The Social Network Doling Out Millions in Ephemeral Money
Every time you log onto Facebook, Instagram, or Twitter to share a photo or post an article, you give up a piece of yourself in exchange for entertainment. This is the way of the modern world: Smart companies build apps and websites that keep our eyeballs engaged, and we reward them with our data and attention, which benefit their bottom line.
Steemit, a nascent social media platform, is trying to change all that by rewarding its users with cold, hard cash in the form of a cryptocurrency. Everything that you do on Steemit—every post, every comment, and every like—translates to a fraction of a digital currency called Steem. Over time, as Steem accumulates, it can be cashed out for normal currency. (Or held, if you think Steem is headed for a bright future.)
The idea for Steemit began with a white paper, which quietly spread among a small community of techies when it was released in March 2016. The exhaustive 44-page overview wasn’t intended for a general audience, but the document contained a powerful message. User-generated content, the authors argued, had created billions of dollars of value for the shareholders of social media companies. Yet while moguls like Mark Zuckerberg got rich, the content creators who fueled networks like Facebook got nothing. Steemit’s creators outlined their intention to challenge that power imbalance by putting a value on contributions: “Steem is the first cryptocurrency that attempts to accurately and transparently reward…[the] individuals who make subjective contributions to its community.”
A minuscule but dedicated audience rallied around Steemit, posting stories and experimenting with the form to discover what posts attracted the most votes and comments. When Steemit released its first payouts that July, three months after launch, things got serious.
Cryptocurrencies like Bitcoin are only worth whatever value people ascribe to them, so there was no guarantee that the tokens dropping into Steemit accounts would ever be worth anything. Yet the Steem that rolled out to users translated to more than $1.2 million in American dollars. Overnight, the little-known currency spiked to a $350 million market capitalization—momentarily rocketing it into the rare company of Bitcoin and Ethereum, the world’s highest-valued cryptocurrencies.
Today, Steem’s market capitalization has settled in the vicinity of $294 million. One Steem is worth slightly more than one United States Dollar, and the currency remains a regular presence at the edge of the top 20 most traded digital currencies.
It’s a precipitous rise for a company that just 18 months ago existed only as an idea in the minds of its founders. More than $30 million worth of Steem has been distributed to over 50,000 users since its launch, according to company reports. It’s too early to know whether Steemit can hold onto its users’ interest and its market value. But its goal—upending a model built by social media giants over decades of use in favor of a more populist system—is significant in itself. By removing the middlemen and allowing users to profit directly from the networks they participate in, Steemit could provide a roadmap to a more equitable social network.
Or users could get bored or distracted by something newer and shinier and abandon it. The possibility of a popped bubble looms over every cryptocurrency, and the bubbles are filled with both attention and speculative investment. Steemit’s value is based on money that its founders have virtually willed into existence. Fortunes could vanish at any moment, but someone stands to get rich in the process.
The creators of Steemit didn’t set out to build a social network. When Ned Scott and Dan Larimer first spoke on the phone in mid-2015, having previously chatted online, they began dreaming up new applications for blockchains—the distributed, verified databases that back today’s wave of digital currencies. Scott, a former financial analyst, was fascinated by the economics that drive cryptocurrencies. Larimer, a computer scientist, already had cryptocurrency bona fides, having developed an ambitious exchange called BitShares.
At first, they were intrigued by the idea of using the hivemind trust of blockchain to create an insurance network. They wondered if they could incentivize a group of people to pool money, which could then be drawn upon by an individual in the event of an accident or emergency—a kind of libertarian backup plan.
But in order to make it work, they needed a way to hold people accountable. Their plan hinged on building a robust communications forum. By linking people’s accounts to their discussions, each individual’s claims and communications would be both able to be audited and unable to be censored. The community would have to evaluate each claim, voting the best posts towards the top. That’s when the wider scope of their project took shape. “We realized that this is going to look a lot like Reddit,” says Scott, “but people are going to get paid for participating.”
Today, Scott supports the software development of the platform and currency from the company headquarters in Austin, Texas, alongside a distributed team of 30 staff worldwide. Larimer resigned from his role as chief technology officer in March, but continues to post on Steemit; the pair published a joint statement announcing the separation, emphasizing that they “parted on amicable terms without dispute.”
At its core, Steemit looks a lot like any other social network. The most popular tags include things like photography, life, travel, art, and, perhaps unsurprisingly, Steemit itself. Scott’s favorite success stories involve people who use the site to both document and fund their explorations—like a travel blogger and photographer (username: @heiditravels; 5,904 followers) who has funded her trips around the world with Steem, and a young man in West Africa (@infovore; 3,479 followers) who started a popular “Steem magazine” about the currency and its pop-up community. @infovore’s regular posts earned him a global audience, as well as the equivalent of $41,000 in virtual currency during his first few months on the site.
