SteemAn​ ​incentivized,​ ​blockchain-based,​ ​public​ ​content​ ​platform.
​ ​August​ ​2017

Abstract
Steem is a blockchain database that supports community building and social interaction
with cryptocurrency rewards. Steem combines concepts from social media with lessons
learned from building cryptocurrencies and their communities. An important key toinspiring participation in any community, currency or free market economy is a fairaccounting system that consistently reflects each person's contribution. Steem is the first
cryptocurrency that attempts to accurately and transparently reward an unbounded
number​ ​of​ ​individuals​ ​who​ ​make​ ​subjective​ ​contributions​ ​to​ ​its​ ​community.

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Table​ ​of​ ​Contents
Abstract
Table​ ​of​ ​Contents
Introduction
Recognizing​ ​Contribution
Ways​ ​to​ ​Contribute

Capital​ ​Contributions
Steem​ ​(STEEM)

Steem​ ​Power​ ​(SP)

Steem​ ​Dollars​ ​(SBD)

Minimizing​ ​Fraudulent​ ​Feeds
Mitigating​ ​Timing​ ​Attacks

Minimizing​ ​Abuse​ ​of​ ​Conversions

Sustainable​ ​Debt​ ​to​ ​Ownership​ ​Ratios
Interest

Setting​ ​Price​ ​Feeds

Subjective​ ​Contributions

Distributing​ ​Currency

Voting​ ​on​ ​Distribution​ ​of​ ​Currency
Voting​ ​Abuse

The​ ​Story​ ​of​ ​the​ ​Crab​ ​Bucket

Rate​ ​Limited​ ​Voting
Payout​ ​Distribution
Payouts

Consensus​ ​Algorithm

Consensus​ ​in​ ​Steem

Eliminating​ ​Transaction​ ​Fees
The​ ​Problem​ ​With​ ​Fees

Micropayments​ ​Don’t​ ​Work
Fees​ ​are​ ​a​ ​Barrier​ ​to​ ​Entry
Changing​ ​Fees
Sybil​ ​Attacks

Full​ ​Reserve​ ​vs​ ​Fractional​ ​Reserve

Bandwidth​ ​Instead​ ​of​ ​Micropayment​ ​Channels
Impact​ ​of​ ​Capacity3​ ​of​ ​32

Comparison​ ​to​ ​Fees

Account​ ​Creation

Justifying​ ​Minimum​ ​Balances

Effectiveness​ ​Relative​ ​to​ ​Fees

Renting​ ​vs.​ ​Buying​ ​vs.​ ​Time​ ​Sharing
Performance​ ​and​ ​Scalability
Reddit​ ​Scale

Initial​ ​Allocation​ ​&​ ​Supply
Current​ ​Allocation​ ​&​ ​Supply

Impact​ ​of​ ​Token​ ​Creation​ ​Rate

The​ ​Power​ ​of​ ​SteemNo​ ​Micropayments,​ ​Tips​ ​Optional
Value​ ​is​ ​in​ ​the​ ​Links

Solving​ ​the​ ​Cryptocurrency​ ​Onboarding​ ​Problem
Solving​ ​the​ ​Cryptocurrency​ ​Liquidation​ ​Problem
Censorship

Solving​ ​Organic​ ​Discovery​ ​via​ ​Search​ ​Engine​ ​Optimization
Shifting​ ​Toward​ ​Blockchain-based​ ​Attribution

Replacing​ ​Advertising​ ​with​ ​Blockchain-based​ ​Content​ ​Rewards
Conclusion4​ ​of​ ​32

Introduction
Collectively, user-generated content has created billions of dollars worth of value for the shareholders ofsocial media companies, such as Reddit, Facebook, and Twitter. ​In 2014, Reddit hypothesized that its
platform would be improved if everyone who contributed to reddit.com by posting stories, adding
comments or voting were rewarded with a fair share in Reddit, Inc1. Steem aims to support social
media and online communities by returning much of its value to the people who provide valuable
contributions by rewarding them with cryptocurrency, and through this process create a currency that isable to reach a broad market, including people who have yet to participate in any cryptocurrency
economy.
There are some key principles that have been used to guide the design of Steem. The most importantprinciple is that everyone who contributes to a venture should receive pro-rata ownership, payment or
debt from the venture. This principle is the same principle that is applied to all startups as they allocate
shares​ ​at​ ​founding​ ​and​ ​during​ ​subsequent​ ​funding​ ​rounds.
The second principle is that all forms of capital are equally valuable. This means that those who
contribute their scarce time and attention toward producing and curating content for others are just as
valuable as those who contribute their scarce cash. This is the sweat equity principle2 and is a concept thatprior​ ​cryptocurrencies​ ​have​ ​often​ ​had​ ​trouble​ ​providing​ ​ ​to​ ​more​ ​than​ ​a​ ​few​ ​dozen​ ​individuals.
The third principle is that the community produces products to serve its members. This principle is
exemplified by credit unions, food co-ops, and health sharing plans, which serve the members of theircommunity​ ​rather​ ​than​ ​sell​ ​products​ ​or​ ​services​ ​to​ ​people​ ​outside​ ​the​ ​community.
The​ ​Steem​ ​community​ ​provides​ ​the​ ​following​ ​services​ ​to​ ​its​ ​members:
1.
2.
3.
4.
5.

A​ ​source​ ​of​ ​curated​ ​news​ ​and​ ​commentary.
A​ ​means​ ​to​ ​get​ ​high​ ​quality​ ​answers​ ​to​ ​personalized​ ​questions.
A​ ​stable​ ​cryptocurrency​ ​pegged​ ​to​ ​the​ ​U.S.​ ​dollar.
Free​ ​payments.
Jobs​ ​providing​ ​above​ ​services​ ​to​ ​other​ ​members.

Steem’s purposeful realignment of economic incentives has the potential to produce fairer and more
inclusive results for everyone involved than the social media and cryptocurrency platforms that have gone
before it. This paper will explore the existing economic incentives and demonstrate how Steem’s
incentives​ ​may​ ​result​ ​in​ ​better​ ​outcomes​ ​for​ ​most​ ​participants.
​ ​Reddit’s​ ​Cryptocurrency,​ ​Forbes,​ ​Erika​ ​Morphy,​ ​October​ ​2014,
http://www.forbes.com/sites/erikamorphy/2014/10/01/reddits-cryptocurrency-could-have-many-uses/#4e07b05332b
9
2​ ​Sweat​ ​Equity,​ ​Investopedia,
http://www.investopedia.com/terms/s/sweatequity.asp
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Recognizing​ ​Contribution
Steem is designed from the ground up to address the major barriers to adoption and monetization of asocial media based economy. Our thesis is that the same techniques used to grow major social media
platforms can be used to bootstrap a successful cryptocurrency. Economic incentives enabled by
cryptocurrency can dramatically facilitate the growth of a new social media platform. It is the synergy
between cryptocurrency and social media that we believe may give Steem a powerful advantage in themarket.
The challenge faced by Steem is deriving an algorithm for scoring individual contributions that mostcommunity members consider to be a fair assessment of the subjective value of each contribution. In a
perfect world, community members would cooperate to rate each other's contribution and derive a faircompensation. In the real world, algorithms must be designed in such a manner that they are resistant tointentional manipulation for profit. Any widespread abuse of the scoring system could cause community
members​ ​to​ ​lose​ ​faith​ ​in​ ​the​ ​perceived​ ​fairness​ ​of​ ​the​ ​economic​ ​system.
Existing platforms operate on a one-user, one-vote principle. This creates an environment where rankings
can be manipulated by sybil attacks and the service providers must pro-actively identify and block
abusers. People already attempt to manipulate the Reddit, Facebook, and Twitter scoring algorithms whenthe​ ​only​ ​reward​ ​is​ ​web​ ​traffic​ ​or​ ​censorship.
The​ ​fundamental​ ​unit​ ​of​ ​account​ ​on​ ​the​ ​Steem​ ​platform​ ​is​ ​STEEM,​ ​a​ ​crypto​ ​currency​ ​token.
Steem operates on the basis of one-STEEM, one-vote. Under this model, individuals who havecontributed the most to the platform, as measured by their account balance, have the most influence over
how contributions are scored. Furthermore, Steem only allows members to vote with STEEM when it iscommitted to a vesting schedule. Under this model, members have a financial incentive to vote in a way
that​ ​maximises​ ​the​ ​long​ ​term​ ​value​ ​of​ ​their​ ​STEEM.
Steem is designed around a relatively simple concept: ​everyone’s meaningful contribution to thecommunity should be recognized for the value it adds​. When people are recognized for their meaningful
contributions, they continue contributing and the community grows. Any imbalance in the give and takewithin a community is unsustainable. Eventually the givers grow tired of supporting the takers anddisengage​ ​from​ ​the​ ​community.
The challenge is creating a system capable of identifying what contributions are needed and their relative
worth​ ​in​ ​a​ ​way​ ​that​ ​can​ ​scale​ ​to​ ​an​ ​unbounded​ ​number​ ​of​ ​people.
A proven system for evaluating and rewarding contributions is the free market. The free market can beviewed as a single community where everyone trades with one another and rewards are allocated by profit
and loss. The market system rewards those who provide value to others and punishes those who consume
more value than they produce. The free market supports many different currencies and money is simply acommodity​ ​that​ ​everyone​ ​finds​ ​easy​ ​to​ ​exchange.
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Since the free market is a proven system, it is tempting to try to create a free-market system where content
consumers directly pay content producers. However, direct payment is inefficient and not really viablefor content creation and curation. The value of most content is so low relative to the cognitive, financial,and opportunity costs associated with making a payment that few readers choose to tip. The abundance of
free alternatives means that enforcing a ‘paywall’ will drive readers elsewhere. There have been several
attempts to implement per-article micropayments from readers to authors, but none have become
widespread.
Steem is designed to enable effective micropayments for all kinds of contribution by changing the
economic equation. Readers no longer have to decide whether or not they want to pay someone from theirown pocket, instead they can vote content up or down and Steem will use their votes to determine
individual rewards. This means that people are given a familiar and widely used interface and no longer
face the cognitive, financial, and opportunity costs associated traditional micropayment and tipping
platforms.
Voting input from community members is critical for Steem to accurately allocate payments tocontributors. Voting can therefore be viewed as a crucial contribution and worthy of rewards on its own.
Some platforms, such as Slashdot, use meta-moderation3 as a way to rank and reward honest moderators.
Steem chooses to reward those who contribute the most to the total promotion of a piece of content andrewards​ ​the​ ​voters​ ​proportional​ ​to​ ​the​ ​ultimate​ ​reward​ ​paid​ ​to​ ​the​ ​content​ ​creator.

