CRYPTO lOGIC PLATFORM AND CAUTIONARY TALE OF STEEMIT

Hellow,

Crypto Logic Platforms and the Cautionary Tale of Steemit

What makes crypto social media unique?

At first glance, Steemit looks a little like Reddit, the wildly popular internet community site where users vote posts to prominence on the site’s front page. Posts, accompanied by illustrative images, are authored by various users, and you can click on them to read more, or vote them up or down.

But there’s something special about Steemit: each post has a price tag, which represents Steem tokens the post’s creator stands to earn for creating a popular post.

Underlying Steemit and similar social media sites are cryptocurrencies, commonly called tokens, which are tracked on a shared ledger, usually a blockchain. Contributors to a site can be rewarded with tokens, encouraging the creation of high quality content that gets upvoted by other users. Upvotes and downvotes are rewarded as well—the system creates new currency to reward people who participate in the life of the site.

But tokens aren’t just a measure of how successful posts are at attracting attention—they’re often a source of governing power. A Steemit user can earn Steem Power either by posting and voting on content, or by donating computing power to the system, analogous to participating as a “miner” in the Bitcoin system. Upvotes from a user with a lot of Steem Power matter more than upvotes from a less powerful user. And users with lots of Steem Power can sway how the system fundamentally works, including approving changes to the code for the Steem blockchain… which can lead to some very strange situations, as we’ll explore below.

Steemit is an example of a social media platform that’s engaged in cryptocurrency/blockchain capitalization, which we’re going to call “crypto logic” for short. There are other platforms that work like Steemit. DTube is a clone of YouTube where users are rewarded for their participation with a token called DTube Coin. Minds combines Facebook and Twitter features with rewards for participation and a Patreon-like subscription service that allows users to support their favorite creators … many of whom are right-wing extremists. These platforms have different technical affordances and norms, but are united by a particular set of design decisions. Some of the key elements:

A belief that users will create and curate high quality content if they are compensated for their efforts.
A governance system that gives users power proportionate to their token holdings.
The use of decentralized systems to provide strong censorship resistance.

Mapping these characteristics to the five axes framework we’ve been using to understand social media platforms looks something like this:

Affordances. Variable: crypto logic platforms often look like clones of existing social media such as Reddit or YouTube. Some have novel capabilities, particularly related to monetization, like Minds’s support for subscriptions and the ability to boost (promote) posts on DTube.

Technology. These platforms typically use public blockchains to register users and to decide and log how content and tokens are routed. When it comes to storing content, crypto logic platforms often claim they are “decentralized” or “censorship resistant” which they achieve by either storing posts on a blockchain or by using decentralized storage protocols such as IPFS. (Interplanetary File System—a sophisticated BitTorrent-like distributed storage system). However, many of these platforms fail to live up to this billing either by implementing decentralization weakly or by simply storing content centrally.

Ideology. Crypto logic platforms serve three main purposes: enriching tokenholders, empowering users, and providing censorship resistance. Underlying this model is a deep belief in the power of markets and market design. Every platform is looking to craft the right combination of economic incentives with the hope of creating a place where everyone is happy: developers and investors get rich while users control the rules, what’s popular, and their content—and get paid for their efforts.

Revenue model. In one way, crypto logic platforms are supported like conventional social media: ads. But there’s a secondary route to earning: the platform tokens themselves. The tokens are tradeable and can appreciate in value. Also, platforms can charge fees for transactions involving tokens like subscriptions or boosts. Many crypto logic platforms make the case that their tokens are useful as the backbone of different crypto-based systems, not just their service, with the hope that this leads to people purchasing and trading the tokens much as they do with Bitcoin or Ethereum. Should this occur, the tokens could increase in value, leading to financial gains for early users of the system. This also means that the tokens are subject to pump and dump schemes, leaving the currency that underlies a platform’s governance vulnerable.

Governance. Many crypto logic platforms advertise a strong free speech stance, subscribing to the libertarian idea that markets will weed out unhelpful or unproductive conduct through price signals — i.e., unhelpful content will be downvoted and fail to make money thus incentivizing quality content production and curation. However, this can fail to materialize in practice because engagement centered around profit-seeking instead of social interaction can lead to spam and poor moderation. For example, after Taringa! implemented a revenue-sharing program that paid creators in Bitcoin, the amount of copied content increased by 30%.

Other decisions are often made through voting, with a user’s voting shares proportional to her currency holdings; the idea being the best contributors and those with the most invested in the success of the platform will have the loudest voice in the governance of the network.

And here’s where things can get really complicated.

Steemit is a very different site now than it was six months ago. Cryptocurrency investor and tech entrepreneur Justin Sun purchased Steemit from one of its founders in December 2019. Because Steemit is governed by its community, this shouldn’t have had much of an effect on the operations of the site … but it did. Along with purchasing the company, Sun acquired 20 percent of the Steem tokens in circulation, a stake that had been set aside by the founders. This concerned the Steem community, who pushed for a rules change to the system that would prevent Sun from becoming the most powerful voice overnight, and ultimately, from moving Steemit to his own blockchain system, TRON.

But the Steemit users hadn’t counted on the worldwide market in Steem tokens. Sun convinced several cryptocurrency exchanges to use their millions of Steem tokens to sway the vote in his favor and change the platform rules. In response, many long-time Steem participants decamped for a different blockchain, Hive, bringing their tokens with them. Users who supported Sun—many from South Korea—remain on Steemit, while others have moved their conversations to platforms like Peakd which run on the Hive blockchain.

This sort of drama might turn off users looking for a stable, consistent host for their online conversations. But it also reflects some of the deep values of crypto logic: Justin Sun used market power to take over the Steemit platform, and Steemit users took their money and went elsewhere, just as they would have if their favorite restaurant went downhill under new management.

However, the vulnerability of Steemit should give pause to those excited about crypto logic platforms because of their censorship resistance. Even if platforms use a blockchain to store content (which is not a given—Minds, for example, does not), it may not provide the guarantees that users expect when they hear “blockchain”. Specifically, most crypto logic platforms use blockchains which rely on a consensus mechanism called Delegated-Proof-of-Stake (DPOS). In DPOS, users who hold the associated cryptocurrency elect 20-100 “witnesses” who verify transactions and produce blocks. This is in contrast to Proof-of-Work (POW) or Proof-of-Stake (POS) which allow anyone who meets a requirement (solving a hard puzzle in POW; staking currency in POS) to verify transactions and produce blocks. Vitalik Buterin, the founder of Ethereum, has described DPOS as “plutocracy” and “[not] wise for Ethereum (or really, any base-layer blockchain).” It’s DPOS that allowed Justin Sun to take over the Steem blockchain—with enough Steem tokens (stake), he was able to appoint “witnesses” who agreed to the changes he wanted to make.

Crypto logic platforms have worthy goals, but it’s not clear that they will be able to achieve them. The logic is a mix of libertarian values, speculation, and a strong belief in the power of markets to solve complex social problems. Existing platforms have struggled to attract large userbases, lacked quality content, and fallen short of their security guarantees. Even so, there are millions (single digit millions, not the hundreds of millions using major social media platforms). And steemit is the best platform to get rewarded for your activities.

@dobartim

@cryptokannon

@steemitblog