One of the long standing promises of the decentralized software movement has been that a social network would emerge where users would own their own data, and would have shared economics in the success of the network, since they are the ones actually contributing value to it. The Steem protocol, and their consumer friendly social content application, Steemit.com, launched earlier this year, as one of the first viable attempts at baking self-sustaining economics into a social content network. Since launch, they’ve been on a rollercoaster of hype, market cap fluctuations, and community emotions. There is a lot to critique in the protocol, and there’s a lot to speculate around as to whether the economic design actually makes sense and will create a viable, sustainable community over the long term. The team has worked hard to take feedback, observe the real world behavior, and adjust the protocol to try and ensure medium term stability. But rather than focus on what may need improvement within Steem, I want to point out three things that I really appreciate about the project.
- It’s a great onramp for users to the cryptocurrency economy.
- It’s a real world experiment of Delegated Proof of Stake (dPOS) at scale.
- It’s a functioning combination of Reputation + Curation + Reward Distribution that can be used as a platform.
How to get your first cryptocurrency
Interest in Bitcoin, and cryptocurrency in general, has crossed over into the mainstream media, but your average consumer doesn’t have any idea how to go about getting their first bitcoin. Buying it can be difficult due to the friction introduced by Know Your Customer laws, and state specific regulations around exchange products. Even if there’re straightforward, legal services, to buy bitcoin, going through all the steps involved is enough to block a mainstream user. Steemit is the first place I’ve seen that a regular consumer can earn cryptocurrency easily for taking normal actions that they’re familiar with, like writing a blog post, or curating/voting on content. As soon as a user earns Steem Dollars, which half of their rewards are paid out in immediately, they can optionally convert to other currencies of their choice via services like Shapeshift.
This is incredibly powerful, as once a user is onramped to the cryptocurrency economy, they can move between different currencies and tokens, and take advantage of the different economic opportunities and services that are now available to them. These range from traditional financial products like savings, loans, and insurance, to new income earning roles that token ownership entitles people to, such as serving as an Oracle on prediction markets. And of course a user who already holds cryptocurrency, and witnesses a little bit of passive appreciation, is more likely to get bought in to acquire more for speculation, or participate more within crypto projects, or build in the space. All are benefits for the community and for the individual who now has increased ownership over their financial well being due to the freedom and sovereignty that cryptocurrency provides.
Buying through traditional means creates huge barriers for much of the world to get involved in cryptocurrency, but services like Steem where the user can earn their first crypto instead of purchase it, do a lot to close the gap. (I’m personally thinking quite a bit these days about other ways to onramp users to crypto, and if you have ideas, definitely reach out to discuss them with me.)
Delegated Proof of Stake in the real world
Proof of work, or traditional cryptocurrency mining, has resulted in a secure network for Bitcoin, Ethereum, and other blockchains, but due to the large amount of power consumed and potential centralization of miners, there’s a lot of research going into Proof of Stake schemes. Many such schemes are theoretical, are potentially months or years away, or represent existential threats to existing networks with large amounts of value locked up, in the case that things don’t go smoothly with implementations and transitions. What Steem has already done, is launched a delegated proof of stake (dPOS) blockchain project, with a large amount of users, transactions, and fast block times. In this scheme, users use their voting power to elect a fixed amount (19) of “witnesses”, who take turns producing blocks. Users can also mine or wait in line to have a turn producing a block if they weren’t elected.
I like a few things about about this scheme, but one cool benefit is that Steem actually requires the witnesses to perform more necessary functions than just produce blocks. They have to input valuable data into the protocol to ensure proper economic functioning of the network. I like the idea that when there are more technical or specialty functions to be performed to ensure value of the network, the block rewards can be used as incentives to offset the cost that would otherwise have to be paid in order to perform these functions. This is quite powerful, as centralized networks that use to have to pay high costs for valuable compute or software services, now can get them for free or low price as a result of block reward incentives being used to compensate the providers.
Like many projects in the space, Steem is an experiment, and can hardly be called “in production”, despite having lots of users and value being moved around on the platform. But the fact that this experiment is being run live, and people can observe the results, fend off the attacks, and adjust on the way, is a great benefit for the learning of everyone in the ecosystem. Over time we’ll learn whether this consensus mechanism is as secure and resistant to attack and censorship as PoW or other proof of stake algorithms. In the meantime however, what we’re seeing is a dedicated network of witness candidates who not only produce blocks when it’s their turn, but contribute value to the ecosystem in other ways in order to validate their candidacy to be elected witness. If they don’t contribute value, they do a poor job, or the act against the interest of the network, they’ll lose their valuable role as a block-award earning witness, so incentives seem to be aligned to act in everyone’s best interest.
Reputation + Reward Distribution
When you introduce money into a system where people are use to acting for other non-financial incentives, users begin to act differently. They try to game the system, either directly by exploiting weaknesses in the design of the protocol, or subconsciously by tailoring their actions towards maximization of profit as opposed to what was previously driving the behavior. I have no doubt that Steem has suffered initially from some of these issues, and they’re likely doing what they can to offset it. But, one of the promises of blockchain technology is that applications and networks will start to have economic incentives embedded into them across all sorts of use cases, and when economic incentives exist, the protocols needs to account for how to divide up the money. And when starting from scratch, this is a tricky design to get right without exposing yourself to being gamed.
Steem may not have it 100% right just yet, but they do have a platform that accounts for many of the inputs that you would need to build from scratch in order to handle secure reward distribution within your protocol:
- user stake and reputation
- bandwidth limiting on participation
- multi-tiered reward distribution
One of the projects I’m working on is an attestation platform for smart contracts, and we thought that it would be great to include a bounty system along with voting, reputation, and curation to define the distribution. When we looked at building this from scratch, it seemed both challenging to get right from a secure design perspective, and like a lot to build that would otherwise be non-core to the real value our application is trying to deliver…especially as a side project. Steem is usable as a protocol to enable this today for certain use cases, and while it may not be drag and drop for our application or others just yet, with the right 3rd party tooling built on top of the protocol, it could get there as a go-to solution for curation and reward distribution as a platform.
I’m rooting for Steem to continue growing their network, and for finding the right economic balance between money coming into the network due to speculation and willingness to route attention, and money flowing out of the network to content creators and curators. Whether Steem gets there or not, the above aspects of the project have pushed the blockchain community forward, and will likely pop up in new forms in projects that are yet to come. I know I’m excited about incorporating many of the lessons learned from Steem in my work going forward.