to penalise long term holders who do not contribute to Steemit or commit for the long haul.
For Steem(it) to be a Ponzi, there needs to be some sort of centralised influence who can steal from the users of the site (somehow) and cash in.
The beauty of being on the Blockchain is that the whole system is transparent, and this is not happening. I would go one step further, and state that the USD GBP EUR… exude more Ponzi like features with their (Central Bank and Governmental) actions coming out of the 2007 financial crisis, and still on going today, than Steem(it) ever has, ever will, ever can...
Where is the Confusion..
The confusion for whomever coins the term Ponzi alongside Steem(it) is that, they see users getting something for ‘free’, and selling it to someone joining the platform later than themselves. The thing is, Steem is not free, and it does have value.
Unit of Labour:
Steem represents a unit of labour in the same way as the US Dollar, and any other national currency. Steem is paid out as rewards in exchange for Content Creation and Content Curation. At it's simplest form, users essentially donate labour to Steemit in exchange for payment in Steem. The economics of the Steem(it) system are set up very similar to the real world. You put time in, you get rewards out. Let's not forget, the gold standard doesn't exist anymore, £ $ pretty much only represent a trusting the central bank, and represent a transferable unit of labour...
Power:
Steem’s monetary value began to make sense to me (after using the platform and accruing Steem Power for a few weeks) when my up votes started allocating $0.01+ of Steem Power/Dollars to all content I upvoted. Steem's value is in the POWER it gives the holders to reward content and writers they like, and incentivise them to continue to provide this content.
This completely quashes any argument related to this topic. Some users or commentators fail to see that each action on the Steem(it) platform is an exchange of labour, for which you get rewarded (paid) for. Ponzi scheme’s are a fraud where the underlying investment has zero value. Steem(it)’s value is based on the above, which will change depending on sentiment and trust, which is completely determined by the ‘market’ at large (the users), and not a central ‘shady’ authority.
Further Thoughts
What can you liken The Steem(it) System too..
You can think of Steem(it) in a number of ways currently. If you do not want to consider it's currency purposes just yet, you can think of Steemit as a money-less start up paying employees with Promissory Notes and Restricted Stock Options (like many startups do). This is not a perfect example, but bear with me..
All the employee's vote to try and quantify each other's performance, and Share Allocation is based on this democratic voting process. The Creators receive 50% Steem Dollars (Promissory Notes) and 50% Steem Power (Restricted Stock Options). In order to cash in short term, the Employee needs to find an investor who is attracted by the 10% coupon the promissory note pays, and someone who believes Steem(it) is here for the long-haul.
The Restricted Stock (Steem Power) has anti dilutionary properties (90% of Dillution is covered) and can be paid out, in the form of conventional stock (Steem), at a rate of 1/104th per week. The 'start-up' wants to protect it's investors by restricting the chances of a dump, before the project has got off the ground..
This concept is also highly aligned with Employee Share Save Schemes, breeding loyalty in the short term, and including sale restrictions to keep that employee loyal for the long haul too.
NOT a PONZI…
Steem Currency…
Steem(it) founders @ned and @dan are trying to create the first stable Cryptocurrency. The economic system has been set up for maximum circulation, and distribution to increase over time. Circulation is key. If you get a currency moving through as many hands as possible, as many times as possible, the price of that currency will naturally stabilise.
One final thought on the Ponzi topic. Ponzi scheme have zero true liquidity. Funds are control by one person, or a group of people, who can decide at what point to cut and run. Steem(it) has internal and external liquidity, with the price dictated by the open market. Every user, from the new members to the founders operate under the same rules and codes set on the Blockchain..
STILL NOT a PONZI…
I could go on, but I will thank you for listening instead, and open the floor up to anyone who has anything to add...
All the asshats that are screaming ponzi on here tend to forget the laws.
If STEEM was a ponzi.. ANd they are participating in it knowingly while calling it a ponzi.. They'll be incarcerated with the rest of them..
If you truly believed it was a ponzi.. You'd be no where near the site due to fear of legal repercussions and jail time.
Thanks @klye for joining me from steemit.chat. There is quiet some debate ongoing on there at the moment
I think people are forgetting the 'fraud' element needed for it to be a Ponzi... I don't believe I am wrong with that statement, but someone feel free to educate me...
