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When we talk about economics it is generally in reference to a given geographical state, nation or the world as a whole, but today we will be applying our economic analysis to a community of people in cyberspace attached to what is essentially a financial accounting ledger (on algorithmic steroids), also known as - the Steem blockchain. Steem has evolved beyond its ledger into a growing thriving online self-governing cyber state deserving of further analysis.

Economic Factors

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The economy of any state, even one in cyberspace, is fundamentally influenced by several factors like its: 1) ideology/philosophy, 2) social system, 3) location, 4) climate, 5) natural resources, 6) culture of knowledge (technology), 7) its size, 8) system of governance and 9) relative political state: foreign and domestic - history, present condition and future vision.

I already spoke about Steem's ideology in the first part of this four part series (read it here) and Steem's sociology in the second part here. Furthermore, I will be discussing Steem's governance and political state in the upcoming fourth and final article of this series. This article will be discussing items 3-7 above beginning with location of the state and ending with the size of the state.

Steem’s Location

Cyberspace

Steem exists in cyberspace, which we can understand as the digital equivalent of "international waters", "jungle border regions" between states, underground space like DUMBs (Deep Underground Military Bunkers) or the hidden tunnels and caves of the "underworld", uninhabited space like "Antarctica" or even "outer space/interstellar space" if you like.

Unregulated Jurisdiction

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Aside from self-regulation, cyberspace has been included as one of the unregulated spaces outside the jurisdiction of any nation state - so far - where just about anything goes. For the most part, civil society is typically "just passing through" these unregulated spaces that exist in between destinations - on a boat, in a caravan, on a spaceship, in a web browser and now on a mobile app.

Self Governance Model

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Steem appears to have been deliberately designed with self-governance in mind and to be a highly self-regulated cyber state with its own free press, cryptocurrency, free bank, free market exchange, legislative branch, executive branch, judicial system, free election system and so on.

For a social scientist it is one of the most interesting and intriguing places to be in cyberspace - as it also would have been to disembark from the Mayflower or to sit in on the signing of the Declaration of Independence.

Resident Dangers

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Steem is an open and free society with its doors wide open, so be advised and proceed with caution by noting that these types of unregulated spaces traditionally also serve as magnets and refuges of fiercely independent tribes, dacoits, highway robbers, outcastes, adventurers/explorers, terrorists, aliens, hunters, gatherers, miners, insurgents, freedom fighters and wild animals!

Cyberspace, true to its nature, is an exciting adventurous and dangerous place that doesn't disappoint us in any of these regards with its Hollywood style heists of millions of dollars in cybercash, doomsday scenarios, ongoing cyber warfare, espionage and terrorist plots.

Cyberspace Platforms

Within the ever expanding realm of cyberspace exists various types of platforms like: clients, servers, mainframes, stacks, clouds and, as of 2008, decentralized blockchains that can exist on all the aforementioned platforms simultaneously.

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These platforms function like islands that make up destinations in digital space linked by digital pathways, bridges, routers, switches and hubs where Internet data packets flow.

Steem Community

Blockchain platforms like Steem are the spaces where cryptocurrencies are mined, minted, exist, and are exchanged by individuals and organizations within digitally defined communities. Check them out at http://coingecko.com

eSteem iOS App Users Map

Blockchains are where real people live in a digital state of alternative reality, yet it is all very real. Steem has been operating for over a year now, without issue, serving as one of the cutting edge blockchain communities.

Steem Servers

Steem currently has 45 “seed nodes” registered at https://status.steemnodes.com. Currently, the status report shows only 25/45 are “Online”. A number of offline nodes are run by some of the top 19 Steem Witnesses. These nodes are where Steem exists geographically in the real world.

A physical attack against the Steem platform would be difficult but not impossible for a powerful government or intergovernmental adversary (like NSA or Interpol) given the limited number of nodes. It would stand to reason that once all the nodes are taken down, Steem ceases to exist. Clearly more seed nodes are in order considering that over $350 million in value is riding on Steem’s success and continued existence.

Climate

Weather, geological activity (earthquakes), space weather (coronal mass ejections and EMP), and digital weather (organic Internet traffic and malicious attacks), affects every type of human enterprise on Earth, and enterprises in cyberspace like Steem are no exception.

Real World Weather Threats

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The Internet, created by the US Military (DARPA), was designed to provide a communications platform that could withstand direct nuclear attacks. As such, it offers inhabitants of cyberspace fairly robust protections against real world acts of God and other real world external man made disasters, especially for decentralized distributed platforms like blockchains, including Steem.

