Back in 2017, Steem announced two exciting projects: Hivemind Protocol and Smart Media Tokens (SMT). Hivemind would improve Steem linearly, but its the SMT project that could really alter the “attention economy”. It has been a few months so I thought it would be great to revisit SMT in particular with what has happened since that announcement. I’ll leave Hivemind for another post.
What are SMTs?
SMTs are to Steemit as ERC20 is to Ethereum. They allow app creators to develop applications on the Steem blockchain or to turn their existing websites into tokenized economies. Within these applications the SMT serves as the app’s native cryptocurrency. Two apps that do not issue SMTs as rewards, but Steem rather, are Dtube and Dsound. On both these sites, content publishers can upload their videos onto Dtube and their music/podcasts onto Dsound. Videos or sound clips that are upvoted/liked will reward the creator with Steem. An SMT based application would reward their creators with their own native token. Like any cryptocurrency, creators can then exchange their earned tokens for other tokens or back into their fiat currency of choice. This is potentially a game changer for several content sites. Media content has long been dominated by traditional revenue models (discussed below). Audience members have had no choice but to deal with these intrusive business models. SMTs have the potential to disrupt these business models. Let’s dig in further.
How content publishers generate revenue today
There are three options for content publishers to generate revenue from its users. I exclude business-to-business (B2B) revenue streams such as classifieds and sponsorships in this article. Here are the existing revenue models in order of my preference:
- Donations: You pay what you feel is appropriate.
- Pay walls: New York Times, The Economist, Wall Street Journal all employ pay walls. Basically you pay a subscription for content access.
- Advertising: I’m not a fan of targeted advertising because it feels intrusive. However, I have fallen prey to buying an item or two that popped up on a website. So it can’t all be bad can it? Advertising is annoying but far less intrusive than a paywall.
With the launch of SMT, Steem can empower new revenue and incentive models for content creators. In order to realize this vision, Steem will need to recruit entrepreneurs and developers to its ecosystem (same as any other blockchain such as Ethereum and NEO). Similar to Ethereum, SMT serve as a fundraising mechanism for entrepreneurs. Basically it’s also an ICO (initial coin offering) platform. Now that you’re familiar with how SMTs can enable fundraising and token economies for content based applications, let’s explain what Steem calls their Proof-of-Brain algorithm.
Proof-of-Brain positions SMTs as a tool for building perpetually growing communities, which encourage their members to add value to the community through the built in rewards structure.
~SMT whitepaper (link).
I’m not a fan of this name. I’d prefer any of the following:
- Proof-of-doing-stuff (okay I’m just kidding here)
In Bitcoin, solving its Proof-of-Work algorithm determines the block reward. In an SMT enabled ecosystem, the block reward mechanism is called Proof-of-Brain. I’ll leave the “does everyone have a brain” joke aside for now. In all seriousness, Proof-of-Brain is exactly what you think it is. As a content publisher, you used your brain to create a piece of content. Based on how your content is upvoted or liked, the creator is rightly rewarded for their efforts. All you had to do was like the video, the article, or the song. Steemit already has this built in. It begs the question why do we need SMTs when we already have Steem? You did not have to pay for a subscription. You did not have an ad in your face. It’s just you and your favorite content creator(s).
Why not Ethereum
Apps can build on Ethereum, but content driven apps make sense on Steem instead. Faster speed. Lower cost. Ethereum’s blockchain may be older and larger in terms of the number of applications built on it, but Steem offers a blockchain focused on media assets. Additionally, Steemit users are avid community members. Steemians are a tribe. I can’t say for the same for holders of Ethereum. As far a technology, three second block times on Steem. Zero fees too. Hard to beat that. Ethereum as an all-purpose blockchain will have its advantages eroded in niche areas with industry solution focused chains.
Steemit is not all roses
As a Steemit user myself, I have quite a few complaints about the platform. I’ll list them out below, then dig in. I mention these downsides to Steem not to tear the platform down. Instead, I offer them up as opportunity for content focused blockchains to use as a starting point of innovation. Hopefully the new SMTs will enable more parity in their ecosystems.
