Why I Advise Against Linear Reward
This post is a letter addressed to the top 20 witnesses as well as Steemit Inc's CEO. I had intended to send it to them first before publishing it. After reading one of @cervantes post I've decided to publish the letter directly.
I'm still very much interested in what would be the answers to the second question posed in my letter. For this reason, I might send this letter and kindly ask them if they would be willing to answer underneath this post.
A Letter To The Top 20 Witnesses
This letter will be sent to Ned Scott, Steemit Inc's CEO and all top 20 witnesses. I'll publish this letter and your answers in the coming 72 hours.
I'm writing with the humble pursuit of improving Steem. I'll ask you 2 questions about linear rewards and provide my thoughts on the subject.
The original Steem Whitepaper states:
"If every voter defects by voting for themselves then no currency will end up distributed and the currency as a whole will fail to gain network effect."
It then argues:
"In order to realign incentives and discourage individuals from simply voting for themselves, money must be distributed in a nonlinear manner."
1. Do you agree with this statement?
2. If not, can you provide a refutation? (Preferably, one made public prior to the implementation of linear reward.)
The whitepaper's full argument is linked below.
Ever since I've first read the Steem Whitepaper in April 2016, I've been intrigued as to why nonlinear rewards had been chosen. (As an aside, why less than 2 as an exponent wasn't chosen was partially explained in one of @vandeberg's comment.)
I had my reservations about linear rewards since then. Yet back when linear rewards were introduced, I've failed to fully wrap my head around the whitepaper's argument and thus I failed to express as many concerns as I wish I had.
Today, I'm convinced linear rewards are fundamentally flawed and I've been in support of n^2 since at least November 2017. I'm unaware of any attempt by Steemit Inc to refute the original whitepaper's argument against linear reward.
Steemit Inc Argues Against Linear Rewards
In a world with honest people who don't vote on themselves to get "free money for nothing", a simple linear curve, aka n would produce a 1 share 1 vote proportional payout. This is the blue line and shows the ideal situation.
Unfortunately, we live in a world where people will attempt to game the system by voting for themselves. If everyone voted for themselves then the result would be simple interest payments and have no economic impact. We believe that groups are more honest in aggregate than individuals. We also believe that whales (accounts with over $500K Steem Power) have more to lose and are easier to police than the multitude of smaller accounts.
Excerps from the Steem original whitepaper:
I've partially reproduced the second part of the whitepaper's argument below. The full argument can be found under "Distributing Currency".
[Even though n^2,]
"creates financial incentive to collude where everyone votes on one thing and then divides the reward equally among themselves"
[And under n^2]
"Larger shareholders... have even greater incentive to defect by voting for themselves than they had under a linear distribution."
[those who have a large investment in a community]
"... also have the most to lose by attempting to game the voting system for themselves. It would be like the CEO of a company deciding to stop paying salaries so he could pocket all of the profits. Everyone would leave to work for other companies and the company would become worthless, leaving the CEO bankrupt rather than wealthy.
Fortunately, any work that is getting a large concentration of votes is also gaining the most scrutiny (publicity). Through the addition of negative-voting it is possible for many smaller stakeholders to nullify the voting power of collusive groups or defecting large stakeholders. Furthermore, large-stakeholders have more to lose if the currency falls in value due to abuse than they might gain by voting for themselves. In fact, honest large stakeholders are likely to be more effective by policing abuse and using negative voting than they would be by voting for smaller contributions."
Linear rewards leave selfish upvoters at an advantage. Overall they can engage in the bare minimum amount of work (exclusive self-upvote) maximizing their ROI/influence/wealth, while the rest will inevitably see them diminish. (This "work" can easily be fully automated.) Flagging doesn't solve the issue, as the flagged rewards are simply returned to the reward pool for anyone to grab, selfish and selfless upvoters alike. (Also, as the value of Steem grows, the incentives for greater ROI grows.)
Superlinear rewards don't prevent all abuses but aren't fundamentally flawed. Investors set Steem's price not philanthropists. ROI is what they are looking for not how much they are giving away.
I've rehashed the original whitepaper's argument against linear rewards of which I haven't seen any valid rebuttal. I've asked 2 questions from which I hope a clearer picture can emerge to the benefit of everyone.
Steem's stakes are huge for all of us. It would have been a lot less risks for me to accept the current status quo but I needed to stand up for what I'm convinced of and for which I haven't seen any valid rebuttal.
Edit: I'm opened to any solutions that could resolve the fundamental issues stated in my post.
Steem Original Whitepaper
An incentivized, blockchain-based social media platform.
[Daniel Larimer, Ned Scott, Valentine Zavgorodnev, Benjamin Johnson, James Calfee, Michael Vandeberg, March 2016]
https://app.box.com/s/hmq5p0skko40vi55f8pi4j631sqe3los (PDF, props to @liondani)