A decade ago, a white paper appeared that would change the world. In it, an individual(s) spelled out a new approach to the Internet what would forever change how things are.
Satoshi Nakamoto is known for inventing Bitcoin. A decade later, we see an entire industry that is unfolding based upon his/her/their work.
It is important to understand what took place in that white paper. A great deal of what we deal with today regarding this technology was not new.
A blockchain is a peer-to-peer network. Obviously, this was nothing new. Anyone who remembers Kazaa, Limewire or Napster knows they far preceded Bitcoin. It is also a distributed ledger which dates back to the 1970s. Cryptography provides the security, something that dates back to long before Satoshi.
On a peer-to-peer network, a digital file can be sent numerous times. For example, I can send a spreadsheet to both Bob and Mary. Tomorrow, if I so desire, I can send it to Fred. Digital files are easy to reproduce. With a network of this sort, it is easy to send information repeatedly. This is one of the biggest advantages to digitization over something being in physical form.
This is what got the record companies so upset. One person would take a file, share it out, and have it downloaded thousands of times.
Peer-to-peer networks showed how effective they are at sharing information. Since they entities were centralized, eventually they found themselves in legal trouble. Yet, the technology was sound.
The major element that Satoshi Nakamoto added was economic. By creating the Bitcoin cryptocurrency, he added a financial component to the peer-to-peer system that did not exist before. He essentially created information that had monetary value.
This created one problem. The advantage to a peer-to-peer system is that the information could be shared with thousands of people. This is great if it is a story about the atrocities in an African nation. It is problematic when that information is money.
Hence, the double-spending problem Nakamoto solved by using the incentive of problem solving known as mining.
At this point, Nakamoto is known for inventing Bitcoin. Fifty years from now, Nakamoto will be known as the Father of Cryptoeconomics.
That is the major contribution that was given to humanity. It is also a piece that gets overlooked.
Blockhchain is a very powerful tool. Having a network secured by cryptography which is a public distributed ledger to post transactions while reducing friction is extremely valuable. It is a game changer in terms of how business is done. However, in this context, it is more useful than revolutionary.
Adding in the cryptocurrency component turns it into a economic system. This adds the ability to provide incentives to the participants to behave in a way that is beneficial to the network. At the same time, there is a disincentive to not be a bad apple since that could cause financial harm to oneself.
A network that combines cryptography (security) with cryptocurrency (economy) is revolutionary.
Many people cannot grasp how cryptocurrency has any value. They mistakenly believe it is money that comes out of nowhere. This is incorrect.
To start, a cryptocurrency is tied to a blockchain. They go together and cannot be separated. Hence, any value the cyrptocurrency has is related to the underlying network.
Blockchains are cryptoeconomic ecosystems. By this I mean they are networks that are monetized in their design.
To illustrate, I will use Facebook.
This is an ecosystem that is enormous. However, it was not always that way. Facebook essentially is a platform that provides a place for people to interact online. In the beginning, it was a virtual hangout site. To some this is really cool yet it not worth a whole lot unless it is monetized. Hence, Facebook was confronted with the issue of how to monetize their system.
Of course, years later we see how this was done. Advertising is a big component of their model. We take for granted how logical that is today but 15 years ago, it was not the common practice. We also see commerce taking place in many different forms on the Facebook platform. This also adds to the value of the entire entity. Add in a few things like the broadcasting of sports and you see the behemoth of today.
We can compare that to a cryptoeconomic system like STEEM. Since July 4, 2016, the blockchain provided monetary rewards to anyone who was participating on the network. Since that day, the monetary component was built in. STEEM did not have to figure out how to monetize the activity on the blockchain; it was inherent in the system.
This is evidenced each time someone goes to his or her wallet and there is a payout. That green bar tells the individual what the payout is in STEEM, SP, and SBD. Those are the currencies that are used on the STEEM blockchain.
Each action has a certain value based upon the algorithmic programming of the blockchain. Some actions end up being dust while others are worth a few STEEM. It is all coded into the network.
