According to bitcoin.com, Steemit is "powered by an open source blockchain called Steem. Additionally, users paid in the token Steem Power get more voting credentials, and receive half their payments in Steem Dollars, which the team says are worth about one US dollar." The service was founded in 2016 by Ned Scott and Dan Larimer, creator of BitShares.To clarify, according to Investopedia, a "blockchain is a public ledger of all [crypto-currency] transactions that have ever been executed...proof of all the transactions on the network.""It's a hybrid of Reddit and Facebook platforms on the blockchain," is how Dan Larimer described the service on the anarcho-capitalist podcast Anarchast, hosted by investor and editor of the Dollar Vigilante Jeff Berwick.According to Investopedia, a "Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors...[which] generates returns for older investors by acquiring new investors."The U.S. Securities and Exchange Commission (SEC) identifies seven red flags of a Ponzi scheme. If Steemit was such a scheme, it would be exposed here. Source of Ponzi red flags from the SEC:
1. High investment returns with little or no risk.
Official sources by Steemit never guarantee users of the service will make a lot of money. Only that they have the potential to make a lot of money by creating or curating content in high demand.Side note: becoming a user on Steemit does not require an initial investment.Users who have made a lot of money, such as Jeff Berwick's $15,000 in one post, are known outside of Steemit or just produce high-quality posts. As such, their posts will get a lot of attention, and thus a lot of return on investment for them. Enthusiasm is common in any venture that proves successful, even if only in a case-by-case basis. And any company who have good testimonies would want them public.
2. Overly consistent returns.
Steemit users have found out this is not the case for the service. Depending on the reaction of other users, content can change market value at any time. Between upvoting and downvoting content, what was popular one week may be moved over the next.Unlike Ponzi schemes, a Steemit user must create or curate content that the free market likes. Market reactions are not fixed in the platform, they are organic. Value is earned, not entitled.
3. Unregistered investments.
The whole point of a decentralized platform is to be unregulated by the state. What people do with their own content or currency ought to be no business to the SEC. Investments are to be researched, so if an individual invests without doing the research, it is not the fault of other Steemit users.Also, the blockchain keeps posts and their interactions recorded. It is accessible to the public. It should be noted, the founders of Steemit, Ned Scott and Dan Larimer, have open sourced the site, meaning anyone has access to the network codes.
4. Unlicensed sellers.
Like the previous red flag, the point is to be untouched by the state. Also, the founders and major investors are within the crypto-currency industry. In other words, no Charles Ponzis or Bernie Madoffs are involved.
5. Secretive and/or complex strategies.
This point can be fairly lobbed at Steemit. However, crypto-currency is complex to individuals who do not understand how it works. It would be prudent, and advised by some users of the service, to learn about crypto-currency before getting involved in Steemit.But none of this seems to be secretive. It would be like calling NASA a Ponzi scheme since it is involved in complex science. And, unlike Steemit, there are secrets within NASA, no less.
6. Issues with paperwork.
Users will not be denied paperwork that is expected of them. The blockchain is easily accessible, and users can do with that information as they want except alter it.One can easily track his or her investments when using the service. It should be noted many statist government agencies have a lot of issues with paperwork - including but not limited to the local DMV to the U.S. Department of Justice.
7. Difficulty receiving payments.
The difficulty in receiving payments is in the complex understanding of crypto-currency. Experienced bitcoin users, for example, usually do not have this problem.While Steem Dollars can be converted to U.S. dollars, Steem itself (which can be converted to other crypto-currencies, like bitcoin) and Steem Power cannot.Steem being pegged to the dollar takes up to two years to convert to U.S. dollars. Official Steemit articles explain this in detail, and it is up to individuals to invest or not.There are three questions the SEC asks potential investors.How do the risks compare with the potential rewards?With Steemit, the risks and rewards all depend on the content you create or curate. Produce posts people like and you get rewarded, produce posts people do not like and your risky move was in vain.Do I understand the investment?Yes, do you understand how Steemit works; if not, do not get involved.Where can I turn for help?If Steemit does lie to you or are being half-honest, then make it very public. The free market works when people are open about the good and the bad of their commercial interactions.As Dan Larimer says, "The real money is found in bootstrapping a digital currency. A currency owned and operated in a decentralized way by ordinary people."Given users are not inherently rewarded for bringing in new investors, Steemit can hardly be called a pyramid scheme either.There are other questions about Steemit, like Steem being a fiat currency, the service being mostly a popularity contest, and it being unstable for the long haul. These can be fair questions.According to many in crypto-currency media, Steem is a growing currency, right up there with bitcoin. The site is still new, and in beta, and there are a lot of questions about it. One of those questions, is it a Ponzi scheme, is a big no.
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