Response to Coindesk Article “Steem Provokes Doubt of Market Observers”

A couple days ago, Charles Bovaird published an article on CoinDesk. In this article there were numerous quotes which I feel should be addressed because they demonstrate the clear cognitive dissonance of many Bitcoin and/or Ethereum maximalists.

Skeptical About App Coins

. “I’m skeptical about 'appcoins'/'appchains,' and Steem is very much one,” stated algorithmic trader Jacob Eliosoff. …. Past that, he asked why the platform needs a new currency, instead of using an existing digital currency like bitcoin or ether.

The interesting thing about this “Doubt” is that he completely ignores the scalability issues associated with using existing platforms. Each day the Steem blockchain processes almost 125K transactions. The Bitcoin network is currently maxed out on transaction volume with a mere 200K transactions per day.

The dollar value of Bitcoin fees each day is around $35,000 which puts the average fee at $0.17 per transaction. It would cost the typical active Steem users several dollars per day just to pay transaction fees before even a single cent could be awarded to authors. Do you think any social network could grow with those kind of fees?

In short, it just isn’t practical nor possible to implement a social network that uses Bitcoin as a currency.

Looking at Ethereum you will see that the network can handle about 25 transactions per second (in extensive spam tests). The current Ethereum network is effectively limited to 9 transactions per second due to the current gas limit, transaction cost, and block interval. Steem is already averaging about 1.5 transactions per second and would quickly scale beyond the ability of Ethereum to keep up. At an average of 35K transactions per day, Ethereum currently has about 25% of the transaction volume of the Steem blockchain.

What we can conclude from this is that the use of an App Coin is a necessity because no other cryptocurrency is technologically capable of scaling their capacity. Even Steem with its Graphene technology, which has the publicly demonstrated the ability to handle 86 million transactions per day, will have difficulty keeping ahead of the growth curve of a viral social network.

Skeptical about Dollar Peg

"Real dollar pegs are very expensive," said Eliosoff, adding that "to my knowledge no (or next to no) cryptocoins have pulled one off."

It is true that no one has pulled this off at scale, but BitShares has had a relatively functional peg for years. Pulling it off doesn’t even need to be expensive in terms of real capital. Steem simply makes the Steem Dollars convertible to Steem at an average price feed. The implementation is simple, straight forward, and the economics are obvious. Aside from a catastrophic collapse of Steem’s market cap (which hasn’t happened to any major crypto) the Steem Dollar will hold. The Steem Dollar is easily converted to Steem by the printing press.

Overall the Steem Dollar keeps more people / capital on the platform which reduces sell pressure. Steem and Steem Power holders are effectively insuring Steem Dollar holders against the loss of value of the Steem token. They can do this so long as the Steem Dollar supply remains a relatively small percentage of the market cap. Currently Steem dollars make up less than 0.5% of the market cap. Worst case Steem Dollars are converted to Steem. This makes it no different than holding Bitcoin which could become worthless in the “worst case”.

Bitcoin Maximalists

Bitcoin and Ethereum maximalists will insist that using any other currency but their “blessed currency” is an unsustainable ponzi while completely ignoring the fact that their own currencies are “app coins” and depend upon new investors to buy in so that existing investors can cash out.

Steem is the first currency that allows anyone to work their way in (not just technologically savvy, capital intensive miners). It is the only currency that doesn’t ask people for money. People buy and sell all crypto-currencies for speculative reasons, but unlike other platforms, Steem doesn’t require people to buy in and actually gives people something of value (influence).

Using the Skeptic’s own reasoning, Steem is one of the only platforms that isn’t a Ponzi Scam. Their own favorites are much better fits for their own criticism.

Circular Logic of Skeptics

The Skeptics employ a kind of circular logic when they argue for Bitcoin and Ethereum while calling almost everything else a pump-and-dump scam. The only objective difference between Bitcoin and Ethereum is the market acceptance of the currency. The market is what gives a currency legitimacy. In principle any currency can be adopted by the market if enough people use it.

There comes a point in every currency’s life where it goes from being a “scam” to being a “legitimate currency” and that point has nothing to do with technology and everything to do with users. Does this mean that Bitcoin was a “scam” when it first launched, but now is “legitimate”?

The Real Scam

So the question remains, is “scam” an objective property intrinsic to a coin or is it something that is a property of someones opinion or statement?

scam: a dishonest scheme; a fraud

The property of a “scam” is not something intrinsic to a platform such as Bitcoin, Ethereum, or Steem. A platform is merely a set of software rules and a community of users who perceive value in those rules. Software keeps things honest.

Only people can be dishonest. Intentionally misrepresenting and slandering other platforms while spreading FUD is the biggest scam being perpetrated by in the cryptocurrency industry. It is time that people stop spreading fear, uncertainty, and doubt and instead stick to the facts and reason.

It is perfectly reasonable to speculate that the price will go up or down in the future. It is also reasonable to question the economic game theory and stability behind a platform. What is not reasonable is to speculate on the intentions of others or to imply that there is something dishonest or fraudulent when everything is open and transparent

Steem is a Social Networking Game

Steem is just a points system like those used in many games (Second Life, World of Warcraft, etc). These points may or many not have value depending upon whether market participants are willing to buy and sell them. Everyone must make their own decision and ultimately the market will decide.