Using Facebook, again, what is it that makes entity to be worth so much money? Obviously, the revenue stream and profits. However, it is really the activity that determines all that. In a digital system, activity is king. Facebook is worth a lot more than MySpace or Reddit because the amount of activity dwarfs those other platforms. This is what Facebook was able to monetize.
STEEM is a digital system. Hence, activity is paramount. That is what ultimately determines the value. More people tied to a particular blockchain means a larger ecosystem. Larger ecosystems have more activity equating to more people using the currency. On STEEM, the activity is all monetized.
So how does this compare to the price of things on coinmarketcap.com? It doesn't. There is no correlation to what I am describing here and the pricing action. They are two separate things. People like to tie them together but they are completely separate. Look at the top 10 tokens. Many of them are priced the way they are because of factors other than what is taking place on the blockchain.
It is similar to Tesla having a marketcap bigger than Ford and GM. Why does it have that? The balance sheet and income statement does not even come close for Tesla to the others. The reason the stock is priced where it is because people are using other factors to arrive at their decisions of whether to buy or not. With a stock like that, there is a lot of speculation. The same is true for many tokens.
This is one of the core reasons why I am so high on STEEM. The activity is there and is only going to grow. We are at the phase where development is crucial. Applications are what is going to drive traffic to the STEEM blockchain. With traffic, comes activity. All this activity has a monetary component built in. In turn, it makes the entire ecosystem more valuable whether the Wall Street casino realizes it or not.
That said, markets are often late to the table but rarely miss a good meal altogether.
Satoshi Nakamoto, the Father of Cryptoeconomics.
It is going to change the world.
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2019 will be the best of cripto curriencies.
Maybe.
Great article. I want to raise an issue on STEEM that none of us probably wants to consider, but that I think is important to....
STEEM is unlike other currencies when it comes to valuation (even true value based valuation) because people are earning it to sell and live on. All those people will always sell STEEM at any price they can get for it, thus putting continual downward pressure on the price.
Only new people joining the platform or those who come to understand how the 10% annual benefit, delegation for interest payments, vote selling, etc. work have a reason to buy STEEM regardless of what's happening with the price. But more and more people have a reason to sell it regardless of price movements. This is especially true for global participants, but even someone from a rich nation like America, if they buy food with their STEEM earnings, well you gotta eat!
This concerns me about the future ability of the coin to reach its true value in the marketplace.
I am a regular reader of your posts because they have a marked optimism unlike others who predict the end of the platform because people are not doing the right thing here. For example, from my plot the only thing I can do is produce content, that's what I dedicate myself to with a lot of effort because this platform has been my ally in gray moments and I want to help as much as possible so that she can maintain herself: doing things well and learning more and more. Thank you for this article that is very complete and clarifies many doubts.
if you have any doubts you haveto learn how the steem blockchain works and how many exchanges its listed on
Just look at the millions of dollars in steem traded in just one day , binance with over 600K $ USD, Huobi with $400K , bittrex over 300K, in total its millions of dollars a day everyday traded in steem on exchanges allover the world, its a decentralized asset, oso much less risky than lets say, a stock in the cenralzied stock market in New York, or on chinese stockmarket, any asset in a centralzied systemcarries somuch risk, especially since 2008 when they didnt let big banks fail and kept them alive as zombie banks... .So we will have one last global financial crisis and everyone with crypto will end up the winners of this game, and the new inheriters of this planet.
For more to adopt and actively use Steem and the apps I think the dev team needs to address your simplicity principle. I’ve introduced several folks to Steem and they all simply don’t get the fact that the current rules seem opposed to the kind of behavior that would actually produce high quality. As I start to explain the rules, their eyes glaze over—they are way too complex. In fact, its clear even people willing to spend the time to read the code and do experiments are having trouble figuring out how voting and rewards really work. In contrast to Steem, Stackexchange is a platform that works remarkably well at incentivizing and producing high quality content without actually paying the content producers or using a blockchain. Perhaps money really is the root of all evil. However, I suspect that the rules and overall design here are simply flawed. Incentivizing behavior that is counter to quality and not supporting evergreen content inherently hurts the long-term viability of the blockchain. The good thing is that either Steem will address these issues or something else will come along that does.
