I believe that Steem is one of the most interesting social experiments of our time. If you want to understand what Steem is (and what it isn’t), the white paper is the best place to start. With the recent update of Steem white paper there’s a need to rethink and summarize again its most important points.
The Steem white paper is for the content industry similar to what the Bitcoin white paper is for the crypto industry. It’s a must-read for everyone who wishes to understand not only the ideas, economics and inner mechanics behind Steem, but also where social media and content industry are heading in the near future. We Steemians are in fact very lucky because we already have the experience of living this future.
Having said that, I don’t blame anyone for not yet having read the 32-page Steemit white paper. In the age of microcontent we are normally averse to longer texts. So if you aren’t yet up to the original, make use of this short summary. I have omitted some technical details and less important points, but tried to keep all the essential ideas and principles.
What is Steem?
Steem is a content platform using cryptocurrency rewards to incentivize its participants and facilitate its growth. Еt aims to reshape the user generated content industry and build a million-user cryptocurrency-based content-driven economy.
The main idea Steem is trying to accomplish is that any valuable, meaningful contribution, however small or subjective, should be recognized and transparently rewarded.
- Every user is treated as a Steem cofounder and therefore should receive proportional ownership in the venture, be it profit or debt.
- All forms of contribution are equally valuable. Contributing attention and creativity is as valuable as contributing cash.
- Steem is a community creating services for its members, not for outside users. Steem services are curated content, a stable cryptocurrency with fee free transactions and jobs helping to provide these services.
- While other platforms use a one user, one vote principle, Steem is giving a user a vote weight proportional to her vested account balance, so those who contributed the most get the most influence. This is seen as a financial incentive to be constructive to maximize the long term investment value.
- Direct micropayments don’t work. On Steem, readers don’t pay authors directly but upvote or downvote content instead, letting the platform transparently determine and pay the rewards. Voting is a critically important contribution worthy of rewards proportional to overall post’s earnings and user vote weight.
Ways to Contribute
There are two main ways to contribute to Steem platform: capital contribution (buying Steem ownership or debt) and subjective contribution (creating and curating content).
Speaking about capital contribution, there are 3 classes of assets on Steem: two for ownership (Steem for liquid and Steem Power for vested assets) and one for debt (Steem Blockchain Dollars, or SBD).
- Steem is a liquid currency that can be bought or sold on exchanges.
- Steem Power (SP) is vested Steem which is locked for a fixed amount of time (currently 13 weeks). It’s a long term capital commitment.
- SBD is a debt instrument that can be converted to ownership (Steem). SBD is pegged to US dollar. SP holders elect trusted individuals called witnesses who are responsible for publishing reliable SBD price feeds so that the actual SBD to Steem conversion price is a median of all witnesses’ feeds.
As for subjective contribution, it’s based on the fact that most people have more free time than spare cash, so instead of buying-in they are given the opportunity of «working-in» by creating content.
Steem is viewed as a conglomerate of communities each having its own beliefs and values and rewarding different content.
To reward subjective contribution, these principles apply:
- Distribute a fixed amount of cryptocurrency at a time, regardless of how much work is done or how users vote.
- Reward anyone who does anything even remotely positive. Small rewards help reinforce the idea that bigger rewards are also possible.
- Prevent significant abuse by using negative voting and limit voting rate by using vote power diminishing with frequent votes.
Content creators receive 75% of what a post has earned, the rest goes to curators (readers who have voted for the post). Everyone gets 50% in SBD and 50% in SP. Comments have their own payout cycles.
- Delegated Proof of Stake (DPOS) consensus. In Steem, people with vested interest select trusted individuals (witnesses) responsible for including testimonies (blocks with transactions) to the public ledger. There are 21 witnesses in Steem (the 20 most voted for plus one randomly selected from the rest).
- Fee free. Unlike Bitcoin, Steem blockchain doesn’t charge for transactions as it would make using it counterproductive. Instead of micropayments, it uses bandwidth limit and account creation payment to prevent abuse.
- High-performance. Steem is capable of 1000 transactions per second and is able to scale to 10 000 or more with some improvements.
- Token distribution: after December 2016 new tokens are created at a yearly inflation rate of 9.5%. It will decrease for 0.5% per year reaching 0.95% in 20 years. 75% of new tokens constitute the reward pool, 15% go to Steem Power holders and 10% are paid to witnesses.
The biggest challenge the white paper names is to score individual contributions in a way perceiving as fair by the majority of participants. A widespread inequality, manipulation or abuse could cause members to lose faith in the system and go elsewhere.
In my opinion, it remains one of the biggest problems. First, for people from different social and cultural contexts, the idea of a fair reward could differ greatly for the same effort. Second, so far Steem is too small to provide statistically similar rewards for similar effort. And third, rewards depend more on a member’s position in a community than on her «real» (objectivized) contribution.