Agreed. The bottom line is that while it is possible to invest in the STEEM ecosystem with fiat, it's also possible to invest entirely with time (by curating, engaging in the community, and writing about stuff that interests you). That's what makes the platform unique, and very un-ponzi like.
Also feels like the term "Ponzi" is thrown around way too liberally these days by people who don't understand what it means...oh, so you can make money here? Must be a Ponzi. :P
Basically, in the term Ponzi that is, as you say, so liberally thrown around by people who do not really understand its definition, pretty much ANY form of "investment" could be called a Ponzi.
These same people would say Stock Market trading, Bitcoin etc etc is a Ponzi...they seem to think Ponzi is just something that "appears" to be too good to be true...in reality, Stock Market / Bitcoin / Gold / Silver / Your favorite celebrities worn knickers, whatever you are buying as an "investment" could go either way in value, up or down, and no one is saying Steem(it) is a certainty to go up, therefore, not a Ponzi...
One could speculate that Steem(it) will be a success and therefore, hopefully, the price will go up, but it might not (even if it is a success the price of STEEM and $S might not go up), no one is saying to throw your whole life savings into STEEM and you will earn profit (as far as I've scene at least)...
@boarddavid seems like me and you are on the same page. Especially the later part of your post. Think that sums it up nicely. When a Real Ponzi blows up, people lives get ruined..
Thanks for the reply.
Quiet Right @nomoreheroes7
Ya, everything is a Ponzi scheme lol. I think it's a projection, cause the US dollar and that financial system is a Ponzi scheme. So buried in their subconscious they know they're surrounded by Ponzi. But Steem has an underlying purpose, to provide decentralized expression and social media.
Sigh.
First note "One final thought on the Ponzi topic. Ponzi scheme have zero true liquidity." NO, they don't. They have negative liquidity. If they had (and could maintain) zero liquidity they would actually work.
far below your typical post quality. I forgive you though because you rank up there with my favorite posters.
I understand that steem isnt a ponzi scheme, but I hate posts like this because they do three things.
1.They bring up steem in the context of a ponzi scheme. Which naturally makes one think that steem might be a ponzi scheme. Imagine there was a front page post on steemit every day titled "Ollie: Definitely doesnt have sex with cats. Im totally sure." Even if the titular claim was logically backed up, its not like it would help you get a job cat sitting.
2.which brings me to 2.. they never actually back up their claims. Theyre always ned and dan are awesome and theyre going to change the world and make everyone rich!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! there are literally that many exclamation points, then an explanation of the steem system and how its so great.... The main problem with this is that when you say XXX isnt a ponzi scheme, then you totally fail to provide proof that it isnt a ponzi scheme, it makes it look like a ponzi scheme. which brings me to
3.Because of 1 and 2 , You sound exactly like every piece of literature ever written by a MLM marketer, amyway salesman or other ponzi schemer. THey all have 100 reasons why theyre not a ponzi scheme. None directly related to use of investor funds. Thats what they do, They briefly address objections, basically long enough to mount an unsupported denial, then divert the conversation back to how awesome their MLM program or whatever is.
Also, as a side note, if it were true, the lack of a "central authority" might be a valid argument against steem being a ponzi scheme. However, there absolutely is a central authority that can steal users money. I don't believe they will, but if they have the power to "recover" hacked accounts, that means that they have the power to take control of accounts without the private key.
Even if this enterprise required approval from all 19 main witnesses, the owners/founders probably have enough vests to put accounts in all 19 spots, should they chose to do so.... I guess they dilute their votes so others get a chance , but just between steemit ned and dan they probably have enough to take all the spots.
Now you can argue that theres a million different reasons why they wont... but they absolutely have the power.
The account recovery feature does not allow a trustee to take control of an account. The private owner key IS required. In the case of a hacked account, the FORMER owner key IS required.
That moment when you realize your Steem reputation is higher than Ned's. ;)
Fair enough, i stand corrected on the point. though all those requirements could be vitiated with a hard fork. Which you and dan probably have enough votes to get if you want to. And you can and did (IIUC) shut down those accounts' WD and transfer abilities while you were figuring out the hard fork to allow for account recovery.
