Where does all the money come from on steemit? How long can it continue?

in #ponzi3 years ago (edited)

I really love Steemit and have very high expectations for it -- but a nagging question is WHERE does all the money come from?

There are serious mathematical anomalies when you start to analyze the revenue stream --- steemit has NO revenue stream. It has no advertisers, it can not have sufficient interest bearing accounts capable of keeping up with the outflow.

Yes, of course authors and curators are paid in SP and Steem, not USD, and yes the SP cannot be withdrawn immediately, but this does not matter. The only way for steemit to continue to pay out anything that can be eventually traded to with USD is -- it must have a source of USD (or something that converts to it.)

A the current time, due to the constant influx of new subscribers, there will be ample numbers of new authors "Powering up" so they have more influence. This action of course causes the price of steemit to rise allowing the pay out pool to increase, but still THIS IS NOT SUSTAINABLE!

Eventually there will not be enough newcomers to keep powering up and keeping the pool of SP on reserve growing.

Articles on this subject often make statements like "Only 10% of the pool is used to pay out awards". Again, being a statically orientated thinker, this does not explain long term capability. It really does not matter how much of a pool you pay out at a time, if you keep paying it out and nothing comes in, it will be emptied to the point of insolvency or default.

According to multiple articles I have read on this subject, the CEO Scott stated they had a quote, ‘super angel investor’. I can certainly believe there are early investors including the founders who already had wealth --- but sooner or later there HAS TOO BE A REVENUE STREAM other than new users.

Perhaps advertisements are just around the corner or some other system for capital appreciation and I hope so as I really want Steemit to stick around for the long haul.

I have invested plenty in steemit (check out my wallet if you like) but I am very concerned about the current math and fundamentals for Steemit.

Please comment and let me know where I have gone wrong with this thought process.



Just read the whitepaper of steem u will understand. There is a small inflation on steem so every minute, hour or day steem creates new coins. Just excatly the same with every minable coin but now the platform gets percentage of it. Thats about it. Steem just creates more coins which are given to the makers of great content. So lets create great content!

Hope this helps everyone out

Thanks for the great reply.

Yes, I have read the white paper, but this inflation does not and will never be able to keep up with the payouts if the new users do not keep coming in at a faster rate than the payouts.

This is the same as the social security system. Even thought the US dollar is inflating, there is not enough funds to pay the current retirees and the system is insolvent and having to borrow money. It eventually will have to be overhauled completely.

Will you kindly explain the relationship of the inflation of steem(it) to Social Security?

#bartcardi mentioned in his comment above, that "there is a small inflation on steem so every minute, hour or day steem creates new coins."

This is the same inflation which weakens every asset (dollars, steem etc.) -- Since the people that paid into the SS system 50 years ago, paid with dollars that are not worth as much today, when they retired working people must contribute a larger dollar value to support the retiring.

Each day the SSN system needs more users (people coming into the workforce) then leaving (or being paid) -- this can only happen for so long before there are not enough new workers (steemers)

I'm having a bit of trouble with the explanation. Maybe from a lack of my understanding, but in my mind we are receiving one initial payment of steem. Half in the dollar and half into the bidding pool. Which is creating the revenue for others.

Sure, but where is the original revenue coming from?
You or someone purchased SP and this brought in outside funding.

As long as there are more people purchasing then being paid it works well (Ponzi)

Thank you for this article @bycoleman. I read it over and over just so I can really understand what you are trying to say. I checked you out and I see you are a newbie to this platform as I am. I joined in December 2017. Lately I have been having problems with posting or commenting or replying because I get feedback that I have exceeded my bandwidth and that I have to wait or power up before I can post. Actually I have not posted any articles or blogs for the last 6 days and all I did was just comment and reply to some posts that I liked. My daughter who is in Steemit told me that this is like running out of ink when you write a lot. You either have to buy a new pen or wait until you recharge. But that's just my point. I haven't been writing a lot.

