Since the Steem blockchain officially launched and produced its first block on March 24, 2016, a lot has happened. Steem has transformed from a project that many cryptocurrency investors initially thought was a scam / “pump-and-dump” campaign, to an established and respected blockchain project with several of the most heavily used decentralized applications (DApps) in the blockchain industry.
Today STEEM is one of the top 50 cryptocurrencies (based on market capitalization), and is getting ready to position itself as serious contender for the top 10 cryptocurrency projects once Smart Media Tokens (SMTs) launch in Q1 of 2019.
In this article, we will explore the Steem blockchain and STEEM cryptocurrency, looking at both the positive aspects and negatives. The goal of the article is to be as comprehensive of an overview of Steem as possible, so those interested in Steem can learn more about it.
[image source @podanrj]
This work is licensed under a Creative Commons Attribution 4.0 International License.
Disclaimer
Before we get too far into the article, let’s get the fun “legal” stuff out of the way..
This article does not constitute investment advice. Everything in this article is just my own personal opinion and observations. Anything that could be considered a prediction of the future has no guarantee of coming true. It is possible that information in this article is (unintentionally) inaccurate or incomplete. Do your own research before making any investment decisions. The author of this article holds STEEM tokens as well as several other cryptocurrencies.
Steem’s History
Steem is an established blockchain project that has been around for over two years, and there is a lot of history with the project (both good and bad). Not everything has gone exactly as planned; mistakes have been made, and some of the decisions made along the way may not have been the right ones in hindsight.
It is interesting to see investors pouring billions of dollars into ICOs each year. It is understandable why though. ICOs are easy to speculate on. There is no product yet. All that there is are hopes and dreams of a future yet to come. It is easy to imagine what an ICO could become, when nothing has been built yet.
A live project is much harder to speculate on. We know what the project will do. We know the mistakes that have been made. We know what its limitations are.
While many would point to the mistakes and shortcomings of a project as evidence for investors to stay far far away, I believe there is a lot more to be learned by reviewing what has happened to see how the project is evolving. To quote Steemit’s Content Director @andrarchy, I would much rather see a project that has “gotten punched in the face a few times and is still advancing forward” than one that is still in the conceptual stages and hasn’t had to deal with anything major going wrong yet.
Let’s start by exploring a few of the things that didn't go so well for Steem.
Questionable Launch
If you look at the launch (and re-launch) of the Steem blockchain on BitcoinTalk.org, the reaction from many was far from pretty. A lot of of commenters indicated that insufficient documentation was provided on how to setup a node, the project seemed like a scam, and many suspected it was just an elaborate pump-and-dump scheme by the founders.
Later, one of the founders (Daniel Larimer, who also founded EOS) wrote an article titled How to Launch a Crypto Currency Legally while Raising Funds, which explained why the project was launched the way it was. What it boiled down to was that in order to not be considered a security, they couldn’t pre-allocate any tokens to themselves (or others), and they had to complete the currency and protocol prior to launch. Yet, at the same time, they wanted to acquire a large portion of the initial tokens for themselves in order to fund the ongoing development of the project. They accomplished this by mining a large portion of tokens for themselves after the blockchain was officially and publicly launched.
While it may initially seem shady for the founders to have mined a large percentage of coins for themselves, the intention and use of those coins is really what matters. If you fast forward to today, it is pretty clear that Steem was not a pump-and-dump scheme. There was a long-term vision for the product, and that vision is in the process of being carried out today.
What is interesting is that if an ICO were to award the founders and core development team with a large share of initial tokens, investors would not really have a problem with that. Many blockchain ICOs allocate 30-40% of their tokens to the founders / dev team. The main difference between what these ICOs and Steem did was that with Steem there was no ICO - so any initial tokens had to be acquired through mining.
Incomplete Product
When the Steem blockchain (and front-end website steemit.com) was launched, they were launched as an MVP (minimum viable product). The majority of features that would be necessary in order for Steem to compete with Reddit, Facebook, and other social media giants had not been completed yet.
