Steemit, Will It Be Successful After All? A Monetary Economics Approach Of Steemit - by chrisadventures
Blog. Get Paid? Steemit... at first it felt to good to be true! Most of the time when I tried to explain the money system of Steemit, people couldn't believe me. Personally, it has always been a difficult thing to answer the question: "Where does the money on Steemit actually come from?" Like the Central Bank, Steemit creates money out of thin air! On this very day, Steem is worth $0,61. Generally seen, if money production is too high, it brings difficulties and prices drop. That's actually what happened during the Beurskrach in Germany, 1929. Money was created out of nothing and this resulted into an enormous value drop of money.
Personally, this brings up the question: Is Steemit actually going to be successful after all?
Beurskrach - Monetary Crisis in Germany, 1929
By 1914, Germany had become Europe's most powerful nation. But the 1st World War had, during four long years of warfare, ruined Germany's economy. The terms of the Treaty of Versailles ordered that Germany had to pay huge sums in reperations to the Allies. In those years, food scarcity and high money production resulted into a crisis with extremely low value of the marks (the currency in Germany back then).
During the Beurskrach, banks kept generating marks (money) and this resulted into a case where the German marks (the currency) were actually worth nothing. A bread could cost over a million marks. One of the main reasons for this crisis was that banks simply created loads of money out of nothing.
The daily production of new Steem Dollars and Power is high and reminds me of this case in Germany. Every day, new steem dollars and power is being created out of nothing. The daily production of Steem Dollars is mainly dependent on the amount of Steem Power of all users together. The question is whether there's going to be enough demand to keep Steem Power valuable?
The Market System
In a market system, an increase in supply often results into a decrease of prices while an increase of demand will result into an increase of prices. There's an equilibrium where supply and demand are more or less equal. People prefer to hold their product when its value is low while in case prices go up, people will start selling their product as they find the new prices reasonable.
Figure 1: market system where q* is market equilibrium (S=D), S is supply and D is demand
This is exactly how Steemit works. Right now, Steem is relatively cheap, so it's more likely that people will buy Steem during these days. This means that demand goes up and so will the price increase. Prices fluctuate both in short and long term periods. If you power down, you increase the supply of Steem and this will decrease the price of Steem. If you buy Steem you demand and so will the price increase.
Central Bank
But taken these paragraphs together, I assume that we can compare Steemit with the Central Bank. The Central Bank also creates money out of nothing and they basically do this to regulate and influence the value of money. If the Central Bank produces too much money, the value of money decreases like during the Beurskrach.
Photo: the Central Bank of the European Union
And this is what I find an interesting thing on Steemit. Steemit daily creates money out of nothing and this goes on and on in high speed. The value of Steem will only increase if the demand is high enough. Since the supply is extremely high, it's questionable whether the demand will be enough to keep Steem valuable.
I believe that the only way to make Steem Power valuable is by increasing demand and minimize supply of Steem. High demand will increase the prices and value of Steemit. And how will we trigger demand and decrease supply? Tell all your friends, family, anyone you know, about Steemit! This way, Steemit will grow in popularity and potential of becoming a successful community. People will invest if they think that Steem Power is profitable enough. I see a lot of potential for Steem Power to become more valuable, but we all need to contribute to that. So try to invest in Steem and try not to be supplier of it. Only that way Steemit is going to be profitable for all of us!
What is your opinion? Will Steemit be successful? Start the discussion!
Follow @chrisadventures and read related topics:
Money Inequality Matters, is it actually good or bad? - by chrisadventures
I believe steemit is successful. Yes there is room for improvement and ways for us to be more effective with this site https://steemit.com/steemit/@poseidon/proposal-change-how-we-rank-posts-after-first-payout But in the end this site will flourish
Did you read the White Paper?
Thing is all other cryptos also "produce money out of nothing". They do use electricity and hashing power, but thats about it. This whole thing is discussed at length in the WP. As long as more uses for Steem/SBD as a unit of exchange appear, the system will be viable.
As is discussed in the WP, if everyone had an equal share and voted for their own stuff, no new Steem would appear. The votes would cancel eachother out. I beleive that this post by @williambanks, covers that part of "money" that is why that happens. Oh, the White Paper also talks about it quite a bit.
Right now we are still in beta, and a lot of things that are happening are bugtesting, both of code part, and the social part. All those people that everyone is crying about? They are doing Steemit a service, by exploition holes in the system. Some of those holes need to be plugged by the community response. Some of them need to be plugged by people changing their behaviour. And that starts with understanding.
So far people are people. That is they are uninformed, they are irrational, and all other things that big groups of people are known for. But there is a monetary incentive for them to change their behaviour.
Once significant ammount of people wake up to that fact the system will stabilize.
That is my opinion. :-)
Good post, lots of good information.
For me it's how the crypto is mined and how steemit is not a bunch of computers sitting in a bitcoin mining operation. In steemit the mining is done by people who already do these things on social networks.
steemit is a powerful new tool and might gain a foothold on this technology, but I'm sure there will be other block chain social media start ups right around the corner.
Yep, the idea is great but the expectations are still uncertain. There might be a big future concurrent around the corner. I have no idea about that. We'll see what the future brings!
I have doubts that steem dollars are really money. To me, one of the defining characteristics of money is that it is acceptable as a medium of exchange and since I cannot buy anything with steem dollars other than steem power or exchange it for a cryptocurrency it is not money. It is more like the chips you win at casinos which are not money but can be exchanged for money.
I believe the E-book on Steemit admits that steem dollars are not money, but rather reward points.
You're right. The meaning of money is indeed a medium of exchange. Anyways, it's still comparable to the process during which money is made out of nothing. It's the same with steem!
Steemit is whalecentralized because whales rule in here. So in that sense steemit is like centralbanks.