For the Korean version of this post, go here
I’m Ned Scott, the CEO of Steemit. Today I wanted to share with you a video of a presentation I recently gave in South Korea at a meetup for the digital asset exchange GoPax. In it I give a high-level overview of the Steem ecosystem.
Since Steem, steemit.com, and even the team at Steemit have all grown so much over the last year, I thought it would be good to share this video with those of you who might be less familiar with how everything ties together, or those of you interested in explaining it to others.
For those interested, here is a video of that presentation:
Starting with Steem
Because steemit.com is usually where people first hear about Steem, it’s often what they want to learn about first. However, I believe it is necessary to start with the foundational concepts. Once people understand how everything works at the base level, they will be better able to understand everything that sits on top of it.
As a database, Steem stores redundant, high-reliability data about two things: STEEM (the cryptocurrency) and content-related data (blog posts, comments, upvotes, etc.). Content management primitives for the content-related data allow any entrepreneur who wants to build an application (or applications) on Steem to understand very quickly how they can use that data to set up their own site. In this sense, Steem can be viewed as the only Content Management System on a blockchain.
What’s novel here is how the account system ties back into the cryptocurrency. It is the interlinking of these two types of data that unlocks a new world of possibilities for entrepreneurs.
Delegated Proof of Stake
This data is made redundant through the use of a Delegated Proof of Stake (DPoS) system, where different validators of transactions process all data that comes into the blockchain. We call those validators “witnesses,” and they run “nodes,” which are connected to one another via a peer-to-peer protocol that enables them to speak to one another in a reliable and predictable way.
This system allows them to “ask” one another if they have the same copy of the data. If one of them has a different copy of the data, their node can become invalid, giving someone else the opportunity to take their place and their job.
One thing that makes this possible is the cryptocurrency that was bootstrapped in the ecosystem from the beginning: STEEM. Part of the logic programmed into the Steem database dictates that a percentage of the STEEM tokens created by the blockchain must be paid out to these nodes at a predictable rate. This provides the witnesses with the incentive to perform the job of running a node and performing that service reliably.
Steemit.com is a web portal that exists outside of the Steem database. In this type of scenario, a group of people run nodes that connect to the Steem blockchain. These nodes hold their own copies of the data that is stored on Steem. This enables entrepreneurs to leverage this data to populate web applications of their own design. People can then use those applications to submit data to the Steem blockchain (as blog posts, in the case of steemit.com). The data is then reconciled with the cryptocurrency system, thereby enabling cryptocurrency tokens to be paid out to those people who are submitting data.
More than steemit.com
Dozens, probably even hundreds, of other websites are now plugging into the Steem blockchain service in this way. A notable one is DTube (a YouTube competitor), which combines the same content management and cryptocurrency primitives with another data service called IPFS to serve up videos. DTube has also become very popular due to the fact that it distributes cryptocurrency rewards, thanks to Steem.
These early adopters have helped to show how these cryptocurrency reward systems inside content applications can be so powerful, and why there are now over a million accounts on the Steem blockchain. With the upcoming release of our Smart Media Tokens (SMTs) protocol, these same entrepreneurs (along with entirely new ones) will gain the ability to create their very own STEEM-like token that launches their application - and their business - to the next level.
Smart Media Tokens
SMTs are a new piece of open source software that we are writing and submitting to the Steem github repository, where it will be either approved or rejected by the witnesses, depending on their assessment of whether or not it will compromise the security of the network, and whether the Steem community supports the idea.
The way to visualize Smart Media Tokens is to imagine the STEEM cryptocurrency as its own database within the Steem database. SMTs simply enable transaction logs for other currencies to be created inside that same blockchain database. With SMTs, anyone will be able to launch their own currency (or currencies), and the data relating to those tokens will be accessible to any of those entities and entrepreneurs previously mentioned. Even steemit.com could, theoretically, leverage these new cryptocurrency databases in interesting ways.
It’s going to be very interesting to see how other entrepreneurs decide to make use of these tokens. I fully expect that the information gained through these experiments will help us improve steemit.com and make it even more inspiring to both entrepreneurs and users.