Over the past two years, the development team has been building features around us. We have seen basic stuff like follows and sharing (called “resteems”) added, as well as more advanced features such as escrow payments and the ability to collaborate and share post rewards among multiple authors. The project has come a long way already, and new features continue to be developed and added, but there is still a lot more work to be done before the platform will truly resemble what most users expect to see when they think of a social media platform.
While it is easy to look at a completed product that is already well-polished and has all the fancy bells and whistles to attract and retain users, it is much harder to look at a work-in-progress project and see the product for what it will likely become. Steem is still a “work-in-progress” project. What you see today is still only a preview of what it will likely become over the next 1-2 years.
Token Distribution and Misuse of Stake
There is a small group of people who were very-early-adopters, as well as some large investors who have bought into the platform since its launch. This small group of individuals (combined) holds a very large stake in the platform, and collectively they have significant influence over the decisions of what content gets rewarded, and which witnesses are voted into (and out-of) power.
A lot of users have become upset when these large stakeholders (i.e. “whales”) have used their stake in ways that benefited themselves (or their friends) more than the community as a whole. Users have also gotten upset when large stakeholders have downvoted content from other users in ways that have not always seemed right/fair. (This has especially been true in cases when the stakeholders in question have been the founders.)
Even though each user's stake is theirs to use however they choose, the feeling of unfairness that has arisen due to the inequality of stake among the users has harmed the user experience and perception of the platform.
Over time as new investors buy into the platform the control of this “small group” is being diluted, although it will likely take a significant amount of new investors coming in before the influence over the platform becomes more widely decentralized.
Steemit, Inc. Witness Voting
When I first joined the platform, the rumor on the street was that only the super-early-adopters and people that were friends with Dan L. / Steemit, Inc. were voted in as witnesses. It was also implied that witnesses had to go along with what Steemit, Inc. wanted - or they would be voted out.
While that may have been the case early-on, it does not seem to be the case anymore. Myself (and several others) who had no prior connections to any of the early adopters or Steemit, Inc. have made our way into the top 20 witnesses by working hard and proving our worth to the community.
Back in March 2017, there was a hardfork where the witnesses were not in support of the changes that Steemit, Inc. proposed (hardfork 17). Steemit ended up changing the code and releasing a new hardfork (18) to one that the witnesses did support.
Since that time as well, the Steemit, Inc. employees who were running witness nodes (such as @roadscape) have suspended their witness campaigns, and Steemit, Inc. employees are no longer participating in witness voting.
To me, this demonstrates a huge step forward in that the core development team (Steemit, Inc.) is respecting the wishes of the other stakeholders, even though they still technically have an overriding stake.
Steemit, Inc. Communication
One of the bigger complaints about the project when I joined was that the communication and transparency from the core development team was severely lacking. Nobody knew what they were planning to work on, promises were made and never kept, and there was little explanation for any decisions that were made.
Over the past six months, they have made a complete “180” and have started communicating regularly with the community. Their account (@steemitblog) has been making regular posts every week, and they have been doing an excellent job telling everybody in the community what they are working on, and what we should expect to see happen. There are also now open lines of communication between the core dev team and the witnesses, community developers, and several of the largest stakeholders.
User Onboarding
When I first found out about Steem, they were not accepting any new signups. I applied to be added to their waiting list, and eventually got an email a few weeks later to create an account. For an “everything now” society that wants to have everything right away, this was a little bit of a deterrent; but at the same time I felt that I was on a list to join a cool new exclusive club.
The primary (free) signup service to create an account has been streamlined a bit, although there are still often long wait-times for users. If you go to https://signup.steemit.com/ you can apply for a free account by verifying your email and phone number. The signup is free, but expect to wait 1-2 weeks to get an account.
Alternatively, third-party services such as Blocktrades.us and AnonSteem have sprung up, which allow users to pay a small fee to instantly create a Steem blockchain account. More information on the available signup services will be covered in a section below.
Steem Features
Now that we have explored some of the shortcomings of the project, let’s look at some of the things that Steem does well at.
