Critical Analysis of STEEM and Steemit

I read STEEM’s whitepaper last night, out of curiosity, after seeing some people on Instagram talking about it. It’s an innovative idea, but here’s my critical opinion, based on my 22 years living on the Internet.

STEEM’s price is currently rising fast. Very fast. Which makes it interesting. However, STEEM is not an altcoin in the traditional sense. Only 10% of STEEM is mined by miners. The other 90% is basically “printed” by the website. Also STEEM intentionally penalizes mining pools with a timing mechanism, and intentionally penalizes STEEM savers, pushing users to buy its virtual currency tokens that aren’t decentralized or P2P, and has various delays built into the system to discourage panic selling. Unlike Bitcoin, there’s no sense of scarcity.

In other words, it sounds like a weak network, from a cryptocurrency perspective. From the Steemit website’s perspective, they don’t really need their own “STEEM” coin. In this sense, the STEEM altcoin is more of a marketing device for the Steemit media property and vice versa. Users are lured by the coin, and then find the Reddit-like community, which exists to generate ad revenue, to create a market for the altcoin, and to promote the entire business.

I call it a business, because I don’t think STEEM can function without the Steemit website, which is the weakest link for holders of the STEEM altcoin. To what degree they’re inextricably connected, I’m not sure yet. I suspect Steemit will die eventually, like most media companies, and they should study the fate of Gather.com and Mahalo.com, which both rewarded users with tokens in exchange for content.

However, the concept could be interesting if STEEM had some kind of API that would effectively make the altcoin less dependent on the Steemit website. Steemit can detect abuse on its own website, more or less, but monitoring a network of API users would be difficult to patrol. If you open something to the public, things get messy, which is why social media companies have lawyers, lobbyists and “terms and conditions.” APIs and forums end up with lots of rules because of politics, bad actors, fraud, lawsuits, controversy, etc.

You get the feeling Steemit is a very elaborate escapist fantasy, that might just work if the website isn’t shut down and manages to keep users happy and civil. However, I would think of this as a game, for entertainment only. Because it’s not decentralized. I suspect the economic levers will be tweaked over time. I have not even logged in yet, but it sounds like a marvelous technical achievement, just in terms of all the moving parts and the complexity of the code and the math.

But I can’t help saying, this is a Chuck E. Cheese business model: cash > tokens > games > tickets. Steemit is very similar, and I won’t even use their terminology because it’s very confusing. Imagine if the “ticket” at Chuck E. Cheese was pegged to the dollar. That’s basically what a “Steem Dollar” is. But it will convert back into cryptocoins insead of toys.

Why is STEEM worth anything, with such a large marketcap? From a YouTube video I watched last night, you can buy Steemit tokens with Ethereum (ETH, a popular cryptocoin) which makes me wonder, why would anyone want the STEEM altcoin? I can’t see any reason. I’m wondering if the “investors” in STEEM (the altcoin) have the English comprehension skills to understand the whitepaper, which essentially says STEEM will be devalued by design, over time, in order to “reward” its users for continued participation. Once that’s understood universally, I suspect the marketcap will drop, but I could be wrong.

Steem “power” doesn’t double the first year. So it might be a while before people realize there’s no scarcity.

Is STEEM a requirement to withdraw (“power down”) value from the system? I’m not sure. If Steemit allows ETH and/or BTC withdrawals, I’m not sure why anyone would use the STEEM altcoin at all. Alternatively, requiring STEEM to “play” with Steemit would make a tedious process even more arduous, as altcoin exchanges are difficult to navigate, may have minimums and verification steps, and are questionably reliable: Mt. GOX and Cryptsy are two examples of failed exchanges.

A Steemit competitor could simply offer tokens in exchange for content and participation, that could be cashed out to Ether. That would be more straightforward. And we’ve seen that work before with publishing platforms offering Starbucks gift cards. Not a great business, but at least that way you have more control over the content.

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