In the digital currency world, people love to talk about the “killer app,” a use for the technology that would bring it truly mainstream and compel the people who are dubious about Bitcoin to buy in. Many are still waiting for it, and say bitcoin needs it to succeed in the long run. Ned Scott believes he’s got it.
Scott is the cofounder and CEO of Steemit, a social network that runs on a new cryptocurrency called steem. Scott, a former analyst at food-industry private equity firm Gellert Group, and Dan Larimer, founder of BitShares, launched the network and the currency in April. Since that time, its market cap has ballooned from $2,000 to $300 million. The platform is very young, and has its problems, but it shows impressive potential.
Steemit works like Reddit, which Scott cites as an overt influence but says he hasn’t used. Steemit users publish a blog post—it could be any length, any topic at all—and other users can “upvote” it. The twist: Every upvote represents a small amount of steem power. Think of steem power as a representation of influence, because the more you have, the more power your upvote has to move someone else’s post up when you upvote it. Steem power can be converted to steem dollars, which at the moment trade for about $3.25 USD each.
That’s tiny, sure, but more steem is created from more activity on Steemit, and the $300 million market cap of steem is enough to rank it No. 3 among all cryptocurrencies, according to CoinMarketCap, behind only bitcoin and ether, the currency of the Ethereum network.
Steemit’s ‘trending’ forum
“It’s internet points, like you have on Reddit, but now those points have real market value,” says Scott. “People are earning money for doing the things they were doing for free before. People spend all this time creating free content for social media companies, and now they can be rewarded.”
That sounds pretty good. And indeed, multiple Steemit users say they have cashed out more than $10,000 from posting on Steemit. The site pays you 24 hours after a post; 75% of the steem power goes to the writer, 25% to the curators—that is, those who upvoted the post, in different amounts according to their influence. Steemit made its first cumulative payout on July 4, amounting to $1.3 million USD. Steemit says it has seen more than 700 new signups every day for the past week.
Heidi Chakos, a travel blogger, says she paid off her credit card bill this month entirely with money she made on Steemit. The Indiana resident is currently traveling around the world in two-week spurts, and she posts about her adventures; one recent post about Tahiti earned 660 upvotes, or $8,930 in steem power. Chakos previously used a Squarespace blog for her posts, but now posts solely on Steemit. “For others, it all might seem farfetched at first,” she says, “but in my experience, once you explain ceryptocurrency to people, they get exited about it. I think Steemit is going to blow Facebook out of the water.”
At this point, that’s likely a stretch. But as a test, I posted on Steemit. It was nothing special: I wrote that I’m a Yahoo Finance writer and I was exploring Steemit to write a news story about it. My post quickly amassed 61 votes, which translates to $75.04 in steem power. The system cashed that out to me in half steem power, half steem, so I have 37.5 steem dollars in my wallet, which translates to $120. Not bad.
If all of that sounds rather complicated, Scott insists that users don’t need to worry about how the system works to use it and make money. It is an argument many have made about the bitcoin blockchain, comparing it to the HTTP technology that powers web pages, or the SMTP protocol that makes e-mail work. “You don’t need a high level of understanding to sign up,” he says. “Digital currency is moving into a stage similar to the automobile: it gets you from point A to point B. People post, they get money, and their lives are better. They don’t need to know the way it works or worry too much about the specifics in order to post, enjoy it, and get rewarded.”
The problem is that withdrawing money isn’t such an easy process to learn for a bitcoin layperson: First you must convert your steem dollars to bitcoin, then, if you want fiat currency, convert your bitcoin to US dollars.
Chakos says that wasn’t so hard. She used the exchange web site Bittrex to convert steem dollars to bitcoin, then sent that bitcoin from Bittrex to her Coinbase account, then transferred bitcoin from Coinbase to US dollars in her bank account. “It took like 30 minutes,” she says.
In addition to the learning curve, Steem suffered a distributed denial-of-service (DDoS) attack earlier this month, resulting in the theft of $85,000 worth of steem. It was, on a much smaller scale, not unlike a hack of the DAO network last month, which runs on the Ethereum blockchain; that theft amounted to $50 million worth of the cryptocurrency ether. Along with security concerns are the usual fears about Ponzi schemes or pump-and-dumps that come with cryptocurrency engines.
Steemit has high hopes it will become so ubiquitous it can serve as the de facto content-creation system, even on other platforms as a plug-in, through a steem widget for WordPress (coming soon) and other blogs. “And then bloggers don’t have to change their habits or leave their blog,” he says.
The ambition matches what another bitcoin reward company, ChangeTip, wants to do; it calls itself a “love button for the Internet.” The social tool lets you send someone a tip, in bitcoin, for a blog post you enjoyed. But Scott says, “Tipping comes with friction” such as how much to tip, and when it’s appropriate for the writer to accept.
Steem, he argues, makes more sense for the internet because, “It’s more like someone’s influence. And the more someone has, the more they can promote their own posts up the blockchain, and the more they can promote other people. It’s something that eventually publishers and brands will want to use to promote their own content.”