- Bots: paid services to upvote posts
- Subpar UI/UX: just visit Steemit.com. It’s practically a mid-90s website.
- Lack of outsiders: Non-community members can view article but cannot upvote article unless they sign up for a Steem account.
- Oligarchical distribution of influence: Steem Power is the token of influence within Steem’s community. If you peruse through Steem Power distribution it’s clear that influential power is held by a few. This leaves genuine content creators constantly searching for large holders of Steem Power to vote for their article. Unlike in Reddit where each upvote is 1 vote and that’s it. If Steem were a nation unto itself, it would appear to be controlled by a few powerful parties who have every incentive to collude to continue enriching themselves. Multicoin Capital has an excellent article on the tradeoffs of DPOS systems.
Steemit does have solutions for each of these items above but the platform runs the risk of disruption if these items persist in the long run. One aspect of Steemit I do enjoy is the constant release of Steem into the ecosystem. I go into more detail below.
Inflationary crypto economies
Inflation funding is where things get interesting. It allows economic rewards that are otherwise unthinkable. Remember, if Ether holders believed an upgrade (ex: sharding) would make the price go up by >10%, they’d be happy to pay close to 10% of their tokens for it. That means Ethereum could crowdfund a $3bn feature bounty by inflating the number of ETH by 10% and pay the newly created tokens to the creator(s) of the upgrade. This is somewhat analogous to taxes: everyone in the community chips in to fund common infrastructure (ex: roads) which no one would build alone.
~Fred Ehrsam, Funding the Evolution of Blockchains
Unlike Bitcoin’s fixed supply of 21 million coins, Steem is constantly created. This allows for inflation to be rewarded to incentivize certain actions in the network. SMTs reward content creators just as BTC rewards Bitcoin miners. Adding coin supply to the economy devalues existing coins in the marketplace, much as the US Dollar devalues when the Federal Reserve prints additional money. For content creators who have made their fortune in the past, they rely on copyright laws to protect their revenue streams. But copyright laws also have an unintended consequence. Copyrights are meant to expire, but major corporations such as Disney are keen to protect their golden goose. Major companies logically create lobbies for copyright protection extensions (see “the Mickey Mouse Protection Act“). The intended consequences of such lobbying kept these creative properties from moving into the public domain, and arguably stifling new innovation. These corporations and music royalties effectively become rent seekers (an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation)*. They extract market value long past their innovative days. An inflationary economy will devalue wealth holdings and force market participants to spur new ideas. Additionally, it is also a key mechanism to decreasing wealth concentration. This will pressure the wealthy to continue upping their game. Innovation is to be rewarded. Meritocracy in perpetuity.
SMT use cases
I’m intrigued by a few use cases where SMTs can turn mundane web activities into highly interactive experiences. The obvious use cases for SMTs is to build communities such as social networks. Steem listed five core use cases in their whitepaper (it’s a midnight thriller so curl up in your bed and enjoy this read… which will put you to sleep guaranteed). There are obviously a few more which I will explore down below. Let’s first look at the five “low hanging fruit” cases if you will.
- Content Publishers: monetizing a site’s user community, think Disqus with a cryptocurrency
- Forums: issue single or multi-token support for general purpose chat or niche-specific conversations. Chain.bb was an example of this until it shut down last month (see post).
- Comments Widget: Imagine a WordPress plugin for comments. Likes and replies issue tokens.
- Sub-Community Moderators and Managers: The whitepaper brings up Reddit moderators as a use case. I like that one so let’s stick with it here.
- Arbitrary Assets – Tokens Representing Real World Assets: Essentially a pegged token-to-asset mechanism as an IOU. Personally I don’t see this use case taking off as there are many other digital ecosystems that may be more secure than the Steem blockchain to handle this.