Ways​ ​to​ ​Contribute

This section outlines the ideas behind Steem and its rewards for people who provide meaningful andmeasurable​ ​contributions​ ​to​ ​the​ ​Steem​ ​community.

Capital​ ​Contributions
There are two items a community can offer to attract capital: debt and ownership. Those who buy
ownership profit when the community grows but lose if the community shrinks. Those who buy debt are
guaranteed a certain amount of interest but do not get to participate in any profits realized by the growthof the community. Both types of capital contributions are valuable to the growth of the community andvalue of its currency. Additionally there are two ways ownership can be held: liquid and vesting. Vestingownership​ ​makes​ ​a​ ​long-term​ ​commitment​ ​and​ ​cannot​ ​be​ ​sold​ ​for​ ​a​ ​minimum​ ​period​ ​of​ ​time.
The Steem network calls these different asset classes Steem (STEEM), Steem Power (SP), and Steem
Dollars​ ​(SBD).

Meta-moderation​ ​is​ ​a​ ​second​ ​level​ ​of​ ​comment​ ​moderation.​ ​Users​ ​are​ ​invited​ ​to​ ​rate​ ​a​ ​moderator's​ ​decision​ ​in​ ​orderto​ ​improve​ ​moderation.
https://en.wikipedia.org/wiki/Meta-moderation_system37​ ​of​ ​32

Steem​ ​(STEEM)
Steem is the fundamental unit of account on the Steem blockchain. All other tokens derive their value
from the value of STEEM. STEEM is a liquid currency, and therefore can be bought or sold on
exchanges,​ ​as​ ​well​ ​as​ ​transferred​ ​to​ ​other​ ​users​ ​as​ ​a​ ​form​ ​of​ ​payment.

Steem​ ​Power​ ​(SP)
Start up companies require long-term capital commitment. Those who invest their money in a startup
expect to wait years before they can sell their shares and realize their profits. Without long-term
commitment, a startup seeking to raise additional capital through the sale of additional shares would becompeting with existing shareholders looking to exit. Savvy investors want their capital contributions togrow​ ​the​ ​company,​ ​but​ ​growth​ ​cannot​ ​happen​ ​if​ ​the​ ​new​ ​capital​ ​is​ ​given​ ​away​ ​to​ ​those​ ​looking​ ​to​ ​exit.
There is significant value to having long-term commitment because it enables communities to makelong-term plans. Long term commitment of stakeholders also causes them to vote for long-term growthrather​ ​than​ ​short-term​ ​pumps.
In the cryptocurrency space, speculators jump from cryptocurrency to cryptocurrency based mostly on
which one is expected to have short-term growth. Steem wants to build a community that is mostly owned
and​ ​entirely​ ​controlled​ ​by​ ​those​ ​with​ ​a​ ​long-term​ ​perspective.
Users are able to commit their STEEM to a thirteen week vesting schedule, providing them withadditional benefits within the platform. STEEM that has been committed to a thirteen week vestingschedule is called Steem Power (SP). SP balances are non-transferrable and non-divisible except via theautomatically recurring conversion requests. This means that SP cannot be easily traded on
cryptocurrency​ ​exchanges.
When users vote on content, their influence over the distribution of the rewards pool is directly
proportional to the amount of SP that they have. Users with more SP have more influence on the
distribution of rewards. This means that SP is an access token that grants its holders exclusive powers
within​ ​the​ ​Steem​ ​platform.
SP holders are also paid interest on the balance of SP that remains vested. 15% of the yearly inflation ispaid to SP holders as interest. The amount of the interest that they receive is directly proportional to theamount​ ​of​ ​SP​ ​they​ ​hold​ ​relative​ ​to​ ​the​ ​total​ ​amount​ ​of​ ​vested​ ​SP​ ​across​ ​all​ ​users.
Transferring from STEEM to SP is referred to as “powering up”, while transferring from SP to STEEM isreferred to as “powering down.” SP that is powered down is returned to the user over a period of thirteen
weeks,​ ​via​ ​13​ ​equal​ ​weekly​ ​payments,​ ​starting​ ​one​ ​week​ ​after​ ​the​ ​power​ ​down​ ​is​ ​initiated.

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Steem​ ​Dollars​ ​(SBD)
Stability is an important feature of successful global economies. Without stability, individuals across theworld could not have low cognitive costs while engaging in commerce and savings. Because stability is
an important feature of successful economies, Steem Dollars were designed as an attempt to bringstability​ ​to​ ​the​ ​world​ ​of​ ​cryptocurrency​ ​and​ ​to​ ​the​ ​individuals​ ​who​ ​use​ ​the​ ​Steem​ ​network.
Steem Dollars are created by a mechanism similar to convertible notes, which are often used to fundstartups. In the startup world, convertible notes are short-term debt instruments that can be converted toownership at a rate determined in the future, typically during a future funding round. A blockchain based
token can be viewed as ownership in the community whereas a convertible note can be viewed as a debt
denominated in any other commodity or currency. The terms of the convertible note allow the holder toconvert to the backing token with a minimum notice at the fair market price of the token. Creating
token-convertible-dollars enables blockchains to grow their network effect while maximizing the returnfor​ ​token​ ​holders.
Steem Dollars are referred to with the symbol SBD, an acronym for Steem Blockchain Dollars. Creating
SBD requires a combination of a reliable price feed, and rules to prevent abuse. Providing a reliable pricefeed involves three factors: minimizing the impact of an incorrect feed, maximizing the cost of producingan​ ​incorrect​ ​feed,​ ​and​ ​minimizing​ ​the​ ​importance​ ​of​ ​timing.

Minimizing​ ​Fraudulent​ ​Feeds

SP holders elect individuals, called witnesses, to publish price feeds. The elected witnesses arepresumably trusted by those who have a vested interest in the quality of the feed. By paying those who areelected, Steem creates market competition to earn the right to produce feeds. The more the feed producers
are​ ​paid​ ​the​ ​more​ ​they​ ​have​ ​to​ ​lose​ ​by​ ​publishing​ ​false​ ​information.
Given a set of trusted and elected feed producers, the actual price used for conversions can be derived as
the median of the feeds. In this way if any minority of individual feed producers produce outliers theyhave​ ​minimal​ ​impact​ ​on​ ​the​ ​actual​ ​median​ ​while​ ​still​ ​having​ ​the​ ​ability​ ​impact​ ​their​ ​reputation.
Even if all feed producers are honest, it is possible for the majority of feed producers to be impacted byevents beyond their control. The Steem network is designed to tolerate short-term corruption of themedian price feed while the community actively works to correct the issue. One example of an issue that
may take some time to correct is short-term market manipulation. Market manipulation is difficult andexpensive to maintain for long periods of time. Another example would be the failure of a centralizedexchange​ ​or​ ​the​ ​corruption​ ​of​ ​the​ ​data​ ​published​ ​by​ ​the​ ​exchange.
Steem factors out short-term price fluctuations by using the median price over a period of three and a halfdays.​ ​The​ ​median​ ​published​ ​feed​ ​is​ ​sampled​ ​every​ ​hour​ ​on​ ​the​ ​hour.
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As long as the price feed corruption lasts for less than half the moving median time window it will haveminimal impact on the conversion price. In the event the feed does get corrupted, network participants
will have an opportunity to vote-out corrupt feed producers before the corrupted feed can impact theactual conversion price. Perhaps more importantly, it gives feed producers an opportunity to detect andcorrect​ ​issues​ ​before​ ​their​ ​feeds​ ​start​ ​impacting​ ​the​ ​price.
With a three and a half day window, community members have approximately one and a half days torespond​ ​to​ ​any​ ​issues​ ​that​ ​come​ ​up.

Mitigating​ ​Timing​ ​Attacks

Market participants have access to information faster than the blockchain’s three and a half day moving
median conversion price can react. This information could be used to benefit of traders at the expense of
the community. If there is a sudden increase in the value of STEEM traders could request conversion of
their SBD at the old, lower price, and then sell the STEEM they receive a the new higher price withminimal​ ​risk.
Steem levels the playing field by requiring all conversion requests to be delayed for three and a half days.
This means that neither the traders nor the blockchain has any information advantage regarding the priceat​ ​the​ ​time​ ​the​ ​conversion​ ​is​ ​executed.

Minimizing​ ​Abuse​ ​of​ ​Conversions

If people could freely convert in both directions then traders could take advantage of the blockchainsconversion rates by trading large volumes without changing the price. Traders who see a massive run up
in price would convert to SBD at the high price (when it is most risky) and then convert back after thecorrection. The Steem protocol protects the community from this kind of abuse by only allowing peopleto​ ​convert​ ​from​ ​SBD​ ​to​ ​STEEM​ ​and​ ​not​ ​the​ ​other​ ​way​ ​around.
The blockchain decides how and when to create SBD and who should get it. This keeps the rate of SBD
creation​ ​stable​ ​and​ ​removes​ ​most​ ​avenues​ ​of​ ​abuse.

