Exactly right, they are risking missing a huge opportunity with so much discontent about Twit and FB now. Flags will lead to real bitterness as you say. I truly believe a reward based system that is not vulnerable to state interference is the future of social media, and someone else is going to come up with a rival system now the idea is out there.
As I'm a writer on controversial subjects there's not really much point my being here if all that will happen is I'll get flagged by some rich person objecting to what I have to say. Investigative journalism will not have a future here for the same reason. So it may just become another platform for awesome kitten videos and the like.
I am gathering info. as I go - examples of bad flagging and ideas for alternatives, and will put it together to make a case against the flagging system, feel free to share anything you come across if you want to. Problem is I'm not sure if they can change the underlying system now, I only have a sketchy idea of the technology so far.
RE: How to Improve Steemit Member Retention - Suggestions from a Newbie