Proof of Contribution:
Background:
Like all cryptocurrencies Steemit relies on an economic measure of work to preserve the networks health. This 'proof' exists to back-up the currency in the same way the Federal Reserve of the United States acts as the gatekeeper to the U.S. economy.
Where Steemit diverges from existing Proof of Work and hypothesised Proof of Stake protocols is the protocol by which it secures itself. Having been built from the ground up Proof of Contribution PoC (as I have termed it) exists because Steemit exists as a social network where contribution is essential. The social network cannot exist without PoC and, vice versa, PoC cannot exist without the social network.
Recognising Contribution:
Within the Steemit marketplace contribution is validated by three asset classes that center upon STEEM - the cryptocurrency token that underpins the community. These three asset classes allow the community to vote and contribute content to the platform. They behave as follows:
- STEEM - The underlying cryptocurrency, this should be seen as a short-term asset class that serves to provide liquidity between the other two asset classes.
- STEEM POWER (SP) - The reward for Proof of Work mining. Behaves in a similar way to angel finance, similar to a debt for equity scenario SP units act as if they were a locked in two year bond. SP can only be converted back to STEEM via 104 identical, weekly payments.
- STEEM DOLLARS (SMD) - Steem backed units pegged against a global benchmark, the USD $. The value of SMD is fixed against the value of USD in a 1:1 relationship. Therefore under perfect market conditions 1 SMD = 1$.
Rewards are distributed among the most successful contributors as decided by the community. Rewards are split according to Zipf's Law:
votes[x]² / sum(votes[0...n]²
Zipf's Law states that:
"Given some body of natural language utterances, the frequency of any word is inversely proportional to its rank in the frequency table. Thus the most frequent word will occur approximately twice as often as the second most frequent word, three times as often as the third most frequent word "
This ensures that the pieces of content that are most highly voted receive a disproportionate tranche of the reward while still ensuring that all contributors are rewarded.
Conclusion:
Hopefully this helped to clear up confusion surrounding the three asset classes inherent to the Steemit measure of work. At the very least it helped me get my head around it. Next up liquidity and the risk it poses to the Steemit platform.