Summarized Explanation for the Falling Price of Steem
I was preparing a lengthy explanation, but instead opted for a concise one. I realize that the average attention span of most people is not that high, but most of us are interested in what's going on with our beloved cryptosocial project (is that a new word?).
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Steem has inflation built right in, as there's no finite number of Steem. The more of a product, the less the demand and the lower its price.
The reason for not choosing a finite currency is that users would otherwise have to convert their own money into Steem (in order to upvote content), which very few will do and the project would fail at its very beginning. The downside of a "free" currency is that people are not responsible with it, which results in bot voting - in essence detaching users from the network and leaving only a few to curate for many (yes, that's one of the reasons why it's full of well paying origami and latte art posts).
So, it was decided that Seem will be printed non-stop.
The idea is that Steem is like shares in Steemit. Since there are no other as significant services using Steem at the moment, this is still true. But with each new printed share, the value of the rest declines.
The problem here is that Steem is printed faster than Steemit gains value. So unless we start offering something unique that people would like to exchange their money for Steem, its value will continue declining
Right now we offer our original content for free - anyone without a registration can read, and there isn't any advertising, the income from which to be redistributed as new Steem (in effect raising the value of Steem).
If you've noticed, you've started getting less payouts on your posts recently.
Whales decided to stop sharing Steem (as upvotes), as people exchange it for fiat money, which whales think reduces the value of Steem. However, since cryptocurrency traders know there is an unlimited supply of Steem, any new Steem on the market is sold cheap, as they are aware that there's more and more available in the system.
After all, if you are buying the only one company share available on the market, out of one hundred million owned by others, you won't pay high for it, even though the others are not currently for sale.
The White Paper talks about a reversal that happens every three years. It's not going to increase the value of Steem. That's a fancy word for removing a couple of zeroes to improve human readability.
So, in summary, don't ever expect Steem to increase in value, if things remain as they are.
p.s. As Steem's value continues to decline, the amount of Steem and Steem Power, awarded for posts and curation) will begin to reach infinity faster and faster. At this point of time the entire project would have failed. I certainly hope that the whales realize what they need to push the developers into rethinking and introducing some major changes to the system, of which cryptocurrency traders must be well informed about.
I agree that the rate of inflation of steem is too high. It is part of the mechanism, however, that there be inflation, as this is how the voting/distribution works, and it would work equally well in any similar function to what taxes are ostensibly about.
But it doesn't need to inflate as fast as it does, and the measures to try and get people to lock them into SP are not sufficient, and the benefits of holding SD are too great and have a negative effect by causing selling of steem to hold the peg.
I would be interested to know what the current thinking is in the Steem Inc developer community about the parameters. I'm sure we can't be the only ones who see there is a serious oversupply problem.
Actually, when you think about it, while Steemit does need a "self generating currency" in order to power it's upvotes mechanism, it doesn't need an unlimited supply of it. Think of what would happen if there are only 100 million Steem (Steemit shares) to be ever produced. The currency won't keep loosing its value, as there's a limited supply of it. And as Steemit becomes a more powerful player on the social scene, its shares (Steem) will increase in value.
This network is either created by someone who doesn't really understand how supply and demand, and currency and share trading work, or built the network as a pyramid scheme - expecting a huge inflow of users from other social networks, and being afraid that there wouldn't be enough of a supply for all the new users, which will increase the value of Steem, at which point he'd cash out.
If it were the latter case, whales should've cashed out by now, because the price of Steem lost almost ten times its value, since the start of the project. While we do see whales cashing out now, it's because they lost trust with Steemit's model. So, leaving aside the idea that Steemit is a pyramid , we're left with a poorly designed cryptosocial network.
How exactly do you away free money without printing it?
You have stated that inflation is not needed but have not explaned how
I did explain. You print a finite number of money.
But that way you will eventually need a new way of funding. Like transaction fees or something else.
If there's no reason for people to buy Steem, yes, eventually all Steem will be cashed out by the authors. Which outlines another flaw of the system - like any proper functioning economy, we need not only to import products and services (sell our Seem for other currencies), but to export products and services (Steem to be bought, in exchange for other currencies).
Since we are not exporting anything (we offer our content for free - there's no advertising, nor subscription), Steem will only be exchanged for other currencies. That's why it's constantly printed, but the more there is, the less its value.
@dek - Commenting here, but intended for
If Steemit posts really have value beyond the upvoting period, that suggests authors should delete their content the day before the last payout period expires, and then sell collections of their content, through Peerhub for example. The 30-day upvote and editing period is just a 'pre-publication market testing' period.
