A couple of weeks ago, I wrote about cryptocurrency. I worried that the surprise element was over. The ability to disrupt a market ends when the market's current monopolies adjust so that they can compete with the threat. And I feel like Visa, Mastercard, PayPal, and all the big “financial transaction” players are ready to roll out their own crypto if it ever takes off.
(Except Western Union is probably screwed. That business didn't adjust to the Internet, let alone crypto.)
Last week, I had a chance to look into Steem. I talked to a friend of mine who is into it, and even took a look at the white paper. There is something interesting going on there.
The website SteemIt is a social media platform that uses Steem as it's currency.
It's very important to separate out the Steem cryptocurrency (which is liquid and can be day traded) and Steem Dollars which is used on SteemIt (which cannot be traded). I'm being very careful to use the word “Steem” when I mean the crypto and Steem Dollars (or Steem Power) when I mean the website.
SteemIt (the website) is like Reddit. Except the members of the community have a chance to profit from their participation in it. The more active you are – the more content you share, like, and comment on, the more Steem Dollars you can make.
It's actually quite clever how they've set it up. I can't say I fully 100% understand it because as clever as it is, it's also quite complex. But from what I see, they've designed the system to encourage the best behaviors.
Every hour, some new Steem gets created and that gets distributed to the community by a formula. This is unlike Bitcoin, where the miners get all the new Bitcoin created.
So 75% of the rewards go to members of the community who creates, shares, likes and comments on content. At first, this seems to encourage “yeah way to go!” type comments and liking of everything. But those comments/likes do not earn you much money at all, so you're encouraged to write substantial stuff.
There seems to be this concept of “Voting Power”, and as you like and comment on things, you start to use your Voting Power available for use. It then gets reduced over time the more you use it. There's a process of recharging that percentage up over time as well. So it's kind of like a video game. If you use your power too much, it goes down to where it's very ineffective. And only rest recharges it.
This encourages you to use your power to comment and like, but not over-use it.
So out of the Steem Rewards pool, 75% goes to the community for active participation. 15% goes to people who hold Steem Power (a long-term investment). Like interest accruing on your bank balance, it encourages you not to cash out your Steem Power by restricting that action. And the final 10% goes to witnesses, who power the network.
Now if that's all there was, then that would be an interesting enough system. But wait, there's more.
If I am inactive, I can delegate my Steem Power to another person so that they can like and comment on posts on my behalf. That other person earns the rewards for those actions. So why would I do that? Well, because that other person will PAY me for borrowing my Steem Power. So it's like an investor earning interest on a loan!
And if you have something interesting to share, you can buy votes to get your post ranking higher on the website for others to see. So you go to these bots that have borrowed Steem Power, and pay them to upvote your stuff. This is like advertising!
In fact, you can profitably pay money to a bot to up vote your stuff, and earn that money back from the money you earn from posting it! Pay $5 and earn $6! A guaranteed rate of return most of the time.
And if your stuff is good and other people end up liking it too, then you'll earn even more.
So now you can see why some people are excited about SteemIt.
- It's a social network where interesting content is being shared and community is being formed. People are forming friendships and finding like minded others who share their interests, like Reddit.
- They can earn money from their participation. (Can't compare that to anything that exists.)
- Services exist that allow you to invest money in SteemIt and earn a high rate of interest for lending it out. (Investing!)
- Services exist that allow you to advertise or promote your content, and if it's good you can expect to earn much more back from the money you put in. (Paid profitable ads!)
- Steem is a cryptocurrency that goes up and down like any other cryto, and can be traded for Bitcoins and then to dollars.
The one caveat I would give is that there's a bit of a trap there. You can put money into it easily enough, but cashing out has a cool down period. It takes 13 weeks (3 months!) to fully withdraw your funds from there.
Which means that if the price of Steem spikes, you cannot suddenly cash out your Steem Power into dollars.