Cyber Attacks

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When it comes to malicious digital attacks directed against a specific blockchain, however, history has shown that at least some blockchains are susceptible to disruption by denial of service attacks (DDOS).

Case in point, Litecoin was recently spammed with fake transactions presumably by Bitcoin mining farm(s) to prevent funds flowing out of Bitcoin from reaching Litecoin in order to preserve Bitcoin's market value in light of the Aug 1 SegWit (apparently now resolved).

As such, blockchains like Steem require developers to be available on call to secure it from attackers with quick fixes whenever security holes are identified or exploited. Steemit Inc has resources and a vested interest in defending Steem, though I have yet to discover an attack on Steem that required a rapid response.

A fairly recent large ddos attack on the Burst Coin blockchain by a botnet has kept it inoperable for several days and suspended on at least one exchange. See our blockchain security report here https://discord.gg/BkDJuTa

Latency

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Organic digital weather in the form of general Internet traffic bottlenecks are experienced universally as latency or "laggg" by users. Specific blockchains like Steem may experience additional latency due to migration onto the blockchain and subsequent transactions generated by the growing community of Steem users. So far so good. Steem seems to be stable out on its own in cyberspace and capable of weathering whatever net storms and immigrants that destiny has thrown at it.

It must be noted, however, that Steemit.com was ranked way below par in the bottom 13th percentile in terms of page loading speed by at least one website traffic analysis service I used to check out the site: http://www.alexa.com/siteinfo/steemit.com

The Steemit Inc 2017 Roadmap published in Jan 2017 addresses the latency issues with Steemit.com and announced plans to migrate the website to the Amazon Web Service Cloud Front which should resolve the issue if indeed it is a web hosting server issue rather than a blockchain transaction processing issue.

Time will tell when the AWS implementation is complete, if it hasn't already been implemented. When I ran the test the IP address was pointing to Amazon so further research as to why the site is clocking in so slow is needed.

Natural Resources

In digital terms, natural resources are defined by the platform in terms of hardware and especially software code in the form of algorithms and apps creating the exploitable functions and facilities that represent virtual capital wealth (cryptocurrency or digital gold among other things) like Steem tokens, Steem Power tokens and Steem Dollar tokens.

Steem Inflation

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Steem had originally been coded for a 100% annual inflation rate of its currency. That was rejected by the Steem community who implemented a hard fork that reprogrammed Steem for a 9.5% annual inflation rate that decreases annually by 0.5%. This was to help keep Steem’s value as a currency available, intact and in growing demand. More on the validity of this assumption later in a more comprehensive analysis.

Steem Market Standing

Steem currently has a ranking on http://coinmarketcap.com as the #19 cryptocurrency in the world with a market capitalization of $308,822,852 priced at $1.30 with 237,455,578 STEEM tokens issued to date. Being only a year old and in the top 20 is certainly an achievement.

Culture of Knowledge (technology)

This is the technical ability and skill level of the community to create, maintain, protect, develop, extract value and distribute benefits from the blockchain internally and externally through the application of proven principles of social science (ideology, sociology, economics and governance) and other hard sciences (STEM).

Demographics of Steem

Demographically speaking, in terms of web traffic analysis of the steemit.com website (conducted today at http://www.alexa.com/siteinfo/steemit.com), the highest educational market segment visiting the site were those who attended graduate school followed by those with a college education. This gives Steem a valuable pool of potential knowledge based resources, which Steem’s digital "natural resources" are made of. Like most frontier regions, Steem is predominantly populated by men. As a social media platform Steem appears to have a ways to go in attracting the women folk to its settlement.

Steem’s Size

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Legislators, leaders, communities, schools, businesses, media outlets and even religious ministries are all built in cyberspace, and in increasingly greater numbers, are now migrating to the New World of blockchains like Steem's for many of the same reasons pilgrims headed West to America.

Interests Driving Steem’s Growth

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Freedom of religion, of speech, of assembly, to safely redress grievances, from tyranny, from government intrusions, from unwarranted searches and seizures, from corrupt judges, to live life, to enjoy civil liberty, to work, to acquire and own property and to pursue happiness - for all these reasons and more people are migrating to blockchains like Steem.

Steem’s Landmass

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The Steem blockchain has probably facilitated more freedom for more people in cyberspace than any other blockchain to date in terms of freedom of speech, but like all other cyber nations, Steem is limited by its landmass, which in cyberspace terms is how many transactions it is capable of processing per second.