The point being, its fairly clear that if the powers that be decided they didnt want someone to have their steem for some reason, they could stop it from happening. I powered up 4000 yesterday, which speaks to my belief that it isnt going to happen, but yeah it absolutely could. The system is definitely not trustless like BTC, it depends on the integrity of the central elements...
Just as a further side note, if you really want to refute the ponzi allegation, this is the question you have to answer, becasue nothing else is directly relevant.
What would be the effect of making it so that value can only flow outwards? If it still works then, then its not a ponzi. Because thats what a ponzi scheme is, an economic system that endures by using incoming value, intended as capital investment, as outgoing revenue stream to pay liabilities created by previous investments.
That means no exchange of fait for SBD or steem, no powering up, no new accounts, no buying SBD with steem.
If the streets only go one way (out) and it still works, then you don't have a ponzi scheme.
@sigmajin leave that with me to mull over :)
@sigmajin Great post. Appreciate the effort you've gone too. I hope to run into you more in the future.
actually wrote a post about it...
https://steemit.com/steem/@sigmajin/an-actual-relevant-analysis-of-steem-and-why-its-really-not-a-ponzi-scheme
though joels (linked below) is just as good, i wouldnt have bothered if i had seen it.
Even if you write this, some people won't understand it. Doesn't matter what you do to explain, they'll just see things the way they want it. And will keep criticizing the things they don't undertand. It's just human nature.
@rnobrega There are some people who are are bigots, however many people are not. When I think back to when I started using this platform, ignorance lead me to think; 'Is this a Ponzi'?, however I have since come to understand the workings of the platform much better, and seen that Steemit is far away from a Ponzi.
Education and Discussion is key. If new users see other users chatting about such topics, they will begin to understand, and not fear the unknown...
you're right, people need to be educated and these topics should be discussed more. I support you
the way I see it, you need to BUY IN a pnzi scheme right?
And the gross of your buy-in goes to the top dogs, which are basically the only people that make real money at the expense of fools that get in "late".
So if a minnow joins today without buying is, is he making money for the "whales"? yes and no, because if STEEM increase so does the minnows value, albeit at a lower rate due to his small SP.
Isn't that the clearest sign of NOT ponzi scheme?
@razvanelulmarin Thanks for your post. I must be tired. Took me a while to get my head around your post (even though it is very clear).
I think the contention of some is that, some people are buying in, when others are profiting by selling there (labour earn) Steem to them. Your points are completely correct IMO, You can join for free, and the 'Whales' don't benefit directly (financially) from that.
The rules and conditions are the same for everyone on a TRANSPARENT Blockchain....
Prepare to be called either a fool or a liar :)
brightside... at least its "or"
Thanks @blakemiles84 I've enjoyed your posts recently. There is a massive debate ongoing in Steemit.Chat at the moment. It's a very polarising topic...
lulz! I would prefer to be called both. Simpler.
Something I didn't pay money to is not a ponzi scheme. Something that I give time and energy to in return for value is work.
It's always the same. When a new system is rising some call it a fraud. Why is it so? It's because they are afraid! Afraid of losing money, afraid of being not part of the new movement. My friends, don't be afraid and join us. We have space for all
Given that you have likened steem to USD, it would be very interesting to see a distribution of steem wealth time-series plot, as are created to show how unevenly USD wealth is distributed in the US. I'd imagine this would show an increasing percentage of outstanding steem power is owned by, say, the top 1% 'wealthiest' contributors (I'd like to be proven wrong). However, if I am correct, do we not end up with a community as discontented as the average American is with the distribution of dollar wealth in the US?
Last analysis I saw showed money being distributed to more people and away from the top.
I thought that would be the case. Thanks for clarification @dantheman
People or sock puppet accounts ran by whales? Unless every account is verified to belong to an actual human being, this platform will always get gamed and with the current "curation" system, vapid content will continue to bury the good stuff.
I want my time back but unfortunately, that's gone. At least get my info off of your ponzi scheme site and publicly apologize for misleading people.
Thanks for your post.