The inflation to reward content and miner is about 10% why is the inflation 300% ?
There is a lot of unecessary inflation right now.
If the inflation could be 10% per year every year trader would be able to speculate on the currency and increase its value, as it is now nobody is interested to buy such hyperinflated currency
I wrote a post about this here https://steemit.com/steemit/@snowflake/why-not-inflate-steem-by-only-10-or-whatever-reward-pool-is-instead-of-having-this-crazy-printing-going-on
I think they were simply optimistic about uptake and especially the rate of buying and banking steem. Obviously they were mistaken. Also, the rewards come from inflation, but it needs to be pointed out this is coming out of everyone's wallet. So by its nature it has to be inflationary. The issue is how much.
Why would you say the rewards come from everyone's pocket, when the pool is generated (money are printed) every day? And I don't agree there needs to be inflation - a finite number of Steem can increase its price, per share, as Steemit becomes more and more valuable.
A good thing is that the rewards for posts on the landing/trending page of steemit.com are starting to look realistic, i.e. newcomers will not think it's fantasy or a scam.
About inflation/dilution of shares, Steem/Steemit has to grow by maybe 15% a year (given that most of the Steem is being kept/recycled in the ecosystem), which is realistic in the long-term. There is potential for a lot for a lot of synergy with added functionality.
Personally I don't like the witnesses model of a blockchain very much, but from an investment perspective, it probably won't count very much, as potential big investors of the future first and foremost would see the social media aspect.
At the moment, the value of Steem is defined by the value of Steemit. I'm not certain what the value of Steemit is ($100k? $1mln?), but apparently the cryptomarkets think its low enough, not to compensate for the ever increasing supply of Steem.
I wrote a post about this issue here https://steemit.com/steemit/@snowflake/why-not-inflate-steem-by-only-10-or-whatever-reward-pool-is-instead-of-having-this-crazy-printing-going-on
I don't even know what the purpose of the inflation is, it seems like it could be reduced to about 10% and still work as it does today
This is what I've been trying to figure out - What can WE do, as a community, to increase the value of Steem? If that value is defined by the value of Steemit, then our focus should be on increasing the value - or even just the "perceived" value - of Steemit.
Perhaps investments could come by allowing members here to sell their items (art, photographs, etc..), and their services (writing, tech services, etc..,) - and by "allowing" I mean the community not downvoting sales posts (selling with overall community blessings).
If enough members sell here, and drive traffic to those sales posts and start making sales (primarily to buyers comfortable with using Bitcoin, as that is what they would be using to buy Steem to make the purchase), would that increase the value of Steem?
So then we could start creating posts with "Selling" as the category tag.
And reputation, verification would become more important as well.
There's already PeerHub, accepting sale of services and products, and that's in Steem and not Bitcoin, which should theoretically (but not really, as I've explained in my article) keep the price of Steem up (as we wouldn't need to sell Steem for Bitcoin, in order to obtain said products and services).
The truth is that the underlying mechanism of Steemit is flawed and this is something that the founders, @dan and @ned, need to change. Money printing should be reduced significantly or even stopped. The actual value of Steemit should be confirmed by recognizable business agencies or through offers of known social network competitors. This will bring investor and cryptocurrency trader confidency back.
I've thought of one thing to drive the price of Steem up, but it's it more of a joke - invite dissidents or whistleblowers. If governments want to silence them up, they can buy Steem to become whales and downvote their posts. In fact, it's quite possible that with enough money, they can wreak censorship havoc to the entire network, downvoting everyone's posts.
(i was thinking advertisement plugs to promote posts could be paid for by outside currency.)
though an alternate currency would be nice to exist on its own without need to track any other one(s).
so then sale of goods in exchange for steem bucks would allow people who want to promote their content to do so using the bucks paid while not having to bring in any fiat paper money to the system nor ask users to acquire that currency to buy what they like.
