Okay, so I have just finished reading the Steemit "White Paper."
The past week has been a whirlwind of excitement, skepticism, and sleepless nights for me, as it seems almost like a dream to be finally being paid for what I love to do: to create, write, analyze, think, research, etc.
Since starting here on Steemit, there are now Bitcoins in my wallet that were not there before, and I now have a vested interest and share in the value of the Steem blockchain. So how does all of this work? And how do we know that investors are simply not being duped into supporting some sort of social media "hype bubble" being inflated by an ingenious process of:
1. Paying users who have invested nothing to post content, thus generating massive user traffic and extreme hype (I JUST GOT PAID FOR FREAKING MAKING A POST ON SOCIAL MEDIA!!!)
which in turn...
2. ...brings in new investors and new users excited and hungry for a piece of the "free" pie.
3. Once these investors and users pump all their money in, the Steemit founders/major holders "dump" and jump out, stealing the value which had been invested by enthusiastic late users, and jet-setting off to the Caribbean.
Being the incurable skeptic I am, this thought disturbed me. However, I find a flaw in this line of thinking, and what seems to me to be a major one: Steem would have NO POWER and NO VALUE without a strong user base, and no significant user base can be generated by a crap product if the user base and investors have no choice but to curate the system and be vested in it.
Please take a look at this graphic I made to demonstrate:
Let's go left to right, starting from the yellow bubble.
Let's say the "scammer" (Steemit founders/primary investors) gets a great idea: "Let's make this blockchain-based social media site, get everyone excited about it by paying them for nothing, and then jump out just before interest in the platform dries up."
Users join and begin making money. They begin to invest. So do other more major, outside investors! The evil Steemit scammers begin greedily rubbing their paws together and salivating as their piled up supply of pre-mined Steem begins to take on more and more greasy, sublimely intoxicating, value!
NOTE: The wavy yellow bubble to the side makes mention of the fact that had Satoshi (Bitcoin blockchain creator) kept all of the Bitcoins from the beginning of the project, they would be effectively worth nothing, and this is an Econ. 101, fact. This point is also mentioned in the White Paper, page 42.
Scammy Steemit now must depend on its users to curate content skillfully and make smart decisions in regard to policy, in order to continue attracting more users and convincing future investors. Look at all the value being added to Steem!!! We are going to make a killing! MUAHAHAHAHAH!!!! WE ALREADY ARE!!!!
This thing is making a lot of money. We Scammy Steemit founders and original investors have a lot riding on this. It is still growing. It's getting HUGE!!! But...wait a second. With no control of the protocols and content due to not holding Steem Power, any yayhoo or group of yayhoos could holding SP could f#$% up the site, resulting in our beautiful scam bubble falling flat and taking us with it! We are gonna have to invest!
NOTE: Solely holding liquid Steem would totally destroy a scammer's chance to inflate the bubble, as only Steem Power gives ANYONE a vested say in what is valued or not on the Steem blockchain.
Dammit. We now have to invest in Steem Power, which can't be taken out immediatey if we decide to "dump." Even if we do, we are going to leave a lot of money in the form of SP behind to a community who could theoretically continue without us. DAMMIT! We shouldn't have used a blockchain!
NOTE: It takes two years to fully liquidate Steem Power.
Well, unless I am missing something, this scam seems pretty damn stupid. In order to make the scam work, the "scammers" are required to put in a bunch of money, time, and effort. If they do that, and it fails, they fail too, so they want it to succeed. If it succeeds, and everybody is flocking to it, why would they get out with so much vested in the operation and while still standing to gain so much? Can you see what I am saying here? All this is not to mention that the entire operation is based on a blockchain whose existence is not dependent upon the presence or participation of the founders/owners.
To close, I would like to share a few nuggets I found exceptionally valuable from the White Paper:
Our thesis is that the same techniques used to grow major social media platforms can be used to bootstrap a successful cryptocurrency.
-page 6.
I think it is really important to remember this. This social media platform is being used to kick-start a cryptocurrency. Where it will go from here, and its success and value, will be determined by the users of the platform and the currency itself.
As of May 1, 2016, over 98.49% of all STEEM has been converted to SP. This demonstrates that demand to hold long term dominates.
-page 38
I don't see any scammers sitting on a pile of volatile currency that they can dump at the drop of a hat here at all.
Finally,
It is the relative and intentional connectedness of information that gives it value.
-page 41
This is what makes Google so valuable. Facebook. Reddit. ALL OF THEM. It is the links connecting information that give these services utility and make them valuable to the user. Without a million zillion links generated by users, meaningfully connecting information, Google is just a silly and mostly useless record of how many times a site has been visited. The same is true of any venture: to the degree with which that venture can connect, provide, and curate information to its users, is it valuable. As a direct and powerful contributor to this process on Steemit, a single user's influence is exceptional when compared with other platforms.
Who is to say what the future brings? Maybe I will be buying a yacht in 5 years with my Steem. Maybe a burrito. Maybe I will be remembering an amazing and innovative experiment that was born in 2016 and paved the way for hundreds, thousands, or even millions of others. Either way, in the words of Lou Reed, "and I guess that I just don't know."