Sustainable​ ​Debt​ ​to​ ​Ownership​ ​Ratios

If a token is viewed as ownership in the whole supply of tokens, then a token-convertible-dollar can beviewed as debt. If the debt to ownership ratio gets too high the entire currency can become unstable. Debt
conversions can dramatically increase the token supply, which in turn is sold on the market suppressing
the price. Subsequent conversions require the issuance of even more tokens. Left unchecked the system
can collapse leaving worthless ownership backing a mountain of debt. The higher the debt to ownership
ratio​ ​becomes​ ​the​ ​less​ ​willing​ ​new​ ​investors​ ​are​ ​to​ ​bring​ ​capital​ ​to​ ​the​ ​table.
A rapid change in the value of STEEM can dramatically change the debt-to-ownership ratio. The
blockchain prevents the debt-to-ownership ratio from getting too high, by reducing the amount of STEEM
awarded through SBD conversions if the debt level were to exceed 10%. If the amount of SBD debt ever10​ ​of​ ​32

exceeds 10% of the total STEEM market cap, the blockchain will automatically reduce the amount of
STEEM generated through conversions to a maximum of 10% of the market cap. This ensures that theblockchain​ ​will​ ​never​ ​have​ ​higher​ ​than​ ​a​ ​10%​ ​debt-to-ownership​ ​ratio.
The percentage floors used to compute STEEM creation are based on the supply including the STEEM
value​ ​of​ ​all​ ​outstanding​ ​SBD​ ​and​ ​SP​ ​(as​ ​determined​ ​by​ ​the​ ​current​ ​rate​ ​/​ ​feed).

Interest
SBD pays holders interest. The interest rate is set by the same people who publish the price feed so that it
can adapt to changing market conditions. All debt carries risk to the lender. Someone who holds SBD
without redeeming it is effectively lending the community the value of a dollar. They are trusting that atsome point in the future someone will be willing to buy the SBD from them for a dollar or that there willbe​ ​speculators​ ​and​ ​investors​ ​willing​ ​to​ ​buy​ ​the​ ​STEEM​ ​they​ ​convert​ ​it​ ​into.
STEEM and SP holders gain leverage when members of the community are willing to hold SBD. Thisleverage amplifies the gains from growth while also contributing to growth. STEEM holders do sufferfrom increased dilution if the price falls. Cryptocurrency projects have shown that the gains fromincreasing the user base willing to trust the network with capital ultimately add more value to the networkthan​ ​any​ ​dilution​ ​that​ ​may​ ​occur​ ​during​ ​a​ ​downturn.

Setting​ ​Price​ ​Feeds

Astute readers will recognize that an interest bearing asset of limited supply may trade higher or lower
than the underlying asset depending upon other opportunities to earn interest on the same asset. With ahigh interest rate paid on an asset pegged to the US dollar many people will bid up the limited supply of
Steem Dollars until they are no longer valued at $1. In economics there is a principle known as the
Impossible​ ​Trinity4​ ​which​ ​states​ ​that​ ​it​ ​is​ ​impossible​ ​to​ ​have​ ​all​ ​three​ ​of​ ​the​ ​following​ ​at​ ​the​ ​same​ ​time:
1. A​ ​stable​ ​exchange​ ​rate
2. Free​ ​capital​ ​movement
3. An​ i​ ndependent​ ​monetary​ ​policy
If Steem feed producers aim to have an independent monetary policy allowing it to create and destroy
Steem Dollars while simultaneously having full control over the interest rate then they will encounter
problems. The Impossible Trinity says that Steem Dollars either need to restrict capital movement, havean​ ​unstable​ ​exchange​ ​rate​ ​with​ ​the​ ​dollar,​ ​or​ ​have​ ​limited​ ​control​ ​over​ ​the​ ​interest​ ​rate.
The primary concern of Steem feed producers is to maintain a stable one-to-one conversion between SBD
and the U.S. Dollar (USD). Any time SBD is consistently trading above $1.00 USD interest payments
must be stopped. In a market where 0% interest on debt still demands a premium, it is safe to say the​ ​The​ ​Impossible​ ​Trinity,​ ​economic​ ​theory
https://en.wikipedia.org/wiki/Impossible_trinity
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market is willing to extend more credit than the debt the community is willing to take on. If this happens a
SBD will be valued at more than $1.00 and there is little the community can do without charging negativeinterest​ ​rates.
If the debt-to-ownership ratio is low and SBD is trading for less than $1.00, then the interest rate shouldbe​ ​increased.​ ​This​ ​will​ ​encourage​ ​more​ ​people​ ​to​ ​hold​ ​their​ ​SBD​ ​and​ ​support​ ​the​ ​price.
If SBD trades for less than $1.00 USD and the debt-to-ownership ratio is high, then the feeds should be
adjusted upward give more STEEM per SBD. This will increase demand for SBD while also reducing thedebt-to-ownership​ ​ratio​ ​and​ ​returning​ ​SBD​ ​to​ ​parity​ ​with​ ​USD.
Assuming the value of STEEM is growing faster than Steem is creating new SBD, the debt-to-ownership
ratio should remain under the target ratio and the interest offered benefits everyone. If the value of the
network​ ​is​ ​flat​ ​or​ ​falling,​ ​then​ ​any​ ​interest​ ​offered​ ​will​ ​only​ ​make​ ​the​ ​debt-to-ownership​ ​ratio​ ​worse.
In effect, feed producers are entrusted with the responsibility of setting monetary policy for the purpose ofmaintaining a stable peg to the USD. Abuse of this power can harm the value of STEEM so SP holders
are wise to vote for witnesses that can be counted on to adjust the price feed and interest rates accordingto​ ​the​ ​rules​ ​outlined​ ​above.
If the debt-to-ownership ratio gets dangerously high and market participants choose to avoid conversion
requests,​ ​then​ ​the​ ​feed​ ​should​ ​be​ ​adjusted​ ​to​ ​increase​ ​the​ ​rate​ ​at​ ​which​ ​STEEM​ ​paid​ ​for​ ​converting​ ​SBD.
Changes to the interest rate policy and/or any premiums/discounts on the STEEM/SBD conversion rateshould be a slow and measured response to long-term average deviations rather than attempting to
respond​ ​to​ ​short-term​ ​market​ ​conditions.
It is our belief that these rules will give market participants confidence that they are unlikely lose money
by holding SBD purchased at a price of $1.00. We fully expect there to be a narrow trading range between$0.95​ ​and​ ​$1.05​ ​for​ ​SBD​ ​under​ ​normal​ ​market​ ​conditions.

Subjective​ ​Contributions
Subjective Proof of Work presents an alternative approach to distributing a currency that improves upon
fully ​objective Proof of Work systems such as mining. The applications of a currency implementing
subjective proof of work are far wider than any ​objective proof of work system because they can beapplied to build a community around any concept that has a sufficiently defined purpose. When
individuals join a community they buy into a particular set of beliefs and can vote to reinforce thecommunity​ ​values​ ​or​ ​purpose.
In effect, the criteria by which work is evaluated is completely subjective and its definition lives outside
the source code itself. One community may wish to reward artists, another poets, and another comedians.
Other​ ​communities​ ​may​ ​choose​ ​to​ ​reward​ ​charitable​ ​causes​ ​or​ ​help​ ​advance​ ​political​ ​agendas.
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The value each currency achieves depends upon the demand for influence within a particular communityand how large the market believes each community can get. Unlike prior systems, subjective proof ofwork enables a community to collectively fund the development of whatever it finds valuable and enables
the​ ​monetization​ ​of​ ​previously​ ​non​ ​monetizable​ ​time.

Distributing​ ​Currency

There are two ways people can get involved with a crypto-currency community: they can ​buy in​, or theycan ​work in​. In both cases users are adding value to the currency, however, the vast majority of people
have more ​free time than they do ​spare cash.​ Imagine the goal of bootstrapping a currency in a poor
community with no actual ​cash but plenty of ​time​. If people can earn money by working for one anotherthen​ ​they​ ​will​ ​bootstrap​ ​value​ ​through​ ​mutual​ ​exchange​ ​facilitated​ ​by​ ​a​ ​fair​ ​accounting/currency​ ​system.
Distributing a currency to as many people as possible in a manner that is generally perceived as fair is achallenging task. The tasks that can be entirely evaluated by an objective computer algorithm are limited
in nature and generally speaking have limited positive external benefits. In the case of Bitcoin-stylemining, it can result in the production of specialized hardware and cause people to invest time developing
more efficient algorithms. It may even help find prime numbers, but none of these things provide
meaningful value to society or the currency holding community at large. More importantly, economies ofscale and market forces will end up excluding everyone but experts from participating in this kind of
distribution. Ultimately, computation-based mining is just another way of ​buying in because it requires
money​ ​to​ ​pay​ ​the​ ​electric​ ​bill​ ​or​ ​the​ ​development​ ​of​ ​hardware​ ​necessary​ ​to​ ​do​ ​the​ ​work.
In order to give everyone an equal opportunity to get involved and earn the currency people must be given
an opportunity to work. The challenge is how to judge the relative quality and quantity of work that
individuals provide and to do so in a way that efficiently allocates rewards to millions of users. Thisrequires the introduction of a scalable voting process. In particular it requires that authority to allocate
funds​ ​must​ ​be​ ​as​ ​distributed​ ​and​ ​decentralized​ ​as​ ​possible.
The first step in rewarding millions of users is to commit to distributing a fixed amount of currency
regardless of how much work is actually done or how users vote. This changes the question from being“​Should we pay?​” to “​Whom should we pay?​” and signals to the market that money is being distributed
and is being auctioned off to whoever “bids” the most ​work​. This is similar to Bitcoin committing toaward 50 BTC to whoever finds the most difficult hashes. Like Bitcoin, all work must be done prior-to
payout​ ​and​ ​nothing​ ​should​ ​be​ ​paid​ ​speculatively​ ​on​ ​the​ ​promise​ ​to​ ​do​ ​work​ ​in​ ​the​ ​future.
The next step is to reward everyone who does anything even remotely positive with ​something​. This isaccomplished by ranking all work done and distributing proportionally to its value. The more competitivethe​ ​market​ ​becomes,​ ​the​ ​more​ ​difficult​ ​(higher​ ​quality​ ​or​ ​quantity)​ ​it​ ​becomes​ ​to​ ​earn​ ​the​ ​same​ ​payout.