Proud member of #steemitbloggers @steemitbloggers
A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990's. I hope it's obvious it was only the centrally controlled nature of those systems that doomed them. I think this is the first time we're trying a decentralized, non-trust-based system.
E currency? what year are ytou from bro?
People love "e currency" ever heard of paypal? or debit cards? lol ever used amazon? yeah
e currency is fine
its crypto currency we are talking about here ok?
get a clue grandpa lol jk
only luddite who dont make any money dismiss "e currency" but actual;ly no one dismisses it because its not a word lol e currency? wot? lol go home ur drunk haha hey just messin with ya
Only e currency i can think of that was actually big, and that failed, was egold, and that was a system that High Yield Investment programs were built on, 100% ponzi scams that pretended to be forex based,i mean, we have the same shit with crypto now ...
Paypal works fine and its centralized lol doomed them? seriously what are you even talking about? lol its ok, u know about "non trust based systems" so ur cool :D LOL
What a wonderfully clear intro to blockchain and cryptocurrency. I'm sharing it on Facebook, as I've yet to attract even a single person from that platform over to Steemit; most people just don't understand the future-in-progress.
Agreed on pretty much the whole thing. But for more skeptical readers you will still have to address how steem activity is monetized. I don't think it's enough to say for example that payouts are given. In the case of advertising, there are large amounts of money pouring in to buy advertising. It's not as clear where money pouring into steem is for besides speculation. At the end of the day I believe it will be about two things:
A wonderful and enlightening piece...everything said are on point. Like you said, growth is what we really need at this stage so that in the near future when alot of dapps comes into the platform leading to heavy activities, we would feel satisfied because by then steem could be a luxury to behold.
"Fifty years from now, Nakamoto will be known as the Father of Cryptoeconomics."
And the Grandfather of Cryptoeconomics I assume would be Nick Szabo, since he invented Bit Gold a decade before Bitcoin came into existence., which was basically just the same as Bitcoin, except it was a paper he never put into motion.
Your explanation of Cryptoeconomics is bang on, I think, in particular with relation to why Steem is so great, being such an active Blockchain compared to all the others.
What I'd love to see is for Steem to be so active that the big Brands buy Steem to join the conversation. Then there would be no stopping it. :)
lol no bit gold was nothing like bitcoin stop it hahaha just stop!
In Szabo’s bit gold structure, a participant would dedicate computer power to solving cryptographic puzzles. In a bit gold network, solved puzzles would be sent to the Byzantine fault-tolerant public registry and assigned to the public key of the solver. Each solution would become part of the next challenge, creating a growing chain of new property. This aspect of the system provided a way for the network to verify and time-stamp new coins, because unless a majority of the parties agreed to accept new solutions, they couldn’t start on the next puzzle.[16][17]
When attempting to design transactions with a digital coin, you run into the "double-spending problem." Once data have been created, reproducing them is a simple matter of copying and pasting. Most digital currencies solve the problem by relinquishing some control to a central authority, which keeps track of each account’s balance. This was an unacceptable solution for Szabo. "I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority," he said.[13]
See without the actual decentralized Miners he did NOT create it to be decentralzied! he never SOLVED tha problem! So he was just creating ANOTHER fucking encrypted Banking token! no differnet than any Wells Fargo Database that make syou login with an an encrypted key! his system was never implimented so theerfor ERRR wrong nope not like bitcoin at all! But i see why you think that..
the solving of cryptographic keys is cool i guess but meh he never actually got his system working so it is not relevant at all, to anything or anyone, but maybe his E programming language is
and maybe he is satoshi it would actually make sense right?
LOL i mean fuck if hes not satoshi how could he not be? As if there would be another person working on cryptographic decentralized money system?
