I've heard the term Ponzi Scheme thrown around as a means to defame Steem(it) since I started using the platform 2-3 months ago. A number of users have addressed this critique very eloquently in the past, and some not so eloquently, but I thought I would revisit this in light of the user base increasing by around 1,000 users per day, and this query arising more than Streem(it) deserves.

I will be going as far to say that, if Steem(it) is a Ponzi Scheme, all monetary systems on the planet must be Ponzi Schemes. Users who refer to Steem(it) as a Ponzi scheme, clearly don’t know what one is…

What is a Ponzi scheme

A Ponzi scheme is a fraud where by promises of high returns and quick payouts in a non-existent enterprise are fostered by early investors being paid out by money invested by later investors.

Example;
Bernie Madoff: He created a fake Options Trading Fund, which promised investors consistent 7-10% return no matter the market conditions. The fund in fact never traded, and he helped himself to the money of the investors, whilst supporting payouts, and the interest owed by bringing in more and more money from new investors. This all blew up when, the market crash in 2007, and he took on too much money (as he was seen as a safe haven). When people began to request their funds back in 2008, everything unraveled..

Watch 'Chasing Madoff' on Netflix is you would like to learn more (Great Documentary)

What is Steemit

Steemit is an economic system which rewards users contribution (Time/Labour) to the platform with Steem (Cryptocurrency).

It's essentially very similar to all monetary economic systems, at their simplest level, you put labour in, you get 'money' out which is exchangeable for goods and services. Depending on the trust in the system, the 'currency' buys you more or less goods and services.

All currencies experience a level of dilution set by (usually) the central bank. The central bank does this to try to control inflation, and economic prosperity. Steem is slightly different to a conventional currency, because the dilution rate is set at a high fixed amount per year, being 100%. This 100% is rewarded to;

• 90% goes to Users who have committed a Steem Investment for long term. This is kind of like, a company paying an interest rate on restricted stock, because it stabilises their share price in tumultuous times, preventing big holders dumping

• 10% goes to the Steemit 'workers'. The guys that keep the system moving, the Curators and Creators of Content.

The reason the inflation rate is high, is to incentivise users to contribute and stay with the project, and not just cash in quick and get out. It's also to penalise long term holders who do not contribute to Steemit or commit for the long haul.

For Steem(it) to be a Ponzi, there needs to be some sort of centralised influence who can steal from the users of the site (somehow) and cash in.

The beauty of being on the Blockchain is that the whole system is transparent, and this is not happening. I would go one step further, and state that the USD GBP EUR… exude more Ponzi like features with their (Central Bank and Governmental) actions coming out of the 2007 financial crisis, and still on going today, than Steem(it) ever has, ever will, ever can...

Where is the Confusion..

The confusion for whomever coins the term Ponzi alongside Steem(it) is that, they see users getting something for ‘free’, and selling it to someone joining the platform later than themselves. The thing is, Steem is not free, and it does have value.

Unit of Labour:
Steem represents a unit of labour in the same way as the US Dollar, and any other national currency. Steem is paid out as rewards in exchange for Content Creation and Content Curation. At it's simplest form, users essentially donate labour to Steemit in exchange for payment in Steem. The economics of the Steem(it) system are set up very similar to the real world. You put time in, you get rewards out. Let's not forget, the gold standard doesn't exist anymore, £ $ pretty much only represent a trusting the central bank, and represent a transferable unit of labour...

Power:
Steem’s monetary value began to make sense to me (after using the platform and accruing Steem Power for a few weeks) when my up votes started allocating $0.01+ of Steem Power/Dollars to all content I upvoted. Steem's value is in the POWER it gives the holders to reward content and writers they like, and incentivise them to continue to provide this content.

This completely quashes any argument related to this topic. Some users or commentators fail to see that each action on the Steem(it) platform is an exchange of labour, for which you get rewarded (paid) for. Ponzi scheme’s are a fraud where the underlying investment has zero value. Steem(it)’s value is based on the above, which will change depending on sentiment and trust, which is completely determined by the ‘market’ at large (the users), and not a central ‘shady’ authority.

Further Thoughts

What can you liken The Steem(it) System too..

You can think of Steem(it) in a number of ways currently. If you do not want to consider it's currency purposes just yet, you can think of Steemit as a money-less start up paying employees with Promissory Notes and Restricted Stock Options (like many startups do). This is not a perfect example, but bear with me..

All the employee's vote to try and quantify each other's performance, and Share Allocation is based on this democratic voting process. The Creators receive 50% Steem Dollars (Promissory Notes) and 50% Steem Power (Restricted Stock Options). In order to cash in short term, the Employee needs to find an investor who is attracted by the 10% coupon the promissory note pays, and someone who believes Steem(it) is here for the long-haul.

The Restricted Stock (Steem Power) has anti dilutionary properties (90% of Dillution is covered) and can be paid out, in the form of conventional stock (Steem), at a rate of 1/104th per week. The 'start-up' wants to protect it's investors by restricting the chances of a dump, before the project has got off the ground..

This concept is also highly aligned with Employee Share Save Schemes, breeding loyalty in the short term, and including sale restrictions to keep that employee loyal for the long haul too.

NOT a PONZI…

Steem Currency…

Steem(it) founders @ned and @dan are trying to create the first stable Cryptocurrency. The economic system has been set up for maximum circulation, and distribution to increase over time. Circulation is key. If you get a currency moving through as many hands as possible, as many times as possible, the price of that currency will naturally stabilise.

One final thought on the Ponzi topic. Ponzi scheme have zero true liquidity. Funds are control by one person, or a group of people, who can decide at what point to cut and run. Steem(it) has internal and external liquidity, with the price dictated by the open market. Every user, from the new members to the founders operate under the same rules and codes set on the Blockchain..

STILL NOT a PONZI…

I could go on, but I will thank you for listening instead, and open the floor up to anyone who has anything to add...