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Voting​ ​on​ ​Distribution​ ​of​ ​Currency

Assume there is a fixed amount of money to distribute, and that those who have a long-term vested
interest in the future value and utility of the currency are the ones who must decide how to allocate it.
Every vesting user casts their votes on who did the best work and at the end of the day the available
money for that day is divided proportional to the votes such that everyone with even one net positive votegets​ ​something.
The naive voting process creates a N-Person Prisoner’s Dilemma5 whereby each individual voter has
incentive to vote for themselves at the expense of the larger community goal. If every voter defects byvoting for themselves then no currency will end up distributed and the currency as a whole will fail togain network effect. On the other hand, if only one voter defects then that voter would win undeserved
profits​ ​while​ ​having​ ​minimal​ ​effect​ ​on​ ​the​ ​overall​ ​value​ ​of​ ​the​ ​currency.

Voting​ ​Abuse

Regardless of how much money any one individual has, there are always many other individuals withsimilar wealth. Even the wealthiest individual rarely has much more than the next couple wealthiest
combined. Furthermore, those who have a large investment in a community also have the most to lose byattempting to game the voting system for themselves. It would be like the CEO of a company deciding tostop paying salaries so he could pocket all of the profits. Everyone would leave to work for othercompanies​ ​and​ ​the​ ​company​ ​would​ ​become​ ​worthless,​ ​leaving​ ​the​ ​CEO​ ​bankrupt​ ​rather​ ​than​ ​wealthy.
Fortunately, any work that is getting a large concentration of votes is also gaining the most scrutiny(publicity). Through the addition of ​negative-voting it is possible for many smaller stakeholders to nullify
the voting power of collusive groups or defecting large stakeholders. Furthermore, large-stakeholders
have more to lose if the currency falls in value due to abuse than they might gain by voting forthemselves. In fact, honest large stakeholders are likely to be more effective by policing abuse and using
negative​ ​voting​ ​than​ ​they​ ​would​ ​be​ ​by​ ​voting​ ​for​ ​smaller​ ​contributions.
The use of ​negative-voting to keep people from abusing the system leverages the ​crab mentality thatmany people have when it is perceived that one individual is profiting at the expense of everyone else.
While crab mentality normally refers to short-sighted people keeping good people down, it is also whatallows good people to keep bad people down. The only “problem” with crab mentality is when people
wrongly​ ​believe​ ​someone​ ​is​ ​profiting​ ​at​ ​everyone​ ​else's​ ​expense.

​ ​N-Person​ ​Prisoner’s​ ​Dilemma
https://cs.stanford.edu/people/eroberts/courses/soco/projects/1998-99/game-theory/npd.html
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The​ ​Story​ ​of​ ​the​ ​Crab​ ​Bucket6

A man was walking along the beach and saw another man fishing in the surf with abait bucket beside him. As he drew closer, he saw that the bait bucket had no lid andhad​ ​live​ ​crabs​ ​inside.
"Why​ ​don't​ ​you​ ​cover​ ​your​ ​bait​ ​bucket​ ​so​ ​the​ ​crabs​ ​won't​ ​escape?",​ ​he​ ​said.
"You don't understand.", the man replied, "If there is one crab in the bucket it would
surely crawl out very quickly. However, when there are many crabs in the bucket, if
one tries to crawl up the side, the others grab hold of it and pull it back down so thatit​ ​will​ ​share​ ​the​ ​same​ ​fate​ ​as​ ​the​ ​rest​ ​of​ ​them."
So it is with people. If one tries to do something different, get better grades, improveherself, escape her environment, or dream big dreams, other people will try to dragher​ ​back​ ​down​ ​to​ ​share​ ​their​ ​fate.
Eliminating “abuse” is not possible and shouldn’t be the goal. Even those who are attempting to “abuse”
the system are still doing work. Any compensation they get for their successful attempts at abuse or
collusion is at least as valuable for the purpose of distributing the currency as the make-work system
employed by traditional Bitcoin mining or the collusive mining done via mining pools. All that isnecessary is to ensure that abuse isn’t so rampant that it undermines the incentive to do real work insupport​ ​of​ ​the​ ​community​ ​and​ ​its​ ​currency.
The goal of building a community currency is to get more “crabs in the bucket”. Going to extreme
measures to eliminate all abuse is like attempting to put a lid on the bucket to prevent a few crabs fromescaping and comes at the expense of making it harder to add new crabs to the bucket. It is sufficient tomake​ ​the​ ​walls​ ​slippery​ ​and​ ​give​ ​the​ ​other​ ​crabs​ ​sufficient​ ​power​ ​to​ ​prevent​ ​others​ ​from​ ​escaping.

Rate​ ​Limited​ ​Voting

A major part of minimizing abuse is the rate-limiting of voting. Individual users can only read andevaluate so many work items per day. Any attempt to vote more frequently than this is a sign ofautomation and potential abuse. Through rate limiting, stakeholders who vote more frequently have each
vote count for less than stakeholders who vote less frequently. Attempts to divide tokens among multiple
accounts also divides influence and therefore does not result in a net increase in influence nor bypass therate-limit​ ​imposed​ ​on​ ​voting.
Users are allotted a fixed amount of voting power. Voting power is multiplied by a user’s vesting tokens
to determine how much share in the reward pool should be allocated to a given work item. Every vote thatis cast uses a percentage of remaining voting power. Users can vote for more posts, but each vote will be​ ​The​ ​Story​ ​of​ ​the​ ​Crab​ ​Bucket,​ ​http://guidezone.e-guiding.com/jmstory_crabs.htm

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worth less, and it will take longer to reach full voting power again. Voting power recharges at a fixedlinear​ ​rate​ ​of​ ​20%​ ​per​ ​day.

Payout​ ​Distribution

One of the primary goals of Steem’s reward system is to produce the best discussions on the internet.
Each and every year 75% of the yearly inflation is distributed to users submitting, voting on, anddiscussing content. At the size of Bitcoin this could be several million dollars per day being given to thetop​ ​contributors.
The actual distribution will depend upon the voting patterns of users, but we suspect that the vast majorityof​ ​the​ ​rewards​ ​will​ ​be​ ​distributed​ ​to​ ​the​ ​most​ ​popular​ ​content.
Zipf’s Law7 is one of those empirical rules that characterize a surprising range of real-world phenomena
remarkably well. It says that if we order some large collection by size or popularity, the second element in
the collection will be about half the measure of the first one, the third one will be about one-third themeasure of the first one, and so on. In general, the k th-ranked item will measure about 1/k of the firstone.
Taking popularity as a rough measure of value,then the value of each individual item is given by
Zipf’s Law. That is, if we have a million items,
then the most popular 100 will contribute a thirdof the total value, the next 10,000 another third,
and the remaining 989,900 the final third. The
value of the collection of n items is proportional tolog(n).
The impact of this voting and payout distribution
is to offer large bounties for good content whilestill rewarding smaller players for their long-tailcontribution.
The economic effect of this is similar to a lottery where people overestimate their probability of getting
votes and thus do more work than the expected value of their reward and thereby maximize the total
amount of work performed in service of the community. The fact that everyone “wins something” playson the same psychology that casinos use to keep people gambling. In other words, small rewards help
reinforce​ ​the​ ​idea​ ​that​ ​it​ ​is​ ​possible​ ​to​ ​earn​ ​bigger​ ​rewards.

​ ​Zipf’s​ ​Law​ ​https://en.wikipedia.org/wiki/Zipf%27s_law

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Payouts
When a post receives a payout it takes the form of 50% SBD and 50% SP. The Steem Power give the user
increased voting and transaction power while the SBD gives the user an immediate benefit in a stablecurrency. As we’ve already discussed at length, SP is designed to encourage long-term holding rather thanshort-term selling. This encourages more users to have a vested interest in the long-term success of theplatform.
Users also have the option to be paid in 100% SP, as well as decline payout on posts. When a user
declines payout on a post, the money that would have been paid to them remains in the rewards pool, tobe​ ​distributed​ ​to​ ​other​ ​users.

Consensus​ ​Algorithm

Consensus is the process by which a community comes to a universally recognized, unambiguous
agreement on piece of information. There are many algorithms society has developed for reachingconsensus about who owns what. Every government on earth is a primitive consensus algorithm whereby
the population agrees to abide by a certain set of rules enshrined in a constitution. Governments establish
courts, judges, and juries to interpret the subjective facts and render a final decision. Most of the time
people​ ​abide​ ​by​ ​the​ ​decision​ ​even​ ​if​ ​it​ ​was​ ​wrong.
The algorithms used by cryptocurrencies provide a better way to reach consensus. Cryptographicallysigned testimony from individuals is recorded in a public ledger that establishes the absolute global orderof events. A deterministic computer algorithm can then process this ledger to derive a universally
accepted conclusion. So long as the members of a community agree on the processing algorithm, theresult​ ​of​ ​the​ ​algorithm​ ​is​ ​authoritative.
The primary consideration is determining what testimony is allowed to enter the public record. Systems
should be designed to minimize the potential for censorship. Censorship on the public ledger is similar topreventing someone from voting in an election. In both cases an individual is prevented from impactingthe​ ​global​ ​consensus.