After reading your article I think I may have found the answer to this. You said this platform needs more power ups to sustain and I think I have found a correlation to your article and what's happening to me. I didn't have any problems with bandwidths when I started out and I have posted a lot since December. But now this problem has surfaced. Could it be that Steemit has now evolved in a way that users can only post if they power up? If you check my wallet, I only have 16 SP but 86 SBD. Clearly they are not making money from me, come to think of it. So they are kind of "encouraging" me to buy more SP so I can steem on uninterrupted.

I checked your wallet as you suggested and how much you invested in SP. That's a lot so I don't think you will have any problems with bandwidths. So there goes the anwer to your question,"Where does the money come from?" It will eventually come, not only from new users but also from existing ones who will now have to power up (pay) in order to be able to post. Then it isn't free after all.

Now I need your comment on this as well because although we are both newbies, you definitely know more about than I do.

This is interesting because I have a big group (400 people) that I help out daily and some of them are showing bandwith issues lately. I told them to power up their SBD to steem power and guess what, their problems went away quickly. Also most of the one that has trouble are the new ones that just signed up this month and December.

Not to mention, the people that has the issue tried cashing out their sbd.

gems --- this is a very good response! Thank you.

You are correct -- either new users or any user that needs or wants to power up to keep on posting or earn more revenue. The power up system is truly genius. But will steemers that do not get enough revenue from creating content and curating continue to create and curate when it cost them?

If the less wealthy are eventually filtered out due to this, then steemit looses a precious part of itself.

Keep on thinking and posting -- I really love thoughtful discussion as I believe most of us do!

I agree. Steemit needs the mass or the lower wealth steemians in order to survive. If we have the rich just circle jerking or voting themselves...the low wealth steemins will leave. If you think as an investor, would you want to invest on a site that has good quality content but does not have good traffic of readers?
For example, think of maybe reddit versus instagram or facebook. I would rather invest on FB or IG because traffic wise, there are more in those sites.

If the high wealth dont share their votes on the low wealth..most likely the mass (low wealth) will leave.

You got it!
Let's hope there is a better solution in mind by the developers.

6have had the same thoughts, I think adds suck but may be the most sensible way to address this problem...

Thanks for agreeing -- I know no one wants to think about this, but math is math and reality is going to find us.

I believe we have plenty of time before there are not a flood of users powering up to keep the the SP flowing.

I have a crazy reply but hear me out: It's a matter of Import/Export.

We've been told that The Internet is part of existing countries and has governance over them as such, but I've always viewed The Internet as its own country with its own people and own rules. If you can accept The Internet as its own place, disconnected from the physical world, then money (revenue) flowing into the Internet are just IMPORTS.

The Internet, like any lush and bountiful land, has its own inherent value that has been hard to describe and appraise. We've been appraising the internet by the value of its imports and its communications industry.

Finally, The Internet found a way to print money for its own value: Bitcoin. When you buy Bitcoin, nothing comes out. You bought something that stays on the web. You want to keep it there. You understand the value belongs in that land. And it has relative value to fiats of other lands.

Steem came out of thin air and the value came from trading it for other things that came out of thin air from the Internet's computing powers. This is starting to seep out of pure crypto value as digital money is used to buy digital goods, which can be sold and that cash is EXPORTED. When you create something on the web now, whether its a video or a witty comment or a 3d modeled laser gun for your favorite game, that digital thing has value.

As we shift to the internet of value, don't be so concerned about the export value equivalent. Just accept this world's value. As Westerners, this idea is new. In Korea, digital goods have had value and have been traded/sold for many many years, so its no wonder the bulk of crypto trading comes from South Korea.

Long story short, congratulations for being awake before everyone in the West, be patient as others get it.

This is a very good analogy and I accept it and agree with it completely -- until you get to the EXPORT portion. In order to export, there has to be someone on the outside to import (or visa versa) and this exchange must continue at a rate that sustains all cost to operate the system and pay all that work for it (creators, curators, etc.) in a monetary system that keeps them satisfied and fed and engaged.