Three Second Confirmation Times
Unlike the Bitcoin and Ethereum blockchains, where sending tokens to other users often takes several minutes (sometimes hours), transactions on the Steem blockchain are lightning fast - confirming in approximately three seconds. This means that users can transact with each other in real-time, making digital payments via the Steem blockchain practical for everyday purposes.
Easy to Remember Wallet Names
Most blockchains have difficult to use wallet addresses like 38hDQKmMgJQeK74USYuP4SRWnots2rk5h7 (BTC) and 0x7157Da4744f3df0CC2B42a02f1229d25D2b00E5A (ETH). This makes sending payments very difficult for “regular people”. With Steem, a person’s wallet address is the same as their account name (such as timcliff), which means it is much easier for users to send tokens to friends or businesses.
Vested Stake Instead of Transaction Fees
With most blockchain protocols (such as Bitcoin and Ethereum) every time you make a transaction, the blockchain charges a small fee to process the transaction.
With Steem, there are zero fees for all transactions. Instead, the blockchain requires users to purchase and “vest” some STEEM (i.e. HODL for 13 weeks) in order to freely transact. As long as users are holding a small amount of vested STEEM (called “Steem Power”), the blockchain allows them to transact for free. The more Steem Power an account has, the more they are able to transact.
This makes the Steem blockchain an excellent candidate for projects looking to use microtransactions, or games such as CryptoKitties which require users to complete multiple actions in order to play the game. This allows businesses and users to focus on what really matters - i.e. playing the game - rather than worrying about how every action taken will result in fees.
High Volume of Daily Transactions
Application developers who are interested in creating blockchain powered DApps that may need to support millions or billions of transactions per day should seriously consider the overall capacity of the blockchain network they are building on.
Steem is one of the most heavily transacted blockchains in the world. With over 1M transactions per day, the only other blockchain producing more transactions is EOS. Steem is one of the few blockchains currently in existence that is positioned to scale to supporting billions of transactions per day.
[Image source blocktivity.info]
Annual Inflation
The Steem blockchain originally launched with 100% per year inflation. Back in 2016 this was deemed unsustainable, and the inflation rate was lowered. This got changed along with several other improvements to the economic system of Steem as part of hardfork 16.
Since hardfork 16, the inflation rules have been defined as:
Starting with the network's 16th hard fork in December 2016, Steem began creating new tokens at an annual inflation rate of 9.5%. The inflation rate decreases at a rate of 0.01% every 250,000 blocks, or about 0.5% per year. The inflation will continue decreasing at this pace until the overall inflation rate reaches 0.95%. This will take about 20.5 years from the time hard fork 16 went into effect.
Digital Content on the Blockchain
Steem offers users the unique ability to publish and store different types of content directly and permanently into the immutable ledger of the blockchain as plain text. Once stored in the blockchain, data becomes available publically for developers and front-end websites (such as steemit.com) to use.
(source)
Censorship Resistance
Because the content that is stored on the Steem blockchain is distributed across the globally distributed network of decentralized Steem blockchain nodes, there is no single place that the content is stored. This means that it would be very difficult for an authoritarian government or party to force the removal of any content. It also means that if individual websites (such as steemit.com) decide to censor what content they display via their website, users will still be able to access the uncensored data through other sources.
Rewards Pool
The users who produce content and other types of contributions are adding value to the network by creating material that will drive new users to the platform, as well as keep the existing users engaged and entertained. This aids in distributing the currency to a wider set of users and increases the network effect.
The users that take time to evaluate and vote on contributions are playing an important role in distributing the currency to the users who are adding the most value. The blockchain rewards both of these activities relative to their value based on the collective wisdom of the crowd collected through the stake-weighted voting system.
(source)
DPoS Governance / Hardforks
By defining the rules for when a hardfork occurs, the witnesses elected within the DPoS framework can quickly and efficiently decide on whether or not to move forward with a proposed hardfork, allowing the Steem blockchain protocol to evolve more rapidly than most others.