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The more transactions - the more land mass - and the more people you can immigrate into the blockchain. The blockchain's architectural design, code (laws) and hardware components determine the limits of the population and thus the scope of the Steem economy.

Interest in Steem

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Currently Steem has around 250k members with an account, but many are inactive. The Steem account tracking website http://steemwhales.com appears to track around half of the accounts by various metrics like estimated value, followers, reputation and so on. Other good tracking sites are http://steemd.com and http://steemreports.com

Steem is gaining steam especially with financial tech/investors through social network referrals and through Bitcoin media coverage as global uncertainty is rising after the 2016 US presidential election. This caused a historical spike in Bitcoin prices to $3000 and Steem, along with most other cryptocoins, rose up along with it.

Scalability of Steem

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In terms of scalability, Steem runs a 3rd generation blockchain architecture that gives it the ability to process 10000+ transactions per second (tps), on par with Bitshares, and far outpacing first and second generation blockchains like Bitciin and Ethereum.

Compared with 2nd gen Ethereum at 60tps and 1st gen Bitcoin at 5tps, Steem is well placed for exponential growth, but how much?

Is Steem Ready for the Masses?

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Large scale cyber mass market enterprises like Amazon, Facebook and Twitter must process hundreds of thousands and even millions of transactions per second. Without that capacity the platform's growth suffers as customers experience latency and denial of service to the point they migrate elsewhere.

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On a cryptocurrency blockchain it is even more critical since you are dealing with people's money in what amounts to a virtual ATM. Not being able to send and receive money spells death to the blockchain's reputation and value. A number of coins have been blocked for trading by coin exchanges for various real or imagined issues.

When I tried to view Steem on the #1 cryptocurrency exchange Poloniex I got a very disturbing message today saying, "STEEM is currently under maintenance or experiencing wallet/network issues. Deposits and withdrawals will remain disabled until a solution is found, which may require an update from the STEEM team. Any updates must be tested and audited before enabling."

On the other hand, I had no issues using Steem's internal market exchange to buy and sell Steem. I have read complaints by Steem users that Poloniex is doing questionable things with their Steem trades.

Large stakeholders in Bitcoin were assumed to be blocking Litecoin with SegWit looming large. Considering Poloniex has the 2nd largest long position in Steem worldwide (https://steemwhales.com/poloniex), handles around 60% of external market Steem trading activity (https://coinmarketcap.com/currencies/steem/#markets), and a drop in Bitcoin generally causes a drop on Steem - buyers of Steem or any other coin on any external market exchange need to beware. Most people are advising not to keep balances on exchanges and only to keep coins in your own wallet with access to the private keys.

Steem’s Future Growth Potential

Steem appears well positioned for growth in the short term with an incredible amount of unused capacity in comparison with other blockchains. As nations, banks and corporations around the world accelerate their approval and adoption of blockchain fintech and cryptocurrency, the sooner the masses will be knocking on Steem's door. With its current capacity to answer 10,000 knockers per second, Steem (and every other blockchain) has no alternative than to get ready to embrace the next (4th) generation of blockchain technology like EOS (http://eos.io). EOS is a new blockchain concept promising millions of transactions per second.

Steem’s 4th Generation Blockchain Challenge

Currently, EOS software doesn't even exist outside of its white paper and yet it is already ranked #12 in market cap at $392,161,503 trading for $1.63 per token - a pre launch secondary Ethereum token at that. That tells you something about the importance and level of awareness people have about scalability.

Steem’s Inside Advantage?

@Ned and @Dan co-founded Steem in 2016. Dan, a self-proclaimed anarcho-capitalist, was behind both the Bitshares (2014) and Steem (2016) blockchains and is now the CTO at Block.one - the company developing the initial EOS software - scheduled to launch its first block in 2018; though Block.one says they will not launch the first block and will only create the software.

EOS is designed to serve as a scalable business grade open source operating system and cyberspace governance platform (complete with a constitution) that can run applications simultaneously through a new 4th generation parallel processing architecture that promises to deliver millions of transactions per second.

If ever there was a chance for 1st, 2nd and 3rd gen blockchains to integrate and run on top of the EOS platform, it would certainly belong to Steem and Bitshares, or at least one would think so. According to Dan, he and Ned parted ways on mutually agreeable terms in February for his next blockchain gig at Block.one, so we can only hope that the Steem Dream benefits from its dream team alumni.