I will be doing a weekly Statistics Posts like this one every Saturday,
https://steemit.com/steemit/@hisnameisolllie/steemit-statistics-new-and-improved-weekly-edition
I will add in something a little more comprehensive than the current % of Steem Power the Top 10 Accounts Control: 79%. But I will be tracking everything over time, so we can build up a picture of which way these measures are moving. The aim of Steem is to become a stable currency, and to do this you need distribution. This has been built into the founders model, so I assume that we will see this distribution widening, and become less top heavy over time.
Also, the top 10 accounts will likely not be the 'Best' Contributors to the platform. It's up the the users to perform better in terms of Curation and Creation to slowly redistribute the 10% MCap reward system each year in their favour...
Being able to invest Time and Effort, not just dollars is the difference here i think...
I think that is important too @jasonpay1, time and effort are not free... Everyone is paying one way or another
The economics of steem are not that relevant compared to the single fact that anyone can make money by investing precisely 0 dollars. They will need to invest some time though to blog or comment.
Of course it's not a Ponzi. STTEM is open source system. people throwing this Ponzi-shit never have read White Paper. But in the same time it's complex high risk financial instrument, only time will show whether it'll work as planned. Don't want to take risk, buy bonds. Yesterday's show @Blakemiles84 and Tone: it's Ponzi! - no, I... - No, it's Ponzi, Ponzi etc..
Thanks for your post @busser. I was glad @blakemiles84 posted, as that video definitely brought me to posting this. Obviously i agree with you. Good point on the complexity too. The Steemit White Paper is a must read if you want to solidify your views on this topic..
Pretty clear to me. Nowadays people call ponzi to everything they don't understant or don't have the courage to join.
just posted this a few minutes ago:
https://steemit.com/ponzi/@rmach/clarifying-concepts-ponzi-vs-pyramid-vs-multi-level-marketing
Thanks for this post. I make the same point with mostly different arguments here: https://steemit.com/steemit/@joelkatz/steemit-is-not-a-ponzi-scheme
fuck wish i had noticed this before i actually wrote a post... its the first decent one ive seen
Good article. It's NOT a ponzi scheme. In fact, I think it's even better off than the USD as far as currency options go. I just did a comparison here.
so are you telling us that STEEM is a failed economic system? Good to know
I've had to explain over, and over, and over again to people who are convinced that this is a Ponzi scheme that it's an actual currency. Then again, most of these people are the same ones who still have high doubts about Bitcoin.
@winstonwolfe It's great for the early adopters. Commit earlier while the doubts sit back and do nothing. If this takes off, you won't need to ever tell them again.. A friend of mine put $50 in Bitcoin at a $1 price. I didn't 'get it' at the time, and got in much later. He got out at $800....
Nope. You're criticizing an argument you don't even understand.
The Ponzi comes from the fact that Vests are partially paid for by people who buy Vests.
This is a classic Ponzi.
When you sell the stock of a company, your profits are partially paid for by people who buy stock in the company. It's true of anything that appreciates in value that people who held the thing that appreciated in value benefit from selling that asset to people who buy it at the appreciated price, often themselves hoping to similarly profit. What makes a Ponzi scheme a Ponzi scheme is that, among other things, this is the only source of value and the appreciated price in no way reflects any actual value other than a claim on future investments.
Hmmm Please Elaborate.. I'm pretty sure I do understand, But am happy to get an education. Just because people buying something is the only reason it has value, doesn't make it a Ponzi. I will accept your argument if you believe all monetary systems are Ponzi schemes by the same measure...
If your not representing Bittrex, I really don't like your name. Think the term would be Typo Troll...
Vest disbursements (when you power down), are partially paid for by the people who are buying Vests.
This meets the definition of a ponzi.
And I'm not a typo troll, you should check my intro post!
No, theyre not. I made that mistake too at first. Youre misunderstanding how the money flows
Restricted Stock can be transferred between names, I have done so before on a few private companies I own.
Trust Deeds allow you to do so in the UK outside of a company OR, it is legally in the companies hands to refuse the change of names on ownership IF you want to do it officially... A bit of a petty argument from myself I accept..
I'm still lost. When you power down, your get 1/104th back per week, for 2 years. Whilst Powered up, no one central authority has any access to your Steem. This is not a Ponzi. A Ponzi is a Fraud.
