The problem with Steem (and all altcoins)

We’ve seen this before. Zynga, and the gamification trend; Groupon, and the daily-deal verticals, deal-ification of everything. Now, we see the same play in the cryptocurrency world.

Don’t get me wrong. I believe Bitcoin is real because it is essentially banking, disrupted. I call it more of a bank than currency because the daily trade has not shifted away a bit from fiat-currencies. To me, it’s more a response to increasing (for arguably good reasons nevertheless) violations of privacy in the banking system (e.g. FATCA and the likes). Thus the power of the collective operation behind BTC is similar to an international bank like HSBC.

Similarly, blockchain is real, because it is a trustless database (Oracle), open to anyone to become a part of, and the integrity is guaranteed by the sheer number of participants. It works similarly to our collective memory as a society; they’re both high-impact, but they’re both vulnerable to Byzantine attacks, and strong actors acting maliciously. For example, in the real world, a government may influence our collective memory by claiming that it won a war that it has not, by way of propaganda. In the Bitcoin network (as an example of blockchain), a group of miners with enough hashing capabilities may invalidate a particular transaction – see the $80MM heist which caused the Ethereum Classic fork – in much the same way.

Speaking of which, Ethereum is real because it is the notary institution disrupted. And while the value of notaries can’t be quantified because they are not commercial, they create massive value. The fact that Ethereum may displace them and the disputes that arise thereof (hence the contract justice system) is most certainly a value.

So when you’re comparing the value of any cryptocurrency, think of this picture; what is it trying to disrupt, and is it technically robust enough to accomplish that mission. For example, while the economic inefficiencies that Ethereum is set to solve are no less than that of Bitcoin, the technical feasibility is less, and it is more prone to hacks due to Turing completeness, hence the value discount.

In this picture, Steem seems like it’s trying to disrupt Reddit, or perhaps more ambitiously, the content industry as a whole (with players including Medium, Huff Post, New York Times, etc). Although one thing we know from earlier examples such as Digg, Demand Media (now Leaf Group) and present ones like Medium, content is not a winner-takes-all game. Therefore, especially with its niche content and audience, the value of Steem is more in line with a Digg or Reddit. That is, if it fulfils all its milestones successfully.

So, from that perspective, claiming that one of your blog posts, which corresponds to a token of ownership on the site, is worth $25/piece overnight, is most probably far from being a truth. Even the ARPU (average revenue per user) of Facebook – which is a well functioning, relatively spam and profanity free, hyper-targetable advertising machine – is $20 today. That’s approximately $200 lifetime value per user, given Facebook’s ~10x annual revenue to market cap ratio. So, even if the plan is to turn Steem into a Reddit or Medium eventually, with centralized revenue (whether it’s through donations like Reddit Gold, advertising like Facebook, or subscription like Medium), and sharing that virtual market cap with the users, the math still is not there. Also it fails to be decentralized, but acts more like a get-rich-quick scheme.

The same critique applies to all altcoins, ICOs, and tokens. Even the co-founder of Ethereum admits the over-tokenization must come to an end. Anything that is not backed by real value will disappear, period. So it’s important to check what it is that you’re decentralizing; (a) whether it’s technically feasible, (b) and whether it’s solving any real world problems. Going after the trendiest technologies for the sake of it does not always end up with the best outcomes, other than contributing to the promotion of whatever company or organization you’re flattering.


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