Wow, I can't believe it's been months since I've posted on Steemit... Sometimes things just get away from you. I guess in the last six months or so I've defended my PhD, started a new job, bought a new house, moved, etc... and now here we are. But I suppose you're probably not interested in all of that given the title of this post, so... let's get too it!
Smart Media Tokens for Dummies!
I don't know about you, but with the rapid pace that the cryptocurrency world is evolving and changing, and the myriad new technologies that continuously pop up, I know that for myself at least it can be overwhelming to try to follow all the trends and keep up to date with the latest and greatest crypto advancement. This is especially so given the fact that the majority of us do not have the appropriate computer science and applied math background to fully understand new technologies, and most of us probably also lack a sufficient background in economics to fully grasp the implications of these new technologies. So, I don't claim to fully understand any of these things for myself either, but for what it's worth, I hope that these "Crypto for Dummies!" posts will help to simplify the important points about some new technologies and illustrate some of the potential advantages and disadvantages of new technologies and ideas.
Toward that end, in this article I hope to describe and break down the most important aspects of Smart Media Tokens (SMTs): what they are, how they'll work, and how they can be a tremendous step forward for the Steemit community specifically, but also for the pro-decentralization, crypto community as well. Before we get into things, I would just like to point out that there are many other valuable sources of information regarding Smart Media Tokens. These are a few that could be very helpful and informative for you if you are interested:
- Official steem.io SMT whitepaper: Here
- Official steem.io Steem bluepaper: Here
- Official SMT announcement post from @ned: Here
- Dissecting the SMT whitepaper by @nanzo-scoop: Here
- The day the paywalls died by @donkeypong: Here
- Why Steem and Smart Media Tokens by @kevinwong: Here
What's contained in this post?
- Chapter 1: What are Smart Media Tokens?
- Chapter 2: Example use cases for Smart Media Tokens
- Chapter 3: SMTs vs. smart contract platforms for your business (Ethereum, EOS, NEO, etc...)
- Chapter 4: Automated market maker
- Chapter 5: "Shared influence": air-dropping influence to Steem Power holders
- Chapter 6: Smart Media Tokens and their relationship with Steem
Chapter 1: What are Smart Media Tokens?
I suppose the most obvious way to answer this question would be to start with a definition straight from the whitepaper, which says that SMTs are "a token protocol for content websites, applications, online communities, and guilds seeking funding, monetization, and user growth." There is a little bit of ambiguity here, because SMT may refer to a specific cryptocurrency token, or it may refer to the protocol built on top of the Steem network that enables the creation of Steem-style social media tokens. In this way, Steem is an example of a Smart Media Token, but the SMT protocol is like a layer built on top of the Steem network that lets anyone launch their own community-oriented crypto-currency.
The SMT protocol also includes a built-in option to launch an Initial Coin Offering (ICO) for the newly-designed tokens. An important part of the protocol will be an economic incentive structure that encourages development which will help users seamlessly integrate the use of the different SMT tokens into their applications and websites. Furthermore, the SMT protocol will use a private/public key management system that is the same as the Steem network, i.e. user-friendly social-media-style account names, with different levels of privilege delegations, etc... This has some distinct advantages over, for example, Ethereum's ERC-20 protocol which does not have user-friendly account names and key management. The SMT protocol will have an ~$1 fee to launch a new SMT, which is primarily to prevent spam to the network.
The SMT protocol will provide a new avenue for social-media and content-oriented web business and entrepreneurs to adopt new sustainable revenue models that are centered around the SMT currency. One of the really exciting aspects of SMTs is the ability to use a "shared influence" model, which is equivalent to air-dropping influence over the SMT economy to Steem Power holders. This is described more in Chapter 5. In addition, SMTs have the option to use an automated market maker that locks some Steem away to provide liquidity to the SMT internal market. This is described more in Chapter 4. The main hope for the entire SMT protocol is that it will act to properly align financial incentives between websites and users, just like steemit.com provides rewards to posters, commentors, and voters for adding value to the site. Part of the financial opportunities created by the SMT protocol will be the option to designate rewards in unique and creative ways, which will incentivize developers to create a growing body of open-source applications and libraries that will make it easier for web entrepreneurs to incorporate the SMTs into their web business.
Chapter 2: Example use cases for Smart Media Tokens
The SMT whitepaper provides several example use cases for the new Smart Media Tokens. These are described briefly here:
- Content publishers: Social-media and content-oriented sites may choose to add single token support to their sites. This would be similar to the way that steemit.com has incorporated the Steem and Steem Power concept to help align financial incentives between the website and the users. For example, Twitter could incorporate a TWEET SMT along with the idea of TWEET Power to financially incentivize users to add value to the network.
- Forums: Forums will have the opportunity to launch multiple token support. For example, a Reddit gardening "sub-reddit" could launch a REDDITGRDN coin (along with the corresponding REDDITGRDN Power), and another basketball "sub-reddit" could launch a REDDITBSKT coin (and REDDITBSKT Power). This would enable individual sub-forums to develop their own internal economies that revolve around more base tokens, such as a REDDIT coin. The idea is that value would flow to the most valuable communities.