The Steem blockchain has already successfully forked 18 times, and each time a hardfork has occurred, only a single chain has persisted after the fork. This is very different than what frequently happens on other blockchains when they decide to fork, where the result is often two separate chains after the fork (such as what happened with Ethereum Classic, Bitcoin Cash, and Bitcoin Gold).
Because the witnesses are elected by the stakeholders, they are naturally incentivized to vote in favor of changes that are in the best interest of Steem. This positions the Steem blockchain (and other similar DPoS protocols) to uniquely and quickly adapt to changes in order to continue innovating.
(source)
Decentralized Exchange
The Steem blockchain offers a decentralized token exchange, similar to the Bitshares exchange. The exchange allows users to trade their STEEM and SBD tokens through a public decentralized peer-to-peer market. Users are able to place buy and sell orders, and order matching is performed automatically by the blockchain. There is also a publicly accessible order book and order history which users can use to analyze the market.
Users can interact with the exchange directly using the blockchain’s Application Programming Interface (API), or use a Graphical User Interface (GUI) such as the one on steemit.com.
(source)
Payments Through Escrow
The irreversible nature of blockchain transactions is an important security feature, although there are many cases where users may not be comfortable sending their tokens to another individual without a way to get them back if the other user does not hold up their end of the agreement. The Steem blockchain provides a way for users to send coins to each other along with a third party designated as an escrow service. The user acting as the escrow service is able to determine if the terms of the agreement have been met, and either allow the funds to be released to the receiver or returned to the sender.
(source)
Hierarchical Private Key Structure
Steem employs a first of its kind hierarchical private key system to facilitate low-security and high-security transactions. Low-security transactions tend to be social, such as posting or commenting. High-security transactions tend to be transfers and key changes. This allows users to implement different levels of security for their keys, depending on the access that the keys allow.
(source)
Stolen Account Recovery
If a user’s account is compromised, they may change their keys using their private owner key. In the event that the attacker is able to compromise the private owner key and change the password on the account, the user has 30 days to submit a previously functional private key through Steem’s industry-first stolen account recovery process, and regain control over their account. This may be offered by a person or company who provides account registration services to Steem.
It is not mandatory for the registrar to provide this service to its users, but it is a feature that is available for registration services to offer their users if they choose to support it.
(source)
Multi-Sig Authorities
The Steem blockchain allows an authority to be split across multiple entities, so that multiple users may share the same authority, or multiple entities are required to authorize a transaction in order for it to be valid. This is done in the same way as Bitshares where each public/private key pair is assigned a weight, and a threshold is defined for the authority. In order for a transaction to be valid, enough entities must sign so that the sum of their weights meets or exceeds the threshold.
(source)
Multiple Reward Beneficiaries
For any given post there may be a number of different people who have a financial interest in the reward. This includes the author, possible co-authors, referrers, hosting providers, blogs that embedded blockchain comments, and tool developers. Whatever website or tool that is used to construct a post (or comment) will have the ability to set how rewards from that comment are divided among various parties. This allows for various forms of collaboration, as well as a way for platforms that are built on top of the Steem blockchain to collect a portion of the rewards from their users.
(source)
Other Positive Aspects of Steem
Beyond the technical capabilities of the Steem blockchain, there are many other positive things happening with Steem.
Gateway to Cryptocurrency
Steem is often called the “gateway to cryptocurrency”, because it is specifically designed to attract, onboard, and retain “regular” everyday users. As more people join and begin using Steem-powered apps, that is more people being introduced to cryptocurrency. It's a real gateway to the decentralized world.
Lots of DApps with Real World Adoption
The Steem blockchain has several of the most heavily used DApps in the blockchain industry. The most frequently used DApp is steemit.com, which receives over 250k unique visitors per day, and continues to grow in popularity. There are also hundreds of additional functioning DApps built on top of the blockchain which are being used by “regular everyday people.”
Just to highlight a few of the popular DApps built on Steem:
- Steem Monsters is a collectible card game where card ownership and game results are all published and verifiable on the Steem blockchain.