Consensus​ ​in​ ​SteemConceptually, the consensus algorithm adopted by Steem is similar to the consensus algorithm adopted bycompanies throughout the world. People with a vested interest in the future value of Steem vote to selectindividuals responsible for including testimony in the public record. Voting is weighted proportional toeach​ ​individual's​ ​vested​ ​interest.
In the world of cryptocurrencies, the public record is commonly referred to as a ​blockchain​. A ​block ​is agroup​ ​of​ ​signed​ ​transactions.
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With Steem, block production is done in rounds. Each round 21 witnesses are selected to create and sign
blocks of transactions. Twenty (20) of these witnesses are selected by approval voting and one istimeshared by every witness that didn’t make it into the top 20 proportional to their total votes. The 21
active witnesses are shuffled every round to prevent any one witness from constantly ignoring blocks
produced by the same witness placed before. Any witness who misses a block and hasn't produced in thelast​ ​24​ ​hours​ ​will​ ​be​ ​disabled​ ​until​ ​they​ ​update​ ​their​ ​block​ ​signing​ ​key.
This process is designed to provide the best reliability while ensuring that everyone has the potential toparticipate in block production regardless of whether they are popular enough to get voted to the top.
People have three options to overcome censorship by the top 20 elected witnesses: patiently wait in linewith everyone else not in the top 20, or purchase more SP to improve voting power. Generally speaking,applying censorship is a good way for elected witnesses to lose their job and therefore, it is unlikely to bea​ ​real​ ​problem​ ​on​ ​the​ ​Steem​ ​network.
Because the active witnesses are known in advance, Steem is able to schedule witnesses to produce blocks
every 3 seconds. Witnesses synchronize their block production via the NTP protocol. A variation of thisalgorithm has been in use by the BitShares network for over a year where it has been proven to bereliable.

Eliminating​ ​Transaction​ ​Fees

Steem goes to great lengths to reward people for contributing to the network. It would becounterproductive to turn around and charge people every time they attempt to interact with thecommunity.
Blockchain technology currently depends upon transaction fees to prevent spam. These fees suffer all of
the known problems with microtransactions and prevent blockchains from being used for low-valuetransactions. Truly decentralized applications must offer users the appearance of free transactions if theywish to compete with their centralized alternatives. This paper outlines the approach used by Steem toeliminate the need for fees and thereby enable a wide range of previously untenable decentralized
applications.

The​ ​Problem​ ​With​ ​Fees
Blockchains are decentralized networks where all transactions are broadcast to all peers. Every so often ablock is produced that includes some or all of the pending transactions. All blockchains must find asolution to prevent malicious users from consuming all of the available network capacity with worthlesstransactions. These worthless transactions can prevent other valuable transactions from being processedand​ ​ultimately​ ​destroy​ ​the​ ​network.

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The solution adopted by most blockchains thus far is to charge a minimum transaction fee. A fee worth
just a few cents is enough to make attacking the network expensive and unprofitable. While this approachsolves the spam problem, it introduces new problems. Imagine solving the email spam problem byintroducing​ ​a​ ​small​ ​fee​ ​on​ ​every​ ​email;​ ​people​ ​wouldn’t​ ​use​ ​email.

Micropayments​ ​Don’t​ ​Work

The fundamental problem with charging transaction fees is that micropayments don’t work, especially for
low-value user actions. When a fee is charged on every transaction, it limits the types of transactions thata decentralized network can process. Regardless of how rational the argument for the necessity of fees,
users​ ​still​ ​hate​ ​the​ ​experience​ ​of​ ​being​ ​nickeled​ ​and​ ​dimed​ ​for​ ​everything​ ​that​ ​they​ ​do.
Imagine if the websites we use every day charged us a fee every time we modify our accounts bychanging the password. Users expect certain things to be free. Requiring users to make a decision onwhether​ ​or​ ​not​ ​an​ ​action​ ​is​ ​worth​ ​a​ ​small​ ​fee​ ​creates​ ​anxiety​ ​that​ ​causes​ ​users​ ​to​ ​leave.
A transaction can’t be worth so much as to require a decision but worth so little that thatdecision is automatic. There is a certain amount of anxiety involved in any decision tobuy, no matter how small, and it derives not from the interface used or the time required,but​ ​from​ ​the​ ​very​ ​act​ ​of​ ​deciding.
Micropayments, like all payments, require a comparison: “​Is this much of X worth thatmuch of Y?​” There is a minimum mental transaction cost created by this fact that cannot
be optimized away, because the only transaction a user will be willing to approve withno​ ​thought​ ​will​ ​be​ ​one​ ​that​ ​costs​ ​them​ ​nothing,​ ​which​ ​is​ ​no​ ​transaction​ ​at​ ​all.
–​ ​Clay​ ​Shirky8
In the world of financial payments, small fees are acceptable because the value of the transaction isextremely high relative to the fee charged, and the buyer has already made a decision to buy. The world ofpotential blockchain applications is far greater than just financial payments and includes many necessarytransactions​ ​for​ ​which​ ​fees​ ​are​ ​simply​ ​unacceptable​ ​to​ ​users.
Systems like BitShares, Nxt, Ripple, Counter Party and Stellar all allow users to place limit orders on theblockchain and all of them charge users a small fee to perform this action. Later if the user wishes tocancel their order, another fee is charged. Systems like Ethereum take micropayments to a whole newlevel: charging per calculation. All of these systems struggle to attract new mainstream users for the same
reasons that a decentralized search engine would struggle to attract users from Google if it charged a​ ​Clay​ ​Shirky,​ ​The​ ​Case​ ​Against​ ​Micropayments
http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.html
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small fee for every search. It doesn’t matter how good the service is, people expect certain things to be
free.​ ​This​ ​is​ ​true​ ​even​ ​if​ ​a​ ​user​ ​ends​ ​up​ ​paying​ ​more​ ​overall​ ​under​ ​a​ ​different​ ​fee​ ​structure.

Fees​ ​are​ ​a​ ​Barrier​ ​to​ ​Entry

Any fee creates a barrier to entry for new users. Before someone can experiment with Ethereum they must
acquire some ETH tokens. Anyone wanting to build a decentralized application on Ethereum must passon the cost to their customers. Buying a crypto currency is not an easy task and rarely makes sense foramounts less than $10. This means that new users wanting to try out a new decentralized application mustfirst​ ​be​ ​convinced​ ​to​ ​part​ ​with​ ​$10.

Changing​ ​Fees
Over time a network must adjust fees. This can happen either due to an increase in the value of the token
or due to a surge in capacity. Users like predictable fees and guaranteed service. While it is possible todynamically​ ​adjust​ ​fees​ ​during​ ​times​ ​of​ ​heavy​ ​use,​ ​the​ ​result​ ​is​ ​a​ ​poor​ ​user​ ​experience.

Sybil​ ​Attacks
Centralized websites prevent spam through rate limiting and some form of ID verification. Even
something as simple as reCAPTCHA9 is sufficient to limit the creation of fake accounts. If someone
abuses​ ​their​ ​account​ ​then​ ​centralized​ ​websites​ ​are​ ​free​ ​to​ ​block​ ​the​ ​account.
In a decentralized system there is no direct way to ban users nor centralized provider able to host a
reCAPTCHA and enforce rate limiting of accounts. In fact, the inability to censor users is one of the main
selling​ ​points​ ​of​ ​blockchain​ ​technology.

Full​ ​Reserve​ ​vs​ ​Fractional​ ​Reserve
Let’s view a blockchain like an Internet Service Provider (ISP) co-op which owns all of the cables in the
town and has a maximum amount of bandwidth that it can provide at any time. People living in the town
can​ ​buy​ ​shares​ ​in​ ​the​ ​ISP​ ​and​ ​in​ ​exchange​ ​they​ ​are​ ​entitled​ ​to​ ​utilize​ ​a​ ​portion​ ​of​ ​the​ ​available​ ​bandwidth.
The ISP has two choices, run a “full reserve” or “fractional reserve” system. Under a full reserve systemeach user is only allowed a fraction of the maximum bandwidth proportional to her shares. Because noteveryone​ ​uses​ ​the​ ​Internet​ ​at​ ​the​ ​same​ ​time,​ ​the​ ​town’s​ ​network​ ​would​ ​be​ ​significantly​ ​underutilized.
Under a fractional reserve system the individual users could utilize more bandwidth than they are entitled
to at any given point in time so long as not everyone uses the Internet at the same time. The problem with
operating a fractional reserve is that congestion occurs anytime too many people wish to use the networkat the same time. The ISP needs a way to prioritize bandwidth during congested periods. In the most​ ​reCAPTCHA,​ ​Easy​ ​on​ ​Humans,​ ​Hard​ ​on​ ​Bots
https://www.google.com/recaptcha/intro/index.html
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extreme case, a fully congested network must revert to a full reserve system. The challenge is setting theproper​ ​fractional​ ​reserve​ ​ratio.

Bandwidth​ ​Instead​ ​of​ ​Micropayment​ ​Channels
The solution to the problems with micropayments is in implementing ​dynamic fractional reserves. Under
this model the blockchain will automatically adjust the reserve ratio for the network during times ofcongestion. The blockchain will set a target utilization that leaves enough headroom for short term surges
in demand. Any time the surges are sustained the blockchain reduces the maximum bandwidth-per-share.
When a surge is over and there is surplus capacity the blockchain can slowly increase thebandwidth-per-share.
Bandwidth used by an individual user should be measured over a suitably long period of time to allowthat user to time-shift their usage. Users tend to login, do many things at once, then logout. This meansthat their bandwidth over a short period of time may appear much higher than if viewed over a longer
period of time. If the time window is stretched too far then the reserve ratio will not adjust fast enough to
respond to short-term surges, if the window is too short then clustering usage will have too big of an
impact​ ​on​ ​normal​ ​users.
In our estimate it should be sufficient to measure the average weekly bandwidth usage of users. Everytime a user signs a transaction, that transaction is factored into their own individual moving average. Anytime a user’s moving average exceeds the current network limit their transaction is delayed until theiraverage​ ​falls​ ​below​ ​the​ ​limit.