- Comments widget: The development of Steem-based and SMT-based comments widgets would make it much simpler for online publishers to incorporate Steem and/or SMT support and financialization to their sites and businesses. Fortunately, the SMT protocol makes possible delegation and funding opportunities that will actually incentivize developers to produce these types of tools so that they can earn rewards from their efforts. This will lead to a growing community of app development that will grow the ecosystem.
- Sub-community moderators and managers: This idea is related to the forums topic above. Essentially, moderators of forums can launch SMTs to help boost the curation quality of their sub-community by insentivizing valuable curation according to their specified algorithms.
- Arbitrary assets: The SMT protocol will make it possible for entrepreneurs to create new tokens potentially representing real-world assets. These businesses can create strategies to peg the SMTs to real-world assets, for example in a similar (but possibly more ethical...) manner as the Tether tokens, and will likely add to the liquidity of the Steem ecosystem.
Chapter 3: SMTs vs. smart contract platforms for your business (Ethereum, EOS, NEO, etc...)
If you are interested in adding cryptocurrency/blockchain technology to your content-oriented or social-media style website or business, Smart Media Tokens have several distinct advantages over other smart contract platforms such as Ethereum, NEO, etc... The main reason for this is that SMTs have built-in social-media and community-centered specificity. To name a few of these advantages, SMTs have: a proof-of-brain model that provides better incentives for social media blockchain projects, they have the same fee-less, bandwidth-limited design structure as Steem, which is more conducive to social-media and content-oriented platforms, they have the same blazing transaction speeds and network capacity as the Steem network, and finally, the built-in algorithmic reward structure encourages members to add value. The creativity and flexibility that are possible for SMT creators when designing their reward allocation algorithms will allow tremendous experimentation (and thus innovation) in achieving truly efficient, effective, reward structures. Some of these SMT experiments could even be used as experiments to design new and better incentive structures for the Steem network itself.
Chapter 4: Automated market maker
One important aspect of Smart Media Tokens is the ability for the creator to choose to use an Automated Market Maker. As far as I understand, the way that this will work is that a portion of the funds raised during the ICO period will automatically and trustlessly be delegated to the market maker according to a specified reserve ratio. The purpose of the market maker is then to provide liquidity to the SMT market and allow newcomers to easily move in and out of their investments in that platform. My personal opinion is that the benefits of this market maker and additional liquidity will probably inspire more confidence in the platform, as liquidity could be an issue when some of these SMTs are starting out. There is one main deviation from the market maker proposed in the Bancor proposal: whereas the Bancor market maker will have special powers to create and destroy tokens through the exchange process, the SMT market maker will not have any special powers, but will instead just as an ordinary economic agent to handle the trades.
Chapter 5: "Shared influence": air-dropping influence to Steem Power holders
Probably the one feature of SMTs that I am the most excited about is the option for SMT creators to delegate periods of "shared influence" between Steem Power and other vesting SMTs. The idea is, that when an SMT launches, it will have it's own reward structure for distributing tokens to users. One difficulty with this process is that upon launch the SMT will likely have very limited distribution, and so the number of users that can actually influence the rewards distribution will be small. Historically it has been a challenge for new cryptocurrencies to effectively distribute the tokens in their early periods. This is why many have resorted to the use of air-dropping tokens to holders of another cryptocurrency. This is what happens, for example, whenever Bitcoin forks, and existing Bitcoin holders instantly receive a portion of the new coins.
So, with SMTs, you can choose to share influence over the SMTs reward structure with existing Steem Power holders. For example, suppose Twitter launches a TWEET SMT and chooses to use shared influence. That means that holders of vested Steem Power could immediately interact with the TWEET SMT network as if they were TWEET Power holders. Of course the rewards would only be in TWEET and not in Steem. In this way, new SMT networks can overcome the initial period where very few users could actually interact with the network, and it would greatly increase the number of available users, as well as the distribution of TWEET to other TWEET users, who may not have much vested yet. This means that new websites and applications don't have to completely build from the ground up, but can instantly have access to thousands of existing Steem potential users.
Chapter 6: Smart Media Tokens and their relationship with Steem
Finally, I just wanted to comment on the ways that I believe Smart Media Tokens will boost the growth of the Steem network, as well as increase the price of Steem! First, because SMTs are bandwidth-limited, just like Steem, as successful business that incorporate SMTs grow, they will be required to hold more and more Steem Power to keep sufficient bandwidth to maintain their applications, boosting demand for Steem tokens. Secondly, because many SMT creators will choose to use the built-in automated market maker features, some supply of Steem will be "locked away" in the market makers, decreasing the available Steem supply and boosting the price. Third, due to the influence sharing feature I described in the previous chapter, with each new SMT that chooses to use influence sharing, the utility of holding Steem Power grows, as Steem Power holders are continuously opened up to new markets. This should boost demand for Steem as the utility and value of Steem Power increases with new SMTs. Fourth, the ICO model of SMTs can potentially boost demand for Steem, because the money that flows into those SMTs will first flow into the base Steem token. Finally, each new SMT and ICO will bring new attention to the Steem network, and their successes will reflect well on the Steem network and community in general.
I hope this post has been informative for you. I believe Smart Media Tokens are a step in the right direction, providing new opportunities for web entrepreneurs and businesses to decentralize themselves, provide new sustainable funding sources, and breathe new life into the growing crypto community.
I hope you all have a wonderful new year, and I wish you well. I hope I will be able to post more frequently in 2018.