- Utopian.io is the only platform rewarding contributions to Open Source projects by utilizing a decentralised, vote-based reward system built on top of the Steem Blockchain.
- Fundition is a decentralized crowdfunding platform which uses the Steem blockchain to raise money for projects.
- SteemPeak is a crisp and clean user interface that users can use to interact with the Steem blockchain (similar to steemit.com).
- DTube is a platform similar to YouTube that allows users to upload videos and receive cryptocurrency rewards based on their content.
- What - Q&A is a decentralised Q&A platform on the Steem blockchain that rewards users for asking & answering questions.
- Steem Snake is a variation of the classic Snake game where users can play and earn STEEM.
- D.Sound is similar to DTube, although it is specifically designed for musicians and creators of audio content.
- SteemGigs is a freelance services marketplace (similar to Fiverr) that accepts STEEM cryptocurrency as a form of payment.
Community Developers are a Priority
The core dev team has been focusing on building out the infrastructure and documentation to support third-party developers who are interested in building DApps on Steem. Their Developer Portal is receiving regular updates, and there is a SteemDevs Discord channel where developers can talk with each other about the projects they are working on and receive/offer support.
Steemit, Inc. is Hiring
The core development team has been (and continues to be) focused on hiring new talent. Interested parties can check out their available job listings at https://jobs.lever.co/steemit.
Community Contributions to Hardforks
As a testament to decentralization, community developers have started contributing changes to the blockchain code to introduce changes that have support from members of the Steem community. In the upcoming hardfork 20, there are multiple changes included that were developed by members of the community and submitted to the official GitHub repository as pull requests.
Tapping into the Steem Community
Entrepreneurs in the cryptocurrency sphere have discovered how much potential there is in tapping into the Steem community. There are around 100,000 active users on Steem who have an interest in cryptocurrency, with multiple platforms available to reach the entire audience.
- The Byteball cryptocurrency project had over 70,000 Steem accounts register to use their platform after offering an airdrop to Steem account holders.
- When developers launched the alpha version of Steem Monsters, a collectible card game similar to MTG or Hearthstone run on the Steem blockchain, they received over $200,000 worth of card sales within the first two months.
As the platform continues to evolve and more users sign up, there will be even greater opportunity for developers and projects to get involved with Steem.
Looking Forward
Advertisements
Online advertisements are a billion dollar industry. As the Steem community continues to grow, there will be more and more opportunity for entrepreneurs and businesses to market to the Steem community in the form of ads. Once the size of the community reaches critical mass, the potential for a large increase of capital into the ecosystem focused on advertisements is likely.
Coinbase Custody
Coinbase Custody is a digital asset storage solution for institutional investors. They recently announced plans to consider adding 40 new digital assets, including STEEM. If they move forward with the listing, more institutional investors will have the opportunity to add STEEM to their portfolio.
Smart Media Tokens (SMTs)
Smart Media Tokens will introduce new ways for publishers to monetize their online content and user-bases, based on the existing Steem blockchain technology. The protocol changes to support SMTs (scheduled to be completed Q1 2019) will add the capability for projects to launch their own tokens on the Steem blockchain, similar to how the Ethereum blockchain supports the launch of ERC20 tokens.
Unlike ERC20 tokens however, SMTs will also support the same types of features and properties that are available with STEEM - such as feeless transactions, three second confirmation times, and distribution of token emissions via a proof-of-brain rewards pool.
With SMTs, projects will be able to conduct ICOs in order to acquire funding to launch their project. This will fuel the growth of new powerful DApps built on Steem, as well as tap Steem into the billion dollar ICO industry.
SMTs will also allow niches to develop within the larger Steem ecosystem, by allowing a community to form their own token distribution among their members, while having full influence/control over how the rewards pool for their SMT is distributed.
Other Information about Steem
Account Creation
Unlike BTC and ETC wallets where anyone can create a free wallet address out of thin air, new accounts on the Steem blockchain must be registered and paid for. There are several ways to create a new Steem blockchain account in order to securely store tokens and interact with the social side of the blockchain.