Putting my idea hat on
Aside from the 5 use cases up above I thought it might be fun to get a little creative. After all, I struggle with the argument of financial payment as a sufficient mechanism to keep a user on a social network. Based on my own usage of Facebook and Instagram, I think users are willing to sacrifice privacy and advertising placements for a slicker UI, cutting edge features, and a place with all of their friends/family. But I think SMTs can be applied in interesting service sectors. I list a few ideas below (these are just ideas!):
- Customer service: reward good service with an upvote. Rather than a “tip jar” for the service worker, I propose a mechanism where the voter receives a “token” for submitting a review. The user then keeps that vote token in their account and can submit it to a lottery. Based on the average rating for service, prize offered by the network provider (company) is adjusted based on how great the service is. Payouts are then distributed to the customer service reps above the average and distributed to a percentage of voters based on a lottery system. You don’t necessarily need a token for this but I sure do think it’s fun.
- Food chains: Reduce incorrect food orders (or any sort of business where yield is critical) at quick service restaurants. Patrons tip (again, the “tip jar”) or upvote the service they received. Food workers are incentivized to reduce returned orders and the business cuts down wasted food and expense.
SMTs waiting to happen
Proof is in the pudding as they say. So how many SMTs are out there today? I’ll admit, it was difficult to put together a list. It would be so much easier is Steemit explorers had a listing of all SMTs out there, similar to tracking down all ERC20 smart contracts on an Ethereum block explorer. For now, let’s consider SMTs as “vaporware” at worst. At best it’s closed source code waiting to hit the GitHub repo. If you search online, you’ll find a couple of recently announced SMTs, they include:
- APPICS ($XAP) – currently undergoing ICO. I find it interesting they are issuing an SMT but raising funds outside of just Steem
- Vice Industry Token – completed their ICO but raised funds in ETH, not STEEM
- OnStellar – ICO failed
- Chain.bb – now defunct
There’s not a whole lot to find when you type in “Smart Media Token” in Google. The whitepaper features a ton of logos surrounding the Steem logo, indicating there is already an ecosystem of applications using SMT. Most of the logos appear to be apps generated by Steemians to seed the ecosystem. This makes sense as it helps to show developers the potential of SMTs. If you follow the SMT Telegram channel to learn more. you will see several developers and entrepreneurs discussing incorporating SMT into their platform (i.e. Steemia). For now, most participants in the Telegram channel admit SMTs are currently vaporware and not ready for production.
Months have passed by and SMTs are not ready. The GitHub is steadily ticking away at open items so there is clearly progress. When SMTs are ready to go I hope Steem can clear through a few hurdles:
- Immature technology. SMT is simply not ready. Battle tested is a badge earned through the passage of time.
- Lack of awareness. Developers now have a smorgasbord of chains to develop their own tokens on (ERC20/Ethereum, Neblios upcoming wallet launch)
- Investors would rather use other cryptocurrencies as funding vehicles (i.e. ETH).
The fact that many SMTs have raised funds through Ethereum suggests to me that point #3 is already in play. It’s early days for this platform and I am encouraged to see Steem actively working. Here is their GitHub project tracker. It’s clear to me they have accomplished much (22 tasks completed), but still have many things in works planned (11 items).
There aren’t many production level apps at the moment but many are on the way. I stumbled across SteemHunt (a play on Product Hunt). I suggest bookmarking this site to discover apps that are building on Steem. SteemHunt does not use SMTs but instead uses Steem as its currency. This would have been a great use case for using an SMT.
Where are we going with this
I’ll say it once more. SMTs are early. The use case for tokenized economies within applications is clear in my mind. Ethereum established this. I’m hopeful Steem can reach production grade for SMTs so that it can fully recruit apps onto its ecosystem. With “create a token at the push of a button”-like services launching (Waves last year, Neblio), competition will stiffen for mindshare across applications. Steem’s head start in decentralizing content with Steem, Dtube, Dsound gives it a leg up in their conversations with content based applications. I’m hopeful Steem will drop SMTs in time with some killer partners. That would give the platform an incredible boost and a reason for $STEEM holders to rejoice.
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