According to Scott, Steemit boasts an “incredibly small” number of trolls, which he argues is because of the cash incentive. (It could also be due to the relatively small community, which includes around 350,000 registered accounts as of September.) “For the first time, there’s an opportunity cost to trolling,” says the cofounder. “Every second that someone spends trolling, they’re potentially damaging their reputation and preventing themselves from earning any Steem.” New users are also encouraged to introduce themselves to the community, and take a photo of their smiling face in order to verify their account, which may be a contributing factor: So far, it seems that anonymity is less prized on Steemit than on Reddit, where “throwaway” accounts are commonplace.
You might have heard of Bitcoin mining operations where racks of powerful PC processors are dedicated to solving complex mathematical problems. Their electricity bills are enormous, but so are the potential rewards for mining Bitcoin, which is likely to become more valuable—and more difficult to mine—as the currency approaches its maximum circulation of 21 million coins. In these more traditional “proof-of-work” blockchains, tokens are distributed to the people whose computers are performing work, known as “miners.”
Steem is designed differently. Its tokens are generated at a fixed rate of one block every three seconds, which are then distributed to various parties in the system based on the blockchain’s rules. These parties are incentivized to compete in ways that add value to the network: 75 percent of new tokens are distributed to the “rewards pool” for content creators and curators, while smaller fractions are awarded to vested token holders.
Steemit’s function is rooted in transparency. Every action a user makes on the site is logged on the blockchain—meaning every vote, currency transfer, and even the amount of Steem sitting in someone’s digital wallet, is public and viewable. There are two ways of earning Steem. The first is the “rewards pool” of digital tokens, which incentivize content creation and curation—in other words, quality posts that are upvoted by other users. The second is a voting system which assigns a value to each post and comment on the platform, and then distributes Steem tokens to the creators based on the wisdom of the crowd. The more users that upvote your posts on Steemit, the more Steem you’ll earn, which can then be cashed out of your wallet using an online currency exchange.
Much like Reddit, Steemit is an experiment in group psychology, where the human hivemind (as tallied by individual votes) determines the most popular—and lucrative—content. In contrast, invisible but immensely powerful algorithms control what each Facebook and Instagram user sees in their feeds. “On Reddit, there are people who put up links and posts, and are then accused of ‘karma whoring’—or basically, selling out to get these worthless internet points,” says Scott. “On Steemit, people show up to earn Steem. They’re posting and linking stuff, and they’re earning something that’s worth real money.”
A weighted voting system places greater value on votes placed by the older accounts of early Steemit adopters, who appear to be in it for the long haul. While a vote from a brand-new user may be worth a fraction of a cent, a vote from someone who has gained a reputation for posting quality content each day might be worth several dollars. In turn, the valuable votes of these “power users” attract votes from a crowd of less powerful users seeking to cash in on the action, like ants jostling for crumbs.
Under this weighted model, individuals who have contributed the most to the platform have greater influence over how other contributions are scored—which creates a snowballing effect. Some have argued that this system unfairly benefits the founders and those in their network who were attracted early to Steemit. Case in point: My own year-old Steemit account (@andrewmcmillen) is worth approximately USD $1,300. As of early October Ned Scott’s account, @ned, has an estimated account value of USD $5.08 million.
Cryptocurrency has been all but impenetrable for the average person, who might struggle to recall a handful of computer passwords, let alone safely store the proverbial keys to a virtual bank account. It exists as an esoteric part of modern life. Only the most motivated users have educated themselves about how to trade real dollars for currency, and then use said currency to their advantage. The rise of Bitcoin, for instance, is linked to black markets; once someone figured out it could facilitate the distribution of drugs through sites on the dark web, like Silk Road, the currency’s value took off. Today, Bitcoin accounts for a little less than half of the entire cryptocurrency trading market; its nearest competitor is Ethereum, which occupies about 20 percent.
But the most innovative aspect of Steem is its lack of friction: New users can join Steemit and begin earning tiny fractions of the currency immediately, without even understanding how it works. It is designed as cryptocurrency for the masses, as the barriers to entry are almost nonexistent. Unlike Bitcoin, there’s no messing around with coin traders or triple-checking long, fiddly strings of letters and numbers to make sure you’re not accidentally sending your money to a Nigerian prince.
On Steemit, you simply create an account, start browsing the site, upvote posts you like, and search for the gaps you might fill by posting something of your own. If you’re not creative, no problem: You can curate by spotting high-quality posts soon after they’re published and voting for them as a kind of early investor, before the rest of the crowd arrives.
The gamification is by design. “It’s as though all the users are playing a social media game, and they’re earning points based on how well they participate,” says Scott. Years ago, he loved playing the action role-playing computer game Diablo II. “All of the characters in the game had the ability to cast spells, and they had ‘mana’ they could use,” he says. “As they cast spells, the mana was used up; over time, it regenerated, so they could cast more spells later. Voting power here works similarly: Users come back every day to try and vote better, and level up.”
With about 40 votes per day at their disposal, regular Steemit users are playing a lottery, where the outcome is turning internet points into real-world dollars. It’s not a get-rich-quick scheme; it requires significant time investment before you start to see more than a few cents per day.
As with any other cryptocurrency, the virtual bubble that surrounds this idea could pop at any moment, and all of that time and effort you’ve invested into earning Steem could be worth nothing—which happens to be precisely the same amount you earn when you post on any other social media website.
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