Science says: Blog when there's blood in the street

A recent PLOS ONE article about Steemit and the Steem blockchain implies strategies for success in the Blockchain-based online social network (BOSN)

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Introduction

The other day, I posted the Steem Links post, The role of cryptocurrency in the dynamics of blockchain-based social networks: The case of Steemit - PLOS ONE. At the time, I hadn't had time to read the source link, but last night I managed to read through it.

In the article, the authors divide their analysis into three spheres: (i) social media transactions on the Steem blockchain; (ii) Financial transactions on the Steem blockchain; and (iii) Changes in price for STEEM on the external exchanges. With that framework in mind, they ask how the different areas are interrelated. Among other questions, they address the following questions:

• Does cryptocurrency price affect social media behavior?
• Does social media behavior affect cryptocurrency price?
• Does cryptocurrency price affect financial behavior?

The authors summarize it like this:

The true pivot of BOSN is the introduction of a cryptocurrency that shifts the paradigm of online social network from being purely social to economic-social: in the traditional approach, users are engaged with social interactions, while economic ones are prerogative of platform ownership; while in BOSN users are got dragged into social-economic actions. Thus, the way to understand the BOSN in-depth passes through the investigation of the relations between the economic and social actions carried out by users and how both relate to the value of the cryptocurrency.

In addition to the questions above, the authors also studied the behavior and strategies of "central nodes" -- highly rewarded participants on the Steem blockchain.

The article is interesting on its own merit, but it also provides some information that can be used by Steemizens to guide our own decision making. In the following sections, I'll discuss my own understanding of how the study was conducted and what it found, and then I'll go on to discuss the implications for the current generation of Steemizens.

Study set-up

In seeking to understand the Steem ecosystem, the authors used selected data from the period of December 6, 2016 through March 20, 2020, and they partitioned it in three categories, social media transactions, financial transactions, and cryptocurrency prices. These were drawn from "internal" (on-chain transaction records) and "external" (coinmarketcap.com) sources and passed through some statistical analyses. The statistical analysis included a measure of lag time in order to determine the direction of any correlations.

Social transactions

Analysis of social transactions included "vote", "comment", and "custom_json" operations.

Financial transactions

Analysis of financial transactions focused on claim_reward_balance, transfer, transfer_to_vesting, withdraw_from_vesting, delegate_vesting_shares and convert.

Cryptocurrency price

As previously noted, the cryptocurrency price was drawn from CoinMarketCap. Since STEEM is the foundational token, that is the price that the authors used for their analysis.

Central Nodes

For the identification of the central nodes, or highly rewarded users, the researchers measured rewards_sbd, rewards_steem, and rewards_sp. They matched that up with the "curation" and "creation" activity of the highly rewarded users.

Findings

Summary

After completing their analysis, the authors reported several findings of interest. Here are the ones that caught my attention:

• Social transactions tend to follow price changes. Comments, for example, saw a 0.94 correlation with market prices after a lag time of 15 days. Similarly, voting saw a 0.53 correlation with price after a lag of more than 90 days. In this context, an exact correlation would be 1, and a completely random relationship would be 0.

Here is their full correlation analysis:

According to the authors,

This represents a first evidence of a possible influence of economic and financial factors on the structure of the social graph supported by blockchain-based online social networks.

• The authors didn't find evidence that prices followed social activity.

• The authors found some correlation between prices and financial transactions, but they suggest that the relationship is complex and needs additional study.

Here is their full correlation table:

• Finally, the authors observe that highly rewarded accounts tended to engage more in curation than in content creation. This can be seen in the following table:

Commentary

It must be recognized that the Steem blockchain of March 2020 was very different from the Steem blockchain of today, so it is hard to know how much these findings apply to today. For example, the authors attribute many of the custom_json transactions to Splinterlands, which is no longer riding Steem.

Additionally, the article didn't study any dynamics relating to Steem's communities, beneficiary reward settings, or post promotion.

Further, the powerdown period has now changed from 91 days to 28 days, so I suspect that the lag time between price and voting might have been reduced.

However, even with all those limitations, the correlations on comments and votes lagging behind price definitely align with my own subjective observations. When the price goes down, so does usage, and when the price goes up, usage follows. So I would argue that this is the key finding from the paper, and it has implications for Steemizens today.

Implications for Steemizens

If usage follows price, what does this mean to the Steemizen? It must be remembered that payout is done in Steem-related currencies, so internally the blockchain doesn't care about prices (except for SBD conversion rates). This means that when external prices go up, competition for rewards gets higher, but when external prices go down, so does competition for rewards.

This reminded me of an old quote about investment:

"Buy when there's blood in the streets, even if the blood is your own.", Baron Rothschild

In short, the time to accumulate STEEM is when it's (relatively) easy to get it, not when it's hard. So, for bloggers who want to accumulate STEEM, it's more important to participate in the ecosystem when prices are low than when prices are high.

Here's the catch, however, how do we know when prices are low or high? I remember times when $1 per STEEM seemed low, and I remember other times when $1 per STEEM seemed high. We only know whether prices are high or low when we look in the rear view mirror. So, my thinking is that the ideal strategy is something like "dollar cost averaging", where you blog regularly - no matter what the price is.

Conclusion

So that's a whole lot of words to say something that we probably already knew, intuitively. I'm not always a person to trust my intuition, though, so I'm glad to see some real research to support the ideas.

Hopefully, we can look forward to future research that incorporates the impact of communities, post promotion, beneficiary settings, and other present and future innovations.

One additional point that I'd like to make has to do with this question: "Does social media behavior affect cryptocurrency price?. As already discussed, the authors found no evidence that it does. To me, this is the inflection point that we will need to see in order to declare Steem an unambiguous success. Right now, it seems that prices are buffeted about by speculators and traders - and this is true of most (all?) cryptocurrenices. When we, eventually, invert the relationship between social transactions and cryptocurrency price, that will mean that the blockchain has obtained control of its own destiny.

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Thank you for your time and attention.

As a general rule, I up-vote comments that demonstrate "proof of reading".

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Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.