This is Why SMTs Will Solve the Economics of the Steem Blockchain: “The World is Not a Large Village” - Skin in the Game

There are a lot of hot debates right now about issues with the reward system on the Steem blockchain. Many are debating over whether we should change the linear reward curve, flagging system and even the curator/author reward split.

I have not taken a position on this for a good reason and I will continue to play devil’s advocate and try to see every side.

I’d like to point out the fundamental issue that everyone is trying to solve here, as I think many people are debating these “surface” level issues without really understanding what exactly it is that we (as a large, collective community on the Steem blockchain) are trying to accomplish:

The fundamental flaw of the current economic system is that behaviors which have the highest reward are deemed by many to be “negative”. I’m personally not against any behaviors that one decides to exhibit with their own stake - after all, it is their stake to use as they please and they are not breaking any “rules” within the Steem ecosystem.

Thus, this becomes more of a debate of ethics than anything else. Bear in mind that every individual is out for their own interests (with some exceptions - but the vast majority are acting in their own interests).

There is nothing wrong with acting in your own interests - in fact, it is the fundamental core of being a human being. It is coded in our DNA to act in accordance with what is most beneficial to ourselves, our family and our small community.

You see, the issue with the current economic system is less about what to change on the macro level (i.e. super linearity, curation/author split, flagging, etc.) and more about bringing us back to the micro level.

You may or may not know of a book called Skin in the Game by Nassim Taleb… I’m currently reading it and the ideas couldn’t be more apt to this discussion. Thus, I will share a few excerpts from the book to aid me in explaining this idea (the core of this post):

To fix the economics of Steem we must look to bring the macro community back down to the micro level. Instead of trying to build the largest city, we should seek to build the largest global community of tiny villages.

“So we exercise our ethical rules, but there is a limit—from scaling—beyond which the rules cease to apply. It is unfortunate, but the general kills the particular. The question we will reexamine later, after deeper discussion of complexity theory, is whether it is possible to be both ethical and universalist. In theory, yes, but, sadly, not in practice. For whenever the “we” becomes too large a club, things degrade, and each one starts fighting for his own interest. The abstract is way too abstract for us” - Nassim Taleb, Skin in the Game

Are you aware of crime rates in major cities? Are you aware of crime rates in local villages? The comparisons of these crime rates are staggering. There is FAR MORE crime in a larger city than in that of a tight-knit village. Why is that?

Because the villagers know thy neighbors. In a tight-knit community such as a small village, everyone knows everyone and thus it becomes hard to commit a crime without getting caught. Along the same lines, being in a tight-knit community and knowing all your neighbors means that you feel closer to your tribe and thus, you have more of an incentive to make your tribe better as a whole than to think of just making yourself better as an individual.

Once you get to a large city however, you run into the issue of “us” versus “them”… When you live in a city, there is no way that you will ever feel like you belong to the “tribe” of the city. You will be forced to look out for yourself as an individual.

And this brings me to my point about SMTs - SMTs will serve to divide the Steem blockchain into many fragmented and small communities.

That may come across as being a bad thing - many people think that dividing a large community into smaller groups is a negative, but it is in fact the most positive thing that can happen for the economics of the larger collective.

By allowing SMTs to form around more niche communities and then allowing those SMTs to incentivize each individual “tribe” a.k.a. “village”, we will effectively fragment the “city of Steem” into a large collective of “tiny villages of the Steem blockchain”.

As tiny villages, we will be far more incentivized as individuals to act in accordance with raising the tide of our own villages and if each village is focused on raising its own tide, then all the villages will collectively raise the tide of the Steem blockchain in the macro sense.

After all, a rising tide raises all ships!

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Before you comment and say that "SMTs are far away and we don’t actually know if they will be delivered on time and thus, let’s fix the system right now," let me add this point:

We can try to change the economics of Steem on the macro level all we like, but I consider it to be unlikely that we will be able to incentivize the right behavior when we are trying to change the system for everyone on the Steem blockchain.

It is quite a tough task to try and incentivize good behavior when you’re trying to do so for a collective “city” of people… Even the largest governments and cities of the world haven’t figured out how to accomplish such a task.

And so, I urge everyone to continue to discuss their ideas. I see no harm in at least running through the thought experiments that accompany these ideas and maybe even trying to test them on the micro level of testnets and spreadsheets.

“This is the main reason I advocate political systems that start with the municipality, and work their way up (ironically, as in Switzerland, those “Swiss”), rather than the reverse, which has failed with larger states. Being somewhat tribal is not a bad thing—and we have to work in a fractal way in the organized harmonious relations between tribes, rather than merge all tribes in one large soup. In that sense, an American-style federalism is the ideal system.” - Nassim Taleb, Skin in the Game

Just keep it in the back of your mind that smaller communities of tight-knit individuals around niche topics, ideas and technologies will likely solve the issues of the macro by focusing the attention back on the micro.