STEEM is currently being used in multiple applications that are gaining mainstream acceptance. Through this integration we’ve learned a lot about how cryptocurrencies interact with websites and their end users. It’s been almost two years that we’ve been observing these behaviors and we now know that we’re only scratching the surface of what’s possible with respect to incentivizing behaviors through cryptocurrency. That being the case, we had to seriously consider that STEEM, as a sole cryptocurrency, may not be tapping into all of those potential use cases.
As we have been communicating with entrepreneurs who want to use the cryptocurrency, we’ve learned about the various elements of their businesses with which they need help. One example would be during the bootstrapping phase. During this time an entrepreneur is attempting to acquire sufficient resources to get their application off the ground and begin serving users. Because Steem is a pre-existing token, it can’t necessarily be used to serve this function.
This gap, along with a few others, led us to begin the thought-experiment of hosting multiple tokens on Steem. Because of Steem’s unique characteristics we didn’t have to limit ourselves to regular, run-of-the-mill Bitcoin-type cryptocurrencies, and could consider cryptocurrencies like STEEM, which has special properties like Proof-of-Brain (PoB).
With PoB, tokens are created at regular intervals and distributed to those who submit content to the blockchain, based on the stake-weighted upvotes of other users. Through this mechanism, the people casting votes are validating the value of that content by rewarding it with cryptocurrency.
This mutual exchange ensures that everyone within the ecosystem is happy. The creators of the content have been rewarded for their efforts, and the token holders are happy because they’re the ones who voted on the content in the first place with the impact of their vote being proportional to their skin-in-the-game (their stake). Finally, because the money comes out of the reward pool instead of anyone’s wallet and is released through a simple upvote, there is minimal cognitive load on the user.
All of this creates a positive feedback loop that leads to compounding network growth, as evidenced by Steem. Smart Media Tokens are really about giving new entrepreneurs the opportunity to do what our community has done with Steem, but with their very own cryptocurrency, all while feeding back into the Steem ecosystem.
Initial Coin Offerings
While bootstrapping is important, it doesn’t solve the problem of how an entrepreneur can build an application in the first place. For that they require funding, which is why the SMT protocol will launch with logic for performing Initial Coin Offerings (ICOs). This means that entrepreneurs will be able to offer batches of their currency for sale to the public in exchange for STEEM. These early adopters would then be guaranteed a number of those tokens when the currency goes live. A successful ICO would therefore enable the launcher of an SMT to acquire capital which they could use to build and sustain their enterprise.
SMTs also enable the monetization of a web property through reward sharing. Reward sharing enables application developers to take a percentage of the STEEM that is being distributed by the Steem blockchain through PoB to the content creators, benefiting from the use of their application. DTube is one example of an application already taking advantage of this feature on Steem, and this same capability will exist within SMTs.
Just like with STEEM, Proof-of-Brain within an SMT gives people an opportunity to join a community and be rewarded for the activities and energy that they bring to the community. This leads to the positive feedback loop mentioned before, which turbocharges growth.
SMTs are Business Oriented
SMTs are designed from the ground up to be business oriented. No matter what kind of internet project an entrepreneur is thinking about launching, SMTs will enable them to bolster their ability to fundraise, monetize their valuable community, and offer rewards that autonomously grow that community. These are the key concerns of every business operator and SMTs will offer solutions to them, with lower barriers to entry than ever before.
Ultimately I believe that Steem is still young and small, relative to where it will be in the future. Steemit and the Steem ecosystem are built on a number of new concepts that have the potential to explode across the internet. There are only a small number of bottlenecks to resolve before we as a community will have the opportunity to exploit the asymmetric growth opportunities that Communities and SMTs will bring.
At Steemit, we are committed to staying focused on eliminating those critical bottlenecks, continuing to hire A+ talent, and maintaining high standards. I believe that Steem is the next big thing on the internet, and I think we can all be really excited and proud of this very meaningful project in which we are all taking part.
Ned Scott, CEO of Steemit