Impact​ ​of​ ​Capacity
Blockchain capacity isn’t necessarily capped. It is well within the technological capability of internet
infrastructure to increase the Bitcoin block size to 10MB which in turn will reduce the minimum requiredbalance by a factor of 10. While Bitcoin currently supports about 3 transactions per second, alternative
implementations​ ​are​ ​capable​ ​of​ ​over​ ​1000​ ​transactions​ ​per​ ​second.

Comparison​ ​to​ ​Fees
If we assume a user with $25 dollars worth of BTC transacts once per week and pays a $0.04 cent fee
each time then they would pay over $2.00 in fees per year. A user would have to earn a 8% rate of returnon their $25 dollars just to break even with paying fees. Chances are that users were going to hold theirmoney on the blockchain anyway, so this user with $25 worth of BTC just saved $2 over the course of ayear by adopting a rate-limiting approach rather than a fee-based approach. With just $175 they could
transact​ ​every​ ​single​ ​day​ ​and​ ​save​ ​$14​ ​per​ ​year.

Account​ ​Creation
Steem’s account-based system with publicly known balances simplifies the implementation of the
bandwidth-based rate limiting algorithm. Any account with a balance below the minimum required totransact once per week would be unable to transact. This implies that all new accounts should be funded21​ ​of​ ​32

with at least this minimum balance. It also implies that users wishing to transact in smaller amounts can,so​ ​long​ ​as​ ​they​ ​hold​ ​a​ ​larger​ ​balance​ ​and​ ​reuse​ ​the​ ​account.
It is possible for a low-balance account created during a time of low usage to become inaccessible if the
network usage picks up. The funds could be recovered at any time by temporarily delegating a larger
balance​ ​to​ ​the​ ​account.
In order to maintain a reasonable user experience with a minimum number of hung accounts, all new
accounts should start out with a balance 10 times the minimum required to transact weekly. This way
even​ ​if​ ​demand​ ​increases​ ​by​ ​a​ ​factor​ ​of​ ​10​ ​the​ ​account​ ​will​ ​remain​ ​viable.
Any initial account balance would have to come from the user creating the account and not from token
creation​ ​due​ ​to​ ​the​ ​potential​ ​for​ ​sybil​ ​attacks.

Justifying​ ​Minimum​ ​Balances
The concept of forcing users to maintain a minimum balance flows naturally from the value of a user10.
Anyone running a business knows that every single user has significant value. Businesses spend anywherefrom $30 to $200 to acquire a user. Sometimes they pay users directly, other times they pay foradvertizing, and still other times entire companies are bought just for their user base. After a company
acquires a user they often given them many ​free services just to keep them around long enough tomonetize​ ​them​ ​through​ ​some​ ​other​ ​means.
Ripple uses a minimum balance11 that scales with account resource use and requires that new accounts get
funded with at least this minimum balance. Currently this minimum balance is about $0.15 which isgreater​ ​than​ ​the​ ​$0.10​ ​we​ ​estimated​ ​would​ ​allow​ ​someone​ ​to​ ​transact​ ​freely​ ​at​ ​least​ ​once​ ​per​ ​week.
A blockchain can enforce a minimum value per user through the simple process of requiring a minimum
balance. Any business that wishes to bring a new customer to the blockchain can pre-fund that user’s
account with the minimum balance that would allow them to transact. Requiring a relatively large fee($1.00) to sign up new users will naturally force anyone offering free accounts to vet the quality anduniqueness​ ​of​ ​each​ ​account​ ​before​ ​registering​ ​them​ ​with​ ​the​ ​blockchain.
Maintaining a minimum balance is effectively the same as making users pay transaction fees with theinterest they could have earned on their balance. The minimum balance is simply the balance required toearn​ ​enough​ ​interest​ ​to​ ​pay​ ​a​ ​fee​ ​in​ ​a​ ​relatively​ ​short​ ​period​ ​of​ ​time.
Fortunately, the minimum balance required can be as low as a dollar and this is something users canunderstand and appreciate. The opportunity cost of lost interest doesn’t incur the cognitive cost of a
micro-fee​ ​and​ ​is​ ​far​ ​more​ ​acceptable​ ​to​ ​users.

Forbes,​ ​Tristan​ ​Louis,​ ​“How​ ​Much​ ​is​ ​ ​a​ ​User​ ​Worth?”http://www.forbes.com/sites/tristanlouis/2013/08/31/how-much-is-a-us
11​ ​Ripple,​ ​Account​ ​Reserves
https://ripple.com/build/reserves/
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The STEEM used to pre-fund an account is Powered Up in the new account (i.e., converted to SteemPower). A portion of the SP used to fund a new account may be delegated from the creator of the account.
When a user is delegated SP, they may use the SP for voting and bandwidth purposes as if it were theirown, but the ownership of the SP remains with the user who delegated it. A user may remove thedelegation​ ​at​ ​any​ ​time.​ ​After​ ​a​ ​cool-down​ ​period,​ ​the​ ​SP​ ​is​ ​returned​ ​to​ ​their​ ​account.

Effectiveness​ ​Relative​ ​to​ ​Fees
To compare the effectiveness of rate limiting to fees we must consider how the two systems react tointentional network flooding by an attacker. Under Bitcoin an attacker with $10,000 dollars could disrupt
service for an entire day by filling every single block. The same attacker would be unable to disrupt
service​ ​for​ ​even​ ​a​ ​single​ ​block​ ​under​ ​the​ ​dynamic​ ​fractional​ ​reserve​ ​rate​ ​limiting​ ​approach.
If we go to a more extreme case and assume the attacker holds 1% of all coins then we presume an
attacker with $60 million dollars. Such an attacker could deny the Bitcoin blockchain service for 16 years
unless the miners increased fees or capacity. Even if fees were raised to $15 per transaction, the attacker
could​ ​still​ ​keep​ ​the​ ​network​ ​flooded​ ​for​ ​16​ ​days.
Under the rate limiting approach, someone who holds 1% of all coins with an intent to flood the network
would​ ​achieve​ ​their​ ​goal​ ​for​ ​less​ ​than​ ​30​ ​seconds.

Renting​ ​vs.​ ​Buying​ ​vs.​ ​Time​ ​Sharing
When someone owns a house they expect the right to use the house for free. If a group of people buy ahouse together then each can expect the right to use the house proportional to their percentage ownershipin the house. A fee based blockchain is like renting the house from its owners, whereas rate limiting is
like​ ​a​ ​timeshare​ ​among​ ​owners.
If a house is owned by multiple people then those individuals must decide how they wish to timeshare thehouse. Someone who owns 50% of the house but only uses it one weekend per year might expect to bepaid​ ​by​ ​the​ ​individuals​ ​who​ ​take​ ​their​ ​unused​ ​time.​ ​This​ ​is​ ​the​ ​mindset​ ​of​ ​a​ ​fee​ ​based​ ​system.
On the other hand, someone who owns 50% of the house is speculating that demand for the house will
increase in the future and they will be able to sell their stake for more. Any owner who owns more of ahouse than they use becomes a real estate speculator. With this mindset rather than collecting rent, theycollect​ ​appreciation.
The value of a share is derived from how much time it can potentially grant its owner. Owning 1% of ahouse and getting it 1 weekend per year is the lowest value of a share. However, if half of theshareholders never use their weekend, then the value per timeshare rises to 2 weekends per year. If thoseinactive users instead opt to rent their unused time, then it falls back to 1 weekend per year. If thoseunused timeshares were sold to people who would use them then the value of a timeshare would fall by
50%. Unless the rent collected is greater than the fall in share value the timeshare owners are making an
economic​ ​miscalculation.
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Using this rationale we can assume that a system based on fees will either be more expensive for its users
or be less profitable for its collective owners. An individual small owner may profit by renting out his
small time slice, but only at the expense of all other timeshare owners. In effect, the cost of the falling
timeshare value is shared among all owners whereas the profits are centralized in the single owner who
decided​ ​to​ ​rent​ ​his​ ​share.
We can conclude from this that a blockchain is best served by not using usage fees at all. If a usage feewere to be charged as an alternative to rate limiting, then it should be the equivalent of buying enoughtimeshares​ ​and​ ​committing​ ​to​ ​hold​ ​them​ ​long​ ​enough​ ​to​ ​gain​ ​the​ ​right​ ​use​ ​it​ ​once.
Stated another way, a transaction fee should be equal to the minimum account balance necessary totransact once per week and it should be refunded at the end of the week. Assume the minimum accountbalance is $1 and allows someone to transact once per week. If someone with a $1 balance that wishes toperform 5 transactions at once they will have to increase their balance to $5 for a week either before orafter​ ​their​ ​transactions.
In theory a market could form where users can borrow the stake required. In practice it is more efficientfor users to simply buy and sell the timeshares necessary to meet their desired usage rate. In other words,
the cost of negotiating micro-loans is greater than the cost of maintaining a balance suitable for yourmaximum​ ​weekly​ ​usage.
Decentralized rate limiting of transactions can enable new types of decentralized applications that were
not viable when every use of the application required a micropayment. This new model gives application
developers​ ​the​ ​ability​ ​to​ ​decide​ ​if​ ​and​ ​when​ ​to​ ​charge​ ​their​ ​users​ ​for​ ​transactions.

Performance​ ​and​ ​Scalability
The Steem network is built upon Graphene, the same technology that powers BitShares. Graphene has
been publicly demonstrated sustaining over 1000 transactions per second on a distributed test network.
Graphene can easily scale to 10,000 or more transactions per second with relatively straightforward
improvements​ ​to​ ​server​ ​capacity​ ​and​ ​communication​ ​protocols.

Reddit​ ​Scale
Steem is capable of handling a larger userbase than Reddit. In 2015 Reddit’s 8.7 million users generated
an average of 23 comments per second12, with an average of 83 comments per year per user. There were
73 million top-level posts, for an average of 2 new posts per second. There were about 7 billion up votes
creating an average voting rate of 220 votes per second. All told, if Reddit were operating on a blockchainit​ ​would​ ​require​ ​an​ ​average​ ​of​ ​250​ ​transactions​ ​per​ ​second.