For example it is unlikely there would be as many new people coming into steemit if they could never sell any of the steem they receive for anything that converts to a fiat currency or tangible assets. It would not matter how much SBD they collected if they could not purchase anything either directly or indirectly (via fiat or not) outside of steemit (Internet exchange or brick and motor).

SP and SBD and Steem only have value when they can be traded for goods that people give value to.

I do agree with you that eventually most if not all monetary transfer will be via crypo or digital means of some sort.

Thanks again for the comment.

As long as there are content providers to provide content, and content is unlimited, Steem will gain in value even under an inflationary model.

Thank you for this.

Can you explain how? I am not being facetious at all, I really would like to see e a model that works mathematically.

If you really want to understand where all the revenue and sustainability comes from, follow @jerrybanfield and read his posts involving delegation, witnesses, bot accounts, and value of upvotes just for starters.

Thanks for the link.

Looks like this is just more money going out to purchase adds.

If 10 steemers are in a biospere and they have 300 meals, it will last 100 days at 3 meals a day.

If they let in 10 more steemers in and they do not bring any food in, it will last 50 days.

If they give some of their food away to advertise for more steemers on facebook and the steemers and they do not bring in any more food in -- there is real problem.

Steemit is working and will continue to work as long as the new users bring in food from the outside (purchase steem power), which may be plenty long but not infinite.

An outside revenue source must be developed -- perhaps FB will pay steem someday.

I can't imagine that you were able to comprehend everything that explains Steemit so quickly or just from one post, but bravo if you have! My point is that it's complex and involves many aspects working together. Steemit will disrupt platforms like FB to a high degree over time. The ads you are referring to represent one small way to bring people from the tarpits of FB to be aware of Steemit. If you engage jerry directly with these questions, you will get all of your answers.

Thanks -- I'm just putting this out there AFTER doing some research.

I had already read the white paper and saw the info that jerry is discussing. But I will certainly take the time to try to dig deeper.

There is a lot of discussion that has merit on this subject that seems to have some pretty detailed information.

For example:

Again, I love steemit -- I really want to keep on trucking.

I think you are thinking about this in the wrong terms. You might as well ask where the bitcoins come from. Any cryptocurrency has a valuation based on several factors - the total amount of coins in circulation, the total market cap, whether the number of coins in circulation is capped or inflating, and of course (most importantly) how much people are willing to spend on the coin. It matters very little where the coins come from, provided that whatever mechanisms the blockchain in question uses to ensure the security of the network are strong enough. Using the most famous example of Bitcoin, a "proof of work" model is used, requiring tremendous expenditure of processing power to crunch the complicated math problems necessary to mine the next block added to the blockchain - and of course a system of transaction verification that requires multiple independent actors, unlikely to collude with each other, to verify new transactions into the blockchain. This system has worked well so far, the Bitcoin blockchain has been relatively secure, no one has figured out how to hack it and generate coins out of nothing, and so the value of bitcoin comes both simply as a store of value ( as a rare commodity, like gold - you can't just go make more gold out of thin air, you have to put the work in to dig it up, exactly parallel to bitcoin) and a secure, non-falsifiable, non-censorable way to send payments worldwide. Steem is very similar but does not use a "proof of work" concept. Instead of miners running server farms, Steem has witnesses running server nodes. This is what produces the new coins. What prevents anyone from just making more coins is first the work necessary within the social media network to gain enough Witness votes to become a top witness and receive a payout from running a node; and second the verification of new blocks by randomly selected and unlikely to collude groups of witnesses. In essence, it is the activity of the social media network itself that generates the security of the Steem blockchain. The more users there are, the harder it becomes to be a top 20 Witness. As long as the Steem network is secure and new coins are being generated according to the inflationary principles hard coded in to the blockchain, Steem has value in similar way to Bitcoin as both a store of value and (more importantly in this case, because it actually beats the pants off Bitcoin here) as a method of sending payments worldwide with zero fees and extremely fast transaction times. Take a look at your other options for sending money around worldwide. Try to do it through your bank or by wiring money and tell me if you see any value in something that lets you do it for free, and in a manner that is 100% not falsifiable, and is public record :)

Much love - Carl


I need to read this again.. trying to understand your post and all the comments.. i just resteem this first bcoz i am sleepy..

