After the first payout on Steemit, I wrote a post wondering what kind of insults people would hurl at Steemit. Would they call it a scam? A Ponzi scheme? I thought it would be unlikely, because it would be very difficult to stick that label to a social media site. How wrong I was.

A few days ago, I entered a discussion with a friend about the merits of Steemit and Steem. He'd been listening to The Bitcoin Group and so he'd heard Tone Vays say a few times that Steemit was a Ponzi scheme, and knowing Tone's reputation for technical analysis, he'd put a lot of weight on that opinion. These are a few comments my friend made, with my responses.

"Early adopters get money from a larger base of later adopters."

I can say the same thing about Bitcoin. Of course, many people did say the same thing about Bitcoin, because they couldn't understand where the demand or the value would come from. Bitcoin has now demonstrated some staying power, and so of course people have to recognise that it has value beyond buying and selling - sending money pseudonymously or even mostly anonymously across the world, evading capital controls, and eventually, maintaining value better than the USD or even gold.
Steemit also offers value beyond getting paid out from later adopters - a social platform where a lot of the good content rises to the top, a social platform where people are rewarded, a community where people are incentivised to be cool to each other.

"Content creation is great but it doesn't create new money out of nothing."

Nobody is really saying that the money comes out of nothing.

With Bitcoin, if a miner obtained 1,000 bitcoins paying only his $100 electricity bill, but later sells them for $1,000 apiece, he certainly made what seems to be a disproportionate profit.

My claim in my article "Steemit's new economic paradigm" was that when people see the value of a system, shares in that system are valuable. With my example of the Bitcoin miner, where does the money come from? When he sells the coins, is it because the money comes out of nothing? Is it because Bitcoin is a Ponzi scheme, merely rewarding the early adopters with the money of the late adopters? Or is it because more people see the value, and the demand increases, thereby increasing the price? The asset is more or less the same, but the perception is different, and of course, the only way we can determine whether something is valuable, is through our own subjective perception.

"The payment/reward system is overly complicated and strongly incentive locking money into the system (over 2 years!) instead of cashing out."

To clarify, the first thing is, when you get paid for blogging, you get 50% in liquid Steem dollars, and 50% in illiquid Steem power - which can be cashed out in one-week intervals over a period of two years. Yes, it incentivises you to lock money into the system, but people don't just voluntarily lock money or keep money in the site for no reason, or merely because of the expectation of a greater payout like in a Ponzi scheme. They also do it to gain influence on the site immediately.

Is an annuity a Ponzi scheme? An annuity can be a Ponzi scheme, but just for the fact of it being an annuity doesn't make it a Ponzi scheme. Is a term deposit a Ponzi scheme?

Is a term deposit a Ponzi scheme? It incentivises you to put money into the bank for a fixed period - even more limiting than Steem power, because with Steem power you can start to cash out at any time. Again, a term deposit can be a Ponzi scheme, but just because it limits liquidity doesn't make it a Ponzi scheme.

"Even if you decide to cash out directly instead you are not allowed to do that, the money is locked in the system for 1 week as I understand it. A reason for this could be that that gives some time for new users to enter the base of the pyramid so that you that are a bit earlier/higher in the hierarchy and can get the new money that they put into the system."

This is incomplete information, which has unfortunately been spread by someone who didn't fully understand the system.

Yes, you have the option of converting Steem dollars to Steem over 7 days, giving you an average price over that week. But you don't have to do that. You can sell Steem dollars for Steem immediately on the internal exchange, or you can transfer them to Bittrex or Poloniex or Blocktrades and sell them for bitcoins immediately.

"The Steem that you are payed in has a very high inflation rate (0.19% per day)."

Not quite. As I said, you get paid in Steem dollars and Steem power. If you hold Steem dollars on the site, you receive interest of 10% per annum. If you hold Steem power on the site, you receive a lot of the inflation. At the moment I receive about 80 Steem per day for leaving that money vested in the site.

The other way of looking at it is, you pay inflation instead of transfer fees. Considering I'm normally the recipient of 10 or more transactions per day, plus the transactions in which I'm the sender, is it unreasonable to charge 0.19%?

Anything can be a Ponzi scheme. A trading platform/exchange can be a Ponzi scheme, as we saw with Mt.Gox. That doesn't mean that all exchanges are Ponzi schemes. With Mt.Gox, the withdrawal times grew and grew until nobody could get the money out, but that's a qualitatively different thing, from setting rules from the beginning on how the money may be withdrawn, deliberately, with the consent of the users, to increase stability.

It all comes down to this: Do you think that a system where people can create content and get paid, and people are incentivised to create good content, and good content rises to the top, where people can pay for influence on the site, is a valuable system? If such a thing is valuable, more valuable than the money being paid out, and the perception of its value is increasing faster than the money being paid out, then it is not a Ponzi scheme. People are signing up to the site, around 1000 per day. What is their perception of the value of the system?

If you say that the value of the system, and the perception of its value doesn't affect the fact that it is a Ponzi scheme, then you'll have to bite the bullet and say that Bitcoin is also a Ponzi scheme. Remember, Bitcoin doesn't make a profit. Bitcoin doesn't sell ads. Does the money paid out to miners come from nowhere? Or does it come from somewhere?

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If you enjoyed this article, feel free to enjoy some others by me

Steemit's new economic paradigm: Why Steemit might just work
Steemit is not about luck: principles of successful Steemians
Several reasons why a mandatory minimum wage is a bad idea