​ ​Reddit​ ​Statistics,​ ​Number​ ​of​ ​Users​ ​and​ ​Comments​ ​per​ ​Second
http://expandedramblings.com/index.php/reddit-stats/2/
12

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To achieve this industry-leading performance, Steem has borrowed lessons learned from the LMAX
Exchange13, which is able to process 6 million transactions per second. Among these lessons are thefollowing​ ​key​ ​points:

1.
2.
3.
4.
5.

Keep​ ​everything​ ​in​ ​memory.

Keep​ ​the​ ​core​ ​business​ ​logic​ ​in​ ​a​ ​single​ ​thread.

Keep​ ​cryptographic​ ​operations​ ​(hashes​ ​and​ ​signatures)​ ​out​ ​of​ ​the​ ​core​ ​business​ ​logic.
Divide​ ​validation​ ​into​ ​state-dependent​ ​and​ ​state-independent​ ​checks.
Use​ ​an​ ​object​ ​oriented​ ​data​ ​model.

By following these simple rules, Steem is able to process 10,000 transactions per second without any
significant​ ​effort​ ​devoted​ ​to​ ​optimization.
Keeping everything in memory is increasingly viable given the recent introduction of Optane™
technology from Intel14. It should be possible for commodity hardware to handle all of the business logic
associated with Steem in a single thread with all posts kept in memory for rapid indexing. Even Google
keeps their index of the entire internet in RAM. The use of blockchain technology makes it trivial toreplicate the database to many machines to prevent loss of data. As Optane™ technology takes over,
RAM will become even faster while gaining persistence. In other words, Steem is designed for thearchitectures​ ​of​ ​the​ ​future​ ​and​ ​is​ ​designed​ ​to​ ​scale.

Initial​ ​Allocation​ ​&​ ​Supply
The Steem network started with a currency supply of 0 and allocated STEEM via proof of work at a rateof approximately 40 STEEM per minute to miners, with an additional 40 STEEM per minute being
created to seed the content and curation reward pools (for a total of 80 STEEM per minute). Then the
network started rewarding users who converted to SP. At this point, STEEM grew at a rate of
approximately 800 STEEM per minute due to the combined effects of the various Contribution Rewards
summarized​ ​below:
Contribution​ ​Rewards:-​ ​Curation​ ​rewards:​ ​ ​1​ ​STEEM​ ​per​ ​block​ ​or​ ​3.875%​ ​per​ ​year,​ ​whichever​ ​is​ ​greater-​ ​Content​ ​Creation​ ​rewards:​ ​ ​1​ ​STEEM​ ​per​ ​block​ ​or​ ​3.875%​ ​per​ ​year,​ ​whichever​ ​is​ ​greater-​ ​Block​ ​production​ ​rewards:​ ​ ​1​ ​STEEM​ ​per​ ​block​ ​or​ ​0.750%​ ​per​ ​year,​ ​whichever​ ​is​ ​greater-​ ​POW​ ​inclusion​ ​rewards​ ​before​ ​block​ ​864,000:​ ​ ​1​ ​STEEM​ ​per​ ​block​ ​(awarded​ ​as​ ​21​ ​STEEM​ ​per​ ​round)- POW inclusion rewards after block 864,000: 0.0476 STEEM per block (awarded as 1 STEEM perround)​ ​or​ ​0.750%​ ​per​ ​year,​ ​whichever​ ​is​ ​greater.
​ ​Martin​ ​Fowler,​ ​The​ ​LMAX​ ​Architecture
http://martinfowler.com/articles/lmax.html
14​ ​Introducing​ ​Intel​ ​Optane​ ​Technology​ ​–​ ​Bringing​ ​3D​ ​XPoint​ ​Memory​ ​to​ ​Storage​ ​and​ ​Memory​ ​Products
https://newsroom.intel.com/press-kits/introducing-intel-optane-technology-bringing-3d-xpoint-memory-to-storage-and-memory-products/
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- Liquidity rewards: 1 STEEM per block (awarded as 1200 STEEM per hour) or 0.750% per year,
whichever​ ​is​ ​greater
Power​ ​Rewards:- Steem Power rewards: For each STEEM created by the above rewards, 9 STEEM are divided among all
Steem​ ​Power​ ​holders.
SBD​ ​operations:- SBD rewards: A percentage of SBD value is created at an APR set by the witnesses and paid to SBD
holders​ ​as​ ​SBD
The overall supply picture is complicated by the effect of SBD operations, which may result in large-scalecreation or destruction of STEEM through feed rate following and SBD rewards, as discussed in the SBD
section. Other, smaller-scale complicating effects also exist, including unclaimed incentives (e.g. block
rewards​ ​for​ ​missed​ ​blocks),​ ​and​ ​abandoned​ ​accounts.

Current​ ​Allocation​ ​&​ ​Supply
Starting with the network's 16th hard fork in December 2016, Steem began creating new tokens at ayearly inflation rate of 9.5%. The inflation rate decreases at a rate of 0.01% every 250,000 blocks, orabout 0.5% per year. The inflation will continue decreasing at this pace until the overall inflation rate
reaches​ ​0.95%.​ ​This​ ​will​ ​take​ ​about​ ​20.5​ ​years​ ​from​ ​the​ ​time​ ​hard​ ​fork​ ​16​ ​went​ ​into​ ​effect.
75% of the new tokens that are generated go to fund the reward pool, which is split between authors andcurators. 15% of the new tokens are awarded to holders of SP. The remaining 10% pays for the witnessesto​ ​power​ ​the​ ​blockchain.

Impact​ ​of​ ​Token​ ​Creation​ ​Rate
It is often said that a coin with an inflationary model is not sustainable, but we know from countless
real-world examples that the quantity of money does not have a direct and immediate impact on its value,
though​ ​it​ ​certainly​ ​plays​ ​a​ ​role.
From August 2008 through January 2009 the U.S. money supply15 grew from $871B to $1,737B, a rate ofover 100% per year and then continued to grow at about 20% per year for the next 6 years. All told themoney supply in the U.S. has grown by 4.59x over less than 7 years. During that same time, the value of​ ​United​ ​States​ ​Money​ ​Supply,​ ​2009https://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS
15

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the dollar relative to goods and services has fallen less than 10% according to the government's priceindex16.​ ​This​ ​real-world​ ​example​ ​demonstrates​ ​that​ ​supply​ ​is​ ​only​ ​one​ ​component​ ​of​ ​price.
For the first 2 years of Bitcoin’s life the network sustained an annual inflation rate17 of over 100%. For the
first 5 years it was over 30%, and for the first 8 years it was over 10%. All told the total “spending” Steemdoes​ ​to​ ​fund​ ​content,​ ​curation,​ ​and​ ​block​ ​production​ ​amounts​ ​to​ ​less​ ​than​ ​10%​ ​APR.
The price of a digital commodity, like STEEM, is driven by both supply and demand. When a long-termholder decides to exit, the supply of STEEM on the market will increase and push the price down. This
downward pressure is countered when a new long-term holder decides to buy up the STEEM and convert
it back into SP. Additional supply and demand may be be added due to market speculators buying andselling​ ​liquid​ ​STEEM​ ​based​ ​on​ ​their​ ​predictions​ ​of​ ​the​ ​future​ ​market​ ​price.

The​ ​Power​ ​of​ ​Steem

Steem recognizes that the value of all user contributions (posts and votes) is greater than the sum of theparts. A single comment is worth next to nothing, but millions of curated posts is worth many millions (orpossibly even billions) of dollars. A single vote provides little curation value, but billions of votes is very
effective curation. Content without curation is of limited value. Given all the content of the Internet minus
the links between it, Google would struggle to produce useful search results. It is the links between
information​ ​that​ ​give​ ​it​ ​significant​ ​value.
Because everyone benefits, everyone should pay. In other words, no individual user should be expected to
pay for anything, but instead should be paid for everything they do that brings value to Steem. All weneed​ ​to​ ​do​ ​is​ ​ascertain​ ​which​ ​user​ ​contributions​ ​bring​ ​a​ ​social​ ​network​ ​value​ ​and​ ​which​ ​ones​ ​don’t.
Collectively Reddit users vote 220 times per second and make 23 posts per second. Reddit is valued
between $500 million18 and $4 billion19 which means that each and every upvote and post is worth
between $0.06 and $0.50 assuming the value of Reddit is mostly within the past year’s worth of activity.
One could argue that most of the value of Reddit is the near-real-time discussions that have occurred
within the past week which would dramatically increase the value of new activity. People go where
people​ ​are​ ​today,​ ​not​ ​where​ ​people​ ​were​ ​last​ ​year.