Thanks for the resteem!

Very interesting read. I have a lot of my friends that keep asking me the same question of where they will get the money. I tell them the same. Investors.

But you are right. It is a matter of time before we run out of new investors. I think the next step is advertisement. Also i think the SMT will bring in more investors.

Thanks for the thoughtful reply.

My guess is advertisement is likely to be a part of steemit sooner or later. Hoping it's much later.

What do you think of SMT? Dont you think that it will bring in more investors. Like big companies?

Its pretty hard to unseat the champion. Steemit is the first in this space as bitcoin was in crypto. Bitcoin has long been superseded on a technical basis, but still holds the number one spot due to branding, awareness and possibly loyalty.

Thanks for the comment!

Sorry, I missed what you were asking completely. Yes SMT will add value and investors - I don't know enough about it yet to understand how it will relate to the rewards pool. I'll try to research this some and possibly post an opinion.

Sorry for the confusing initial reply

I've been asked about this every time I explain steemit to one of me peers. Theres alot of curiosity. Some invested interest. But in the end, I'm left with the feeling, that it's working at a rate that's higher than expected.
Like the saying goes, if it ain't broke..

Yes, I hope it stays un-broke for very long time. I love the concept and sharing with intelligent people.

I am not good at this but I like a house made of dollars. Haha (^_^)

Indeed it does.
We all hope it last though.
Thanks for the reply -- Many blessings!

This is a question that kind of stumped us when our co worker brought it up. He is always thinking about the numbers so it's good to have that other perspective. Would love to see a thorough explanation on this once found.

Yes, I make a living with numbers and electronics. If the math does not work I have to question it.
There may be a revenue stream which the developers have not published, at this point, other than 'angel investors' there is no outside revenue that has been mentioned yet.

We have the same question... How will Steemit become sustainable... There is no such thing as infinite wealth, that is why there is economics!

i have been trying to tell some friends about it but nobody will listen they just think its a scam but it makes sense how the money is earned so im not sure what to say to help them

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When you just create more money (coins) you create a Venezuela or Weimar republic.


If you create more coins each coin is worth less until it is worthless.

A very interesting discussion!

As long as people believe in a coin, such as the US dollar, the coin keeps a value.
If one calculates the value of the dollar, one has to come to the conclusion that a dollar should have a negative value. But negative compared to what? the Euro, the Yen, the Pound?

If you look at it in this way every coin has only the value of the people who believe in its value.

Steem is valued against the dollar, but that is mostly interesting as long as people believe in the "value" of the dollar. In Europe we have the Euro, the Euro is valued against the dollar, or the other way around, depending on your "home" currency.

It really does'nt matter I guess; money is an invention of humans; show a cat, a monkey or a dog a box with 1 billion dollar in it and see what they value it at!

grtz , @vjbasil

Very well articulated.

As long as people can cash out there steem to buy groceries or video games, they will have faith in it. But if Steem inflates faster than the dollar (or Euro or Yuan), they will buy less groceries, until this discussion is no longer debated.

A tractor trailer load of Zimbabwe dollars wont buy a roll of TP -- so guess what happens.

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Oho! Well said.. Thanks for sharing Your kind information.. I have benefited very much from your post.. Keep it up.. All the best for your future.. Don't worry to posting. @steemit will always with you. I hope You can build a great future from Steemit Community.. Best of luck.. Stay blessed.. Be happy with us.. You can also use some important tag and bot to value up your post.. Follow me for more update..
From, me @sabihaa
And @banjo @cleverbot

Oh wow, like what? Stop the titans?

I could imagine that would get very old. Don't you want to have real conversations.

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