One thing I do know.
For now, I am here.
Invested, excited, and as always, skeptically hopeful.
Graham Smith is a Voluntaryist activist residing in Niigata City, Japan.
Very good insight. I agree with you that, if it is a scam, it was a poorly-crafted one. I'm more inclined to believe that the initial investors have much more to lose by trying to "pump and dump" and that they really don't have as much control over the quality of the site as they may think - if they think that.
It is certainly an interesting experiment and there is definitely a lot to work out, but it could turn into something promising. On the other hand, it could also turn into a colossal mess. Half the fun is not knowing!
By the way - that's a nice little flow chart you made! Who needs PowerPoint anyway?
Best looking scam I have ever seen!
Very creative and organic way to complete your thought. I too have faith that this little expirament might fall upward ;)
I love this post and the creative way you expressed your ideas. Thank you. :)
Dammit I misinterpreted the title and I thought you had an explanation of how it was all nonsense and doomed to failure and now I'm happy. Curse you, @kafkanarchy84 !
:P
very informative! Nice visual aid too! Thanks for the post
I really enjoyed your post and thought it was well done.
I'm a cryptocurrency newb, but from what I can tell, steemit.com is using STEEM to pay content creators and curators with monies collected from investors. The STEEM cryptocurrency began with a value of null, but investors who have exchanged other currency for STEEM have transferred value into STEEM. Unless steemit.com users are incentivized to transfer additional value into the STEEM by micro transactions or just by purchasing it, then I imagine the "well" of investor money will dry up and the value of STEEM will crash. All that STEEM POWER locked away for two years gaining interest in STEEM will be useless.
Which is precisely why investors and the creators themselves have a vested interest in making it work.
Are you saying that investors and creators will buy more STEEM because they want their existing STEEM holdings to maintain/increase in value? You see the problem. Writing blogs doesn't increase the value of STEEM unless someone pays for the content with another currency. Otherwise, you have a closed loop. Right now, all STEEM holders are riding on the value created by those who are buying STEEM(with another currency). If more money is leaving STEEM than entering, no amount of blog posts will save it from crashing.
How is this any different from Bitcoin? Of course there is a chance interest will be lost in any venture, and that venture will crash. That hardly makes it a scam. Some people are already accepting payment for physical goods in Steem, and it can be used to buy BTC as well.
Who said anything about STEEM or steemit.com being a scam? I haven't alleged that here. Let's look at how new currency is introduced into BitCoin and STEEM.
The BitCoin method of creating money is to do it slowly by compensating miners. This compensation is simply a tax on all BitCoin holders through dilution/inflation. New value isn't created; some of the existing value is simply redistributed to the miners by creating new coins/tokens. I would argue that one of the reasons people invest in BitCoin is that the dilution is happening at a rate that is predictable and relatively slow. There are MANY other factors why BitCoin has interested investors, but those are some that relate to this discussion.
The STEEM method of creating money is also through dilution, but through compensating content creators, curators, and STEEM POWER investors. A notable difference is the rate of dilution, which is much higher than BitCoin and the US dollar, about 100% per year. No one will want to hold onto STEEM because of the high rate of inflation against other established currency options. STEEM POWER doesn't solve this problem in my mind since the interest/dividends which are amazingly high are paid in...you got it: STEEM.
It's important to understand that all the value being stored in STEEM and being cashed out of STEEM was injected into STEEM by investors(people buying STEEM). If steemit.com users continue to cash out of STEEM at a higher rate than investors buy in, then the well of value will eventually dry up, and the value of STEEM will decline. As the value of STEEM declines, the rate of content creation will decrease and the volume of STEEM sales will increase.
Off the top of my head, there are two obvious solutions to this problem. Both involve finding new ways to inject value into STEEM.
I could be wrong. Maybe I'm missing something. But that's my humble and unqualified opinion.
And I am not saying they will buy MORE, but that they will be buying in SP, the long-term, vested interest.
Now I am angry at Steemit for being suckered in but can't get out of the habit. Is it also a kind of drug?
Love it. . . if steemit is a scam, it's the most poorly designed scam ever ;)
You've got my up-vote but it is rare that I excuse such use of sarcasm.
This is called "sustainable scamming": a scam that relies on building a legit and sustainable business that unscrupulously provides value to its unsuspecting users and lures them into coming back every day for more. It was about time someone call out this unethical enterprise! What Steem is doing is totally unfair to other scam coins.
The postvis insightful and well written. However, the fact that there are so many long articles trying to convince peoole that steem isn't a scam is suspicious in its own right.
You also ignored the allegations against the founders ot Steem, which accused them of mining 90% of the initial coins.
I addressed that. You have to read the article.
a small note about pre-mining is NOT addressing the problem. It very much looks like these guys did everything they could to make sure they control the STEEM market (including making initial mining extremely difficult to understand).
Pre-mining is a huge warning sign in any cryptocurrency, and the guys on Steemit definitely aren't too transparent with what they've been doing with the premined coins.