This all makes me angry and i dont know why maybe because i didnt know about Nick Szabo until now. But his idea wasnt ever actually completed.. but did his idea get picked up by the Satoshi Nakamoto working goup???? ahhhhh fuuuck mind fuck
https://en.wikipedia.org/wiki/Nick_Szabo
i feel like hes just making up this entire story just to make himself look like satoshi nakamoto
hha lol no i know hes real
Well at least its better than E gold. But yeah he never got past double spend problem so his Bit Gold idea sucks, it wasnt a working idea at all. He just ended up havin to use a central authority, and he didnt want to, so yeah he never finished that ide,a i feel like tahst why we dont hear about it, but maybe I just never heard about him...
Nick Szabo
Nick Szabo is a computer scientist, legal scholar and cryptographer known for his research in digital contracts and digital currency. He graduated from the University of Washington in 1989 with a degree in computer science. He earned a JD from George Washington University Law School. He holds an honorary professorship at the Universidad Francisco Marroquín.The phrase and concept of "smart contracts" was developed by Szabo with the goal of bringing what he calls the "highly evolved" practices of contract law and practice to the design of electronic commerce protocols between strangers on the Internet.
I definitely agree with you that ecosystems connected to cryptocurrencies are the most important factor for their success.
Are we looking on a single activity like posting, commenting and voting?
Simply excellent, could not have been explained better.
That sentence did not get bolded because there’s a space between the period and the third asterisk.
Everyday I consider all of my Crypto Holdings and I wonder why I don't focus more of my holdings to Bitcoin, EOS, and Steem..........Some of my other holdings don't have the Value of the 3 ................
For me the main point is how smart Satoshi Nakamoto was, introducing an economic aspect to the usual peer-to-peer networks, combining cryptography (security) with cryptocurrency (economy) making it a complete revolution/innovation.
thank you for this clear explanation. i have done a lot of studying since i entered the space in dec 17 and i learned a lot from this article. sometimes it's still hard for me to grasp.
basically, at the root level the activities on the blockchain are monetized, but the monetary value depends upon
? the subjective valuing of steem as a cryptocurrency is independent of its actual use/activity, as you said, and these are the other driving factors (as you gave in the example of tesla). i think along with the actual value of the blockchain and someone commented about simplifying the user experience to promote more activity, i can also see some marketing coming in handy. we, as users, are the promoters, but i also hope that that gets taken on, to some extent, by the steem team... thanks, resteemed. i think a lot of people have trouble with these questions, still.
the lack of steem marketing by steemit inc, is unforgivable., They have stunted the growth of this blockchain. There are paralele universes where Steem is the #1 Blockchain because in that universe ned tried harder and worked his ass off for us. But sadly, here in this universe stee is not even in the top 10
pathetic
we have been #3 before in 2016 and yet we are now in the #30s? WTf?> WHy cant steemit inc get their shit togetehr and use their hundreds of millions of dollars to fucking pay someone to promote steem to bitcoin investors., its not that fucking hard. All you have to do is convince 8000 peopel to invest 10,000 dollars each into Steempower and you would buy up all 80 million dollars worth of liquid steem that is both on the markets and in private accounts. That would push steem up to un imaginable heights because it just would! People would have top spend $20 or $50 or $100 per steembecvause there wouldnt BE any onthe exchanges! And there will be a HUGE demand for steem frompeopel trying to get Passive Income by leasing ut their SP!
This is insane to imagine how high Steem could be, but we have some lazy marketing people who dont know what theyre doing and need to be fired or have fire be lit under their bellies by EOS
a lot of valid points. when i see other marketed tokens and SMTs (that do well and gain in value).... i realize that Soooooooooooo much of where the crypto scene is right now (and let's face it, most consumed goods) is just based on who can market better-- the populace, as a whole, doesn't understand it (most of the people who bought in during the bitcoin craze probably don't understand it!). why the steemit team isn't working this angle (and it's not just an angle, there's an incredible product behind it and it's only gaining in value) i do not understand either. sure hope it picks up here soon!!!
gud read
Thank you for doing STEEM - better. Good luck to you and Love.
Even after reading this article I still don't get where Steem gets its value?
Can I summarize it as from all the activity?