- https://signup.steemit.com/ offers one free account (paid for by Steemit, Inc.) to each individual who applies. It requires a unique email address and phone number to verify a user’s unique identity, and the verification process may take up to two weeks. This still remains the primary signup method, since the account creation is free.
- BlockTrades.us offers a paid account creation service, where users can instantly create a Steem blockchain account by paying a small fee. They accept BTC, ETH, LTC, STEEM, and several other cryptocurrencies.
- AnonSteem is another paid account creation service, with extra support available for those who which to remain anonymous. Payments are accepted in BTC, LTC, and STEEM.
- SteemCreate is a paid account creation service that accepts payments via several major credit cards.
Steem Wallet Apps
There are several wallets that can be used to securely hold and transfer STEEM tokens:
- steemit.com has a built in wallet that is available to users after they login.
- steemwallet.app is a fast and secure open-source wallet for the Steem blockchain, available on iOS and Android platforms.
- Vessel is an open-source desktop wallet for the Steem blockchain that you can run on your computer without needing to run a local instance of the blockchain. Technically the wallet is still in “alpha”, although it has been in existence and heavily used for over a year. It is one of the most popular wallets among the community, and is trusted by many of the large stakeholders. Users can download and compile the source code, or simply download the pre-compiled executables. The wallet is supported on Windows, Mac, and Linux platforms.
- eSteem is an all-in-one wallet and platform application with advanced escrow and vesting route features. The app is available for iPhone, iPad, Android, as well as PC, Mac, and Linux devices.
Steem Blockchain Interaction
- cli_wallet is the officially supported command line interface wallet for the Steem blockchain. Using the cli_wallet does require you to download and compile the Steem blockchain source code, or use the officially supported docker images. It is possible to host and run a local instance of the Steem blockchain and connect the wallet to that, or connect the wallet to one of the public RPC nodes.
- There are also officially supported JavaScript, Python, and Ruby libraries that can be used to transact with the Steem blockchain.
Longer Term Investment Options
The Steem blockchain offers STEEM token holders additional benefits if they decide to “power up” their STEEM tokens. Powered up STEEM tokens become locked into a 13-week “vesting” smart contract called “Steem Power” (SP), whereby the tokens cannot be transferred or traded for as long as they remain powered up.
SP can be “powered down”, which turns the tokens back into liquid STEEM over a period of 13 weeks, so they can be transferred and traded again.
Some of the benefits available to SP holders include:
- Ability to make more feeless transactions on the Steem blockchain.
- More influence over the distribution of the rewards pool.
- Earn curation rewards by voting on content.
- Vote on the witnesses who power the DPoS blockchain.
- Passive income options.
Many SP holders use their influence over the rewards pool to incentivize and reward the users who are making the greatest contributions the platform. Voting to reward contributions that are likely to add value to the Steem platform is an indirect way to make the value of their STEEM tokens go up.
SP holders may also decide to delegate their influence to projects and communities that benefit the Steem platform in various ways such as Curie and SteemStem.
There are delegation markets where SP holders lease the use of their SP to other users in the community who would like to have additional voting influence.
Businesses who hold SP can use their influence to incentivize bloggers who write positive things about their products or services.
Oracle-D is a service that SP holders can use to have new media continuously produced for them by professional content creators. Because the content creators are paid with rewards from the Steem rewards pool, the SP holders do not actually have to pay to have content produced. In fact, the SP holders can even earn a dividend (called “curation rewards”) from the money that the content creators earn from their articles.
Exchanges
STEEM has been listed on several of the major cryptocurrency exchanges, allowing investors to purchase STEEM tokens using other cryptocurrencies such as BTC and ETH.
Some of the exchanges where STEEM can be purchased include:
Conclusion
[image source @kabir88]
I hope this article has helped to inform you about everything that is happening with the Steem blockchain and STEEM cryptocurrency. If you have any questions about Steem, feel free to reach out in the comments below or email me at timcliff.steem.witness ‘at’ gmail.com.