“Tokenize the Content Web”
Steem was created by Dan Larimer and Ned Scott in 2016, a veteran blockchain developer (responsible for a number of leading projects) and a highly connected New York banker-turned blockchain evangelist.
The problem Steem wanted to solve was the lack of user interaction online. The ability to engage with online communities (websites) is one of the most lucrative things to encourage new users to sign up… but as we all know, the technicality of doing this is very difficult.
To further compound potential problems, it’s often the case that users are left to sign up under their own accord – with little to no reward for doing so. This not only makes it incumbent to engage with a community… but also ensures that the majority of users will not really contribute very much.
The founders behind the Steem system believed they could create an ecosystem through which publications could create interactive user experiences, and advertisers could provide paid rewards for participation (all payable through blockchain infrastructure).
Whilst this was somewhat achieved with the chief asset in the system (Steemit), the overall system has yet to catch on, and ultimately, it’s highly questionable whether the Steem token will actually achieve anywhere near enough adoption required to make it a viable investment.
Regardless of this, this article aims to identify the core value proposition of the new product, and how it’s able to function.
What is Steem?
Steem is a system designed to encourage community growth and social interaction through online communities. Whilst the system has been around since circa 2015, it’s main asset (the Steemit community) is basically what’s been driving the system…
The Steem system is not a cryptocurrency and does not have any inclination of being seen as one. Consequently the value of its various tokens should be considered negligible.
The system was designed to encourage growth for online communities (most notably evidenced by its Steemit community), allowing for the likes of community votes and member participation features without the need for extra services.
The system works by rewarding participation on with its own “STEEM” tokens, which are then able to be traded with other tokens (such as BTC or Ethereum). The premise of the idea is to create a blockchain-centered system encouraging user-interaction such as that of Reddit or StackExchange.
Debuted in 2016, the system has drawn criticism over being a ponzi scheme whereby new users have to buy voting power from the more established ones. Whilst this may not seem like a problem in itself, if the Steem system was ever deployed in critical infrastructure, this glaring issue would likely lead to a series of malfunctions and issues.
Who created it?
Although not much is publicized about the founders of the company, various sources have confirmed that the following are the two main proponents behind the scenes:
- Ned Scott
Former NYC banker-turned blockchain evangelist who focused on working with Larimer in 2015 to push the Steem & Steemit ideas forward. Most active and identifiable of the two partners.
- Dan Larimer
Programmer largely responsible for the Bitshares project, he is also the brain behind the EOS blockchain project. Quite eccentric and private, not much is known about him apart from the fact that he was the lead developer behind Steem & Steemit.
Both of these were heavily involved with BitShares, which famously became one of the first blockchain services offered through Microsoft’s “Blockchain As a Service” module for Azure.
In other words, this means they both have a wealth of experience with the blockchain landscape and the way in which its various systems / assets have been created.
Why does it exist?
Created off the back of several projects either founder was involved with (Larimer now works on EOS), Steem was primarily developed as a way to provide incentive to online communities…
Steem is a blockchain database that supports community building and social interaction with cryptocurrency rewards.
Steem combines concepts from social media with lessons learned from building cryptocurrencies and their communities.
An important key to inspiring participation in any community, currency or free market economy is a fair accounting system that consistently reflects each person’s contribution.
Steem is the first cryptocurrency that attempts to accurately and transparently reward an unbounded number of individuals who make subjective contributions to its community.
The system’s killer app is the Steemit community (widely regarded as the “Medium of Blockchain”) which basically allows users to post content regarding the various crypto systems and their business success.
Whilst Steemit is an integral part of the crypto community, it’s one of the most crucial elements to the Steem crypto system – which worries investors (as it does not indicate growth).
Whilst we cannot give financial advice, if you’re looking down the tree of crypto systems, you’ll typically be trying to identify systems with the potential for growth.
The trick (as you should already know) is to focus on buying them cheaply, and selling them for a much higher price.
Unfortunately, the current crypto landscape is almost entirely dominated by non-revenue-producing assets – simply meaning the *only* way for an investor to earn directly from them is to basically sell them to other speculators.
Whilst this worked well with BTC, for the smaller coins, it’s difficult not least because of the lack of trading volume (and as a consequence price/value), but because the price of these assets are generally severely impacted by even the smallest buy orders.
As a result, when looking at the likes of Steem, what you’re *really* trying to do is determine whether it has the capacity to reach the dizzying heights of Bitcoin, or even rival the functionality of ETH… and – to us – the answer is “no”.
When you get involved with enterprise, there’s a simple analogy of something called “barrier to entry”. This is basically how much energy/time/resources/money is required by a company to penetrate a market.
If the market has “low” barriers to entry (ice cream truck), it means that there will be a lot of competition due to the relatively simple nature the business can be created. High barriers to entry (space vehicle manufacturer) have low competition because of the difficulty required to get it established.
The main issue with the crypto space lies in the way in which most of the coins are simply rip-offs of Bitcoin. Because ALL the systems are “open source” (meaning everyone can view & edit the source code), creating your own version is as simple as copying the code & renaming some files.
As such, when you see the likes of Steem offering what ends up being quite a narrow scope of value, you have to appreciate its room for growth is somewhat jolted:
- Its Main Value is to Provide a “Rewards” Network for Content Creators
Rather akin to advertising, this is meant to give website owners & digital publications the ability to grow their communities by providing rich-media rewards for reading & engaging with their publications.
Whilst this sounds good, and is definitely a lucrative market (Google makes $80bn+ per year doing it), it requires publications (to display the rewards) and companies to fund them.
Therefore, to determine the potentiality of whether the Steem system can grow, or likely has the opportunity to grow, it needs to focus on having the ability to scale its offering with more publications and content providers.
- Its Primary Asset is the “Seemit” Community
Widely considered the holy grail of blockchain information, Seemit appears at the top of most Google listings for *anything* related to Bitcoin and its other coins.
The important thing to realize here is that whilst there’s nothing wrong with this (Google’s ownership of YouTube is exactly the same setup), but it will warp the supposed performance of the coin.
In other words, any progress the system claims to have made could be down to this one application in itself. This would mean that if you bought any of the tokens provided by this system, its potentiality for growth is low.
- No Backend Workers
Finally, unlike most of the other successful systems, Steem has no central company or team responsible for pushing the product forward.
As a result, you need to be absolutely aware of how the system intends to grow & manage that growth effectively. It’s all well and good when there are relatively few people using it… but if you get to Ethereum’s level, how is the system going to be managed?
Ultimately, we would stay clear of this coin until more details become apparent about how well it integrated its offering into its core platform.
The big mistake many traders are making is buying quantities of coins only to find that the growth they experienced is almost entirely thin air (pump and dump). You really need to identify where this growth & its asset base will come from.
Indeed, Joe Lee (co-founder and CIO of digital trading platform Magnr) told CoinDesk:
Whether Steem succeeds as a digital currency will be more a reflection of Steemit’s success as a platform as opposed to the economics of the coin itself.
This is a good example of a digital currency whose value will be closely affiliated to its utilitarian value as a social networking and sharing platform