Weiss report on Steem, Feb 16th

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All About Steem (STEEM, "B-").
Plus Our Response to Reader Criticism
Since so many cryptocurrencies currently get "C"s and "D"s right now, there's a big focus on Steem. That's because it is one of the few on our list that gets a good rating.

Readers ask why Steem stands out from the crowd. Some specifically criticize Steem because, in some ways, it's more centralized than other cryptocurrencies. Most just want to know what to buy and when.

First up, let's talk about the No. 1 virtue of Steem: It's a social media platform (Steemit.com). Equally important, it's a very user-centric social media platform.

When you sign up, you don't get the typical crypto mumbo-jumbo of other cryptocurrency resources. Instead, you immediately see that Steem is a blog where you get rewarded, in money, for the content you produce.

The scheme is pretty straightforward: If you write a post and a lot of people like it or vote for it, you'll get your reward dropped directly into your account within seven days. At the bottom of each post, you can even track how much money you're currently making.

If you want to promote content, you use the money in your account (or pay out of pocket) to get it advertised. Your post goes into a "promoted content" section. And if people like it, you can get your ad cost back and then some.

However, unlike Facebook, it's a two-way street. You don't contribute content just for the benefit of the Facebook company and its shareholders. You also reap the benefits yourself directly.

This platform was created with two core missions:

Mission #1. Easy entry. To give you an easy on-boarding platform into the crypto world, even if you don't have much prior experience.

Mission #2. Miners as content producers. Founder Dan Larimer explains the rationale. Instead of users spending time, money and resources on wasteful activities like Proof-of-Work mining, they can devote their time to productive enterprises, like writing good content that people will enjoy. Those who produce the best content, get the highest rewards.

Plus, there are other key strengths to this concept:

Strength #1. Decentralized. Steem's architecture has built-in decentralization. Specifically, this means there are 21 block producers on the Steem platform at all times.

These block producers are functionally equivalent to the large mining pools on the Bitcoin or Ethereum networks. But there's one key difference: The latter are controlled by just three to five large pools that concentrate the majority of the hashpower, effectively creating an oligopoly on who gets to create new Bitcoin or Ether.

Strength #2. Voting. It's the users themselves who get to vote on who those 21 block producers (called "witnesses") should be. If any witnesses misbehave (for example, not allowing certain individuals to send transactions), users can call them out, vote them out, and replace them with witnesses approved by the community.

Strength #3. Easy upgrades. The voting also provides a clear mechanism for upgrading the software. Someone proposes a change. Users vote for witnesses that support the change, or for those against it. If two-thirds of witnesses support the change and win the needed votes, the upgrade goes into effect. All without splitting the community -- thus avoiding the kinds of battles we've seen, for example, between Bitcoin and Bitcoin Cash, or Ethereum and Ethereum Classic.

Strength #4. High speed and low costs. Steem can process thousands of transactions per second, one of the fastest in the world today. That's faster than Ripple's XRP network, which is considered Ripple's No. 1 strength! And within its network, Steem does this with zero fees. That's right. If you want to send money to another Steem user, it costs you nothing.

Strength #5. High usage. Steem boasts 1.5 million on-chain transactions daily (and growing). That's twice the usage of Ethereum and some 60% more than Ripple's.

Here's the kicker: All that activity barely puts any pressure on the network. Unlike the vast majority of cryptocurrencies, Steem is built to scale. And our ratings model rewards it for that.

Strength #6. Popularity. This is another way Steem earns points in our model. Thanks to its a social media platform, it's naturally popular.

Strength #7. Individuality. Steem supports individual accounts that allow each user to select a unique name -- clearly more consumer-centric than competitors.

Strength #8. Other apps. Steem is also capable of supporting other applications, among which DTube has enjoyed the most growth.

All of this adds up to VALUE -- a direct response to crypto critics who say cryptocurrencies "are created out of thin air" or "have no intrinsic value." Steem has a clear purpose, a steadily growing user base and a clear value proposition.

The Steem Confusion
What about the concentration some folks worry about? Granted, that's one of Steem's weaknesses and we give its rating a haircut as a result. But it's not nearly as serious as some people think. At least not yet.

From our subscriber feedback, it seems much of the criticism of Steem stems not from a problem in the blockchain code or even the platform itself. Rather, there's a misunderstanding about how the platform works.

As we explained above, Steem is a decentralized social media platform, where users get rewarded for the content they produce. This reward comes directly from the Steem blockchain in the form of newly created Smart Media Tokens.

The sad reality of traditional social media platforms is that all or most of the profit generated (usually in the form of advertising) goes to the company behind it and its shareholders. Like Facebook.

And as you saw, Steem aims to change this model by rewarding content creators directly from the blockchain itself. All good, right?

Yes. But the devil's the details …

You see, Steem is a 3-tier currency system, with three different cryptocurrencies. Each serves a different purpose:

Their first cryptocurrency is STEEM itself. It is the basic currency used in the Steem ecosystem. We call it the "native token." (Like Ether is the native token of Ethereum.)

When new blocks are created, the rewards are in Steem tokens. Then, 75% of these tokens are distributed to content creators; 15% is paid as a "dividend" to Steem Power holders, and the remaining 10% goes to the block creators (the "witnesses" we referred to earlier).

The Kingdom of Steem
The second cryptocurrency is Steem Power (also called "vests"). Let's say you are a citizen in a virtual country called "the Kingdom of Steem."

If you're like an average consumer, the currency you own is Steem itself. But if you want to be like a property owner with a vested interest, then you need Steem Power.

Steem Power represents share ownership in the Kingdom. When you convert your Steem into Steem Power, you lock it up for a minimum of three months in exchange for some benefits:

As mentioned earlier, 15% of the block reward is distributed among all Steem Power holders, proportional to the amount each account holds.
Steem Power is what determines your voting power. This is a biggie. You get to "upvote" the posts you like.
Similar to "liking" a post on Facebook? Sure, but with one critical difference: In Facebook you get one "like" per account. In Steem, you essentially get one for every unit of Steem power you hold.

This means that, rather than a democracy, Steem is more like an oligarchy. It makes sense because it all ties back to the value Steem places on your content contributions.

The third cryptocurrency is Steem-backed dollars: I won't trouble you with the details. But it's basically used as a mechanism to facilitate conversion of Steem Power back to Steem tokens.

So what is the big criticism people have? It's the whales! They are large holders of Steem Power. They can have too much influence on Steem's voting and reward system. This, in turn, could potentially introduce an element of censorship within the platform.

Are we aware of this problem? Absolutely! As we said, we do clip points because it.

But it's understandable and does not kill the golden goose. At least, not yet. The Steem blockchain is relatively new, and the rationale for concentrating Steem Power in the hands of a few makes sense; it allows the founding team to properly moderate the platform in its initial phases.

Could the concentration of Steem Power become a barrier to adoption for Steem in the future? If left to fester, yes. But we are tracking it carefully. If it becomes a problem in the future, we will downgrade accordingly.

For now, thanks to all its strengths, it's a buy. (You can find our initial writeup from Feb. 2 about "why Steem is a buy" here.)

Best wishes,
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