​ ​CPI​ ​Inflation​ ​Index,​ ​United​ ​States​ ​Dollar​ ​2008-2016
http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=2008&year2=201617​ ​Bitcoin​ ​Annual​ ​Inflation​ ​Rate,​ ​Bitcoin​ ​Talk​ ​Forumhttps://bitcointalk.org/index.php?topic=130619.0
18​ ​Reddit​ ​Valuaton,​ ​Newsweek,​ ​2014​ ​http://www.newsweek.com/investors-think-reddit-worth-500-million-26
19
Worth​ ​of​ ​Web,​ ​March​ ​2016
http://www.worthofweb.com/website-value/reddit.com/
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No​ ​Micropayments,​ ​Tips​ ​Optional
Existing attempts at integrating a cryptocurrency into a social media platform have focused on enablingusers to pay one another. Many services have attempted to introduce tipping. The theory is that if wemake tipping simple enough then more people will do it. Other services attempt to get people to pay topromote or boost their content’s ranking. Still others attempt to build small prediction markets on how
many​ ​tips​ ​an​ ​article​ ​will​ ​receive.
All of these approaches boil down to micropayments. They differ only in who is making the payment.
They all suffer from insufficient engagement of people making the micropayments. In the search forincentivised content production entrepreneurs have been so focused on who should pay that they missed
the obvious reality: everyone benefits from everyone’s actions so everyone should pay or no one should
pay,​ ​depending​ ​on​ ​how​ ​you​ ​look​ ​at​ ​it.
Steem bypasses micropayments completely because when a user upvotes a post it is the community thatpays the bill. The same amount of money will be spent whether the user upvotes a post or not and thefunds​ ​will​ ​not​ ​come​ ​from​ ​the​ ​voter.
The mental energy associated with making an economic decision becomes a barrier to participation formost​ ​people.
We already face a multitude of choices everyday with regards to what to access online in this
digital era of the information explosion, and every additional decision that we must makesimply adds on to the uncertainty and anxiety we face. Micropayment supporters believe that asimplified implementation can minimize the intrusiveness of micropayments and improve user
experience, but their argument only creates double standards for the decision making process[2]. A transaction cannot simultaneously be worth enough to warrant a decision and worth solittle that the decision is automatic. ​The only transactions that users can approve

without thought are ones that cost them nothing​, thus any micro-transaction of
positive value will incur mental costs through its requiring a decision. Furthermore, mental
transaction costs actually rise below a certain threshold value, a phenomenon that places
micropayments at an even greater disadvantage. For instance, it is easy to think that a copy oftoday's newspapers costs $1, but readers face much more difficulty and anxiety in deciding on
the value of each article or word. Such a dilemma will only be replicated and exacerbated if all
online content were to be broken down into their components and individually valued within amicropayment​ ​system.
-

Micropayments:​ ​A​ ​Viable​ ​Business​ ​Model20

Under Steem, micropayments are paid to content producer, but those who vote for the content
do not pay. Instead, the cost of the reward is paid for via new tokens. Someone can join thesystem, vote to pay someone, and then exit the system with more money than they started with​ ​Micropayments:​ ​A​ ​Viable​ ​Business​ ​Model​ ​http://cs.stanford.edu/people/eroberts/cs181/projects/2010-11/Microp

20

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(assuming the market valuation of the Steem system remained constant). In other words, themicropayment solution provided by Steem provides a user-experience similar to many widelyused​ ​websites​ ​that​ ​have​ ​user-moderated​ ​content.
Furthemore, Steem pays people to figure out who should be paid! This kind of thinking isrevolutionary.

Value​ ​is​ ​in​ ​the​ ​Links
The Internet would lose the vast majority of its value if all links among content were removed. It is therelationship among web pages that allows Google to identify the best apple pie recipe among the 16
million​ ​results.​ ​ ​Without​ ​the​ ​links​ ​the​ ​only​ ​information​ ​Google​ ​would​ ​have​ ​is​ ​word​ ​frequency.
Links can take many forms and have adapted over time. Every time a user votes on content in a social
network they add a connection between themselves and the content. This in turn links the consumer tothe producer through the content. The more connections a network has the more valuable the information
becomes.​ ​It​ ​is​ ​the​ ​relative​ ​and​ ​intentional​ ​connectedness​ ​of​ ​information​ ​that​ ​gives​ ​it​ ​value.
A social network can maximize the value extracted from a set of content by maximizing the quantity andquality of connections. Curating content is expensive and time consuming while being near impossible forcomputers to perform in the absence of links. Steem rewards users who are among the first to find andidentify​ ​new​ ​content.
By incentivising curation the Steem network is able to use automated algorithms to extract the mostvaluable​ ​information​ ​from​ ​a​ ​massive​ ​amount​ ​of​ ​content.

Solving​ ​the​ ​Cryptocurrency​ ​Onboarding​ ​Problem

It isn’t easy to get into cryptocurrency21. Someone who discovers Bitcoin and wants to try it out quickly
learns that they will need to sign up with an exchange and fund their account with a credit card or wiretransfer. What would Facebook’s adoption rate have been like if you had to fork over money and a twoforms​ ​of​ ​ID?
Steem solves this problem by giving everyone a way to get paid for doing simple, but valuable, tasks.
This will help to widely distribute STEEM tokens. This is helpful because cryptocurrencies have a
network effect (i.e. more users make it more useful; for an extreme example, consider that if Satoshi had
kept​ ​100%​ ​of​ ​Bitcoin​ ​for​ ​himself,​ ​Bitcoin​ ​would​ ​be​ ​worthless.)​ ​Dailydot,​ ​Jon​ ​Southurt,​ ​April​ ​2015
http://www.dailydot.com/opinion/bitcoin-cryptocurrency-adoption-hard21

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Solving​ ​the​ ​Cryptocurrency​ ​Liquidation​ ​Problem
A currency that is difficult to use or impossible to sell has little value. Someone who comes across $1.00
worth of Bitcoin will discover that it costs more than $1.00 to sell that Bitcoin. They have to create an
account with an exchange, perform KYC validation, and pay fees. Small amounts of cryptocurrency arelike​ ​small​ ​change​ ​that​ ​people​ ​are​ ​unwilling​ ​to​ ​bend​ ​over​ ​to​ ​pick​ ​up.
Merchants give users a way to quickly convert their cryptocurrency into tangible goods and services.
Merchants need a currency pegged to their unit of account, normally dollars. Accepting a volatilecurrency​ ​introduces​ ​significant​ ​accounting​ ​overhead.
Merchants will accept any currency if it increases their sales. Having a large user base with a stablecurrency such as SBD lowers the barrier to entry for merchants. The presence of merchants improves thesystem by creating an off-ramp for users to exit the system without going to the trouble of using an
exchange.
Another way that people can liquidate the small amounts of cryptocurrency they receive fromparticipating on the Steem platform is through ​tipping others. This is like leaving the small change as a tip
for your waiter. When enough people leave small tips it adds up to a meaningful amount. You and thewaiter​ ​each​ ​gain​ ​a​ ​benefit​ ​from​ ​the​ ​tip.

Censorship
Steem is a decentralized network that is operated by witnesses in jurisdictions around the world. All user
actions are publicly recorded on the blockchain, and can be publicly verified. This means that there is no
single​ ​entity​ ​that​ ​can​ ​censor​ ​content​ ​that​ ​is​ ​valued​ ​by​ ​STEEM​ ​holders.
Individual websites such as steemit.com may censor content on their particular site, but content publishedon the blockchain is inherently broadcast traffic and mirrors all around the world may continue to make itavailable.
Freedom of speech is the foundation of all other liberties and any infringement upon freedom of speech
undermines the only peaceful means of reaching consensus: discussion. Without free discussion voterscannot be fully informed, and uninformed voters are a greater threat to society than losing the right tovote. Censorship is a means of stealing votes through limiting public discourse. Steem is committed toenabling​ ​free​ ​speech​ ​and​ ​building​ ​a​ ​free​ ​society.

Solving​ ​Organic​ ​Discovery​ ​via​ ​Search​ ​Engine​ ​Optimization
Most cryptocurrencies generate little value for those who are not actively using the network. Steem, bycontrast, generates content and encourages users to share it. This content gets indexed by search engines
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and ultimately will bring value to a large number of passive users. This search traffic creates organic
advertising​ ​for​ ​the​ ​Steem​ ​network​ ​and​ ​grows​ ​the​ ​network​ ​effect.

Shifting​ ​Toward​ ​Blockchain-based​ ​Attribution
The internet represents the easiest medium for distributing information in the world. With that said, it canbe a frightening place for content creators who would like to own their content and have it shared withproper attribution. On current social media platforms, attribution is something that can be lost overnight a​ ​posted​ ​video​ ​or​ ​image​ ​can​ ​be​ ​replicated​ ​and​ ​re-shared​ ​without​ ​consent​ ​or​ ​regard​ ​for​ ​the​ ​creator.
Under blockchain-based social media, a creator or author would always be able to point to a public record
and timestamp showing proof of their content origination. In a circumstance where a creator would liketo address those who have re-shared without permission or attribution, blockchain-based records provide
public proof that the content was posted by a particular user at a particular time. In the future,
blockchain-based attribution could come to be recognized by governments for its authenticity and could
hold​ ​weight​ ​in​ ​court,​ ​which​ ​would​ ​give​ ​content​ ​creators​ ​greater​ ​powers​ ​to​ ​control​ ​their​ ​work.
While a timestamping service can be built on almost any blockchain, and several efforts exist to build thiskind of service on the Bitcoin network, Steem has a useful advantage in this realm because content
publishers are “first class citizens” -- the Steem blockchain is built from the ground up around the usecase of content publication, which allows content creators to have the blockchain to validate their content
at a certain point in time simply by writing their post using the same authoring tools used by other Steem
users.

Replacing​ ​Advertising​ ​with​ ​Blockchain-based​ ​Content​ ​Rewards
Under most content monetization models, content creators leverage advertising in one form or another.
Many creators recognize how advertising may diminish their work’s value to the consumer, yet creators
very often must seek returns on their time by monetizing. Advertising represents a double-edged sword:
With ads, a creator can make money most easily. Without ads, monetization is difficult but the content isricher.
Creators posting to social media outlets that are connected to Steem may monetize merely by having theirwork recognized (or ”liked”) by the Steem community. Blockchain-based payouts are completely digitaland have no middle-man. Therefore monetization by blockchain-based content rewards should be fasterand​ ​much​ ​lower​ ​barrier​ ​to​ ​use​ ​than​ ​monetization​ ​by​ ​advertisements.

Conclusion
Steem is an experiment designed to address challenges in the cryptocurrency and social media industries
by combining the best aspects from both. Steem presents earning opportunities to content creators and31​ ​of​ ​32

internet readers in ways that have not existed within the social media industry. Within Steem, individuals
earn real rewards online that are directly correlated to their contributions. Those rewards may have dollar
value due to the market price discovery and liquidity of Steem, and the people who hold Steem may havemore​ ​exclusive​ ​earning​ ​powers​ ​than​ ​those​ ​who​ ​do​ ​not.

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