Vests are created at 100% per annum regardless of whether people are buying on external markets. Users who decide to buy in (with currency) are buying into an economic System rather than Donating Labor to an economic system...
This is an economic construct to prevent dumping of Steem. Just like restrictive stock in the real world...My argument is not that Steem is a massive buy, it's that it certainly in not a Ponzi Scheme...
It's restricted tock with liquidation paid for not out of business profits or something analogous, but from other people buying the restricted stock. Ergo, ponzi.
Ponzi isn't a scam, it's an economic system. All ponzis aren't illegal. Pensions and welfare are Ponzis.
This is blatantly untrue. Powering down is an unlocking of VESTS into STEEM. All VESTS (Steem Power) are a representation of virtual STEEM. Powering down has nothing to do with other people buying STEEM or VESTS.
Thank you for all you have done for the users here @ned! You have literally changed my life (Sorry to be writing this in another users response). I wondered if connecting with steemit through a Weekly Audio Podcast might be something everyone could benefit if you have the time to check it out. I'd love to have your feedback, regardless of whether of not you find it deserving of a vote.
Exactly. Thanks for making this clear. Nothing worse than wrong information. Btw. @ned I tried to do something good for the community. https://steemit.com/steemit/@timsaid/to-all-the-fishes-out-there-read-this
I would like to know what you think
You can transfer ownership of restricted stock outside of a company, and it's very common.
Pensions and Welfare are kind of Ponzi scheme (grey), but not really. There is no one person with central authority, creaming money off the top, they are redistributions of wealth schemes.
I think we are working to different definitions of a Ponzi scheme;
Oxford English Dictionary: A form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors:
a classic Ponzi scheme built on treachery and lies
Um... based on your spelling, ive always assumed youre non-us. So maybe a restricted stock is different where you come from, but as the term is typically used in the states, you can't sell or transfer a restricted stock, at least until it vests (at which point its not really restricted anymore)
Just as insurance is seen as gambling in some islamic culture...and illegal.
I have just seen your post
https://steemit.com/steemit/@bitrrex/i-m-bitrrex-i-made-this-account-to-refund-people-who-make-mistakes
If this is your intention, I take it back RE: Typo Troll
We all know you made this post only to get money from whale. You even dont know what are you talking about. Steemit is classic ponzi.
@btc.ctb
For Steem(it) to be a Ponzi, there needs to be a centralised influence who can steal from the users of the site and cash in.
That's is the one feature that all Ponzi Schemes have in common. Bad Investment...That's your call. Ponzi,...No, By definition it is not.
What do you see to be the difference between USD and Steem...
First in first out, if steemit goes public I think some smart people will get attorneys, the paper trail is plan and voting pools are not hard to see, its kinda BS all around if you learn what to look for patterns. Im pissed about vote pools, they run up votes, like chop shops run up stocks
You apparently know nothing about economics. The US$ is the biggest ponzi scheme in the world. It's backed by absolutely nothing but violence and ignorant people's faith in it and they "print" "money" out of tin air constantly. Look up "fractional reserve banking" if you don't believe me.
So many "experts", so little critical thinking skills.
Well, clearly you have your own definition.
Which is fine, but its a tough definition to live by.
So i mean, you think usd is a ponzi scheme... and probably most other currencies too. And probably stocks and tbills too, so what do you do... just buy gold (or is that also a ponzi scheme) and hide it under your bed,
Well, I dont know if its an economic system or not, but its definately not a ponzi, there is a system that moves money around all the time, in a way that might risk its future existence, but it doesnt look like a ponzi at all.
Thanks for sharing your thoughts @simba
It is a pure pleasure to read your articles, the simplicity as well as the knowledge is profound. Thank you for such a clear explanation.
Enjoyed your analysis. Thanks
Awesome
How dare you compare a cryptocurrency like Steemit to the $USD. Everybody knows the dollar is the real Ponzi
You kinda rewrote my article, or its theme ... seems it worked way better for you. https://steemit.com/steemit/@sven.hennes/why-steemit-is-not-more-or-less-of-a-ponzi-than-any-other-financial-system