a seller just brings his goods or services for trade,
in exchange for steem he spends to promote his goods or services available for trade for other goods or services being traded in the market or bought with whatever currency is used to negotiate the transaction. (currency is just a ledger system, dollars are only needed for paying government taxes, [digressive point to following up on the topic of paying dues, a service people could provide in exchange for officially produced steem {my ignorance about where steem comes from} is to provide cpu cycles like SETI@home or to do file organization or tag pruning {unless that is already automated} or they can collect fuel to deliver energy to the steem server farm or lay fiber or mirror the site to help absorb bandwidth costs in exchange for steem reimbursement to get them SEO preference by having promoted their fiber laying or energy producing company's logo and deals on the site. ie "today's steemit crypto-social networking service is brought to you by alan and sons wood gas supplies™ they're helping to Make America enerGy independent Again and are ready for your business. now accepting steem, bitcoin, doge coin, silver coin, gold coin and carrot coins by the pound as payment choices." and if the service was a membership dues charging site, like a members only trading post, albeit with publicly visible ads, then steem could be bought back by the system as it recycles itself. posts could cost money even grammar mistakes, refusal to use capitalization or obvious violations of decent use codes against profanity or grievous misrepresentation of fellow members can be fined in steem so that either such posts get removed and a waiting period elapses or they have to get enough upvotes to pay the fine before more posts can be made from the posting account.])
Why and what don't you like about witness model?
People are corruptible. Right now steemit is small and cozy (though you already see the cronyism at work https://steemit.com/steem/@transparency/don-t-vote-for-witnesses-your-vote-does-not-matter which is exactly what Satoshi originally designed to prevent), but if it became a global force, we'd see the same effect of today of psychopaths manipulating their way to the top, and it will become the IMF 2.0.
I see your point. However i find that the design of a blockchain with 20 even powered witnesses is better than one where we have 3 miners that can control the chain, such as in bitcoin. To me the design of witnesses seems more decentralized than how bitcoin works.
What is however not decentralized at this time is the fact that steemit itself has a majority of SP, but this should resolve itself due to the dilution happening.
It would be interesting to analyze what is an ideal decentralized architecture.
Mining will re-decentralize again as eventually miners will have to find a way to make use of the waste heat in order to stay competitive, and this will not be applicable to large-scale farming. Maybe long-term it will be even so that end-users will be mining again with devices like toasters, and not for profit, but just to get some crypto-coins back again for their energy bill.
Thanks for your thoughts which appear to make great sense and signal the demise of this great experiment...hoping that that the leaders, evangelizers, will comment here to give the obverse view on how this wonderful experiment will be breathed new life.
There is only one possibility - attracting investment. Whether by offering something unique available only in exchange for Steem (e.g. selling our articles to be legally republished elsewhere or offering nuclear weapons), plastering horrible advertising over the site or changing Steemit's model (i.e. reduce or stop printing Steem), there's nothing else that can be done.
Or simply reduce the inflation rate from 300% to 10% per year. That would attract a lot of traders/ speculators.
Without a healthy market you have nothing.
Or stop printing Steem altogether. There are 300mln units already, if I'm not mistaken, which is certainly enough for a network of 100 thousand people (of which only 10k are active).
It´s easy math... as long as less money is invested as value is created, steemprice will decrease. I yesterday wrote an article about some suggestions... I wrote an article about suggestions about a month ago. Not sure if I will write any more. Either there is a lot going on in the backrooms of Steemit intelligence (of which noone really knows) or nobody cares, which will sentence Steemit to die (or driple out it´s value until nothing is left)
I understand how you feel, I've written several articles myself and although I tried to reach the developers, no one really seemed to care. Well, it's an experiment and although it has the potential to waste the time of many people, it will also allow those who monitor it closely to gain quite a lot of experience in the field of cryptocurrencies and cryptosocial networks.
Thanks I've been one of those optimistic evangelizers but this might be the dose of reality I needed.
Hopefully the founders realize their mistake and reduce the rate at which Steem is created. And also receive evaluation of the actual price of Steemit, from recognizable organizations, in order to return investor confidence back.
That would be very wise. The oversupply will kill demand.
There's much more going on than just inflation. The market cap has fallen from 380 million to 42 million. Market cap = price * number_of_shares, so If inflation were the only thing driving the price down, the falling price would be balanced by the increasing number of shares and the market cap would not be changing.
The price is influenced mostly by speculation. Your equation should be:
Market cap = speculative_price (estimated value of Steemit ($100k? $1mln?), trust in Steemit's model, whether whales are powering up or down, price of BTC/Steem, etc.) * infinte_number_of_shares.
Following that equation, the Market cap should really by anywhere between 0 and infinity. I'm actually surprised that after the initial Steemit hype, the price didn't fall much faster, as traders usually are quick to react to any indicators of insecurity (e.g. the USD/RUB immediately jumped at the hint of Russia invading Ukraine).
Therefore, the falling market cap should indicate that the confidence in Steem and Steemit is dropping so fast, that the ever printed currency can't cope with it. But as long as Steem is printed in large volumes, confidence won't return.
The only way to increase the value is to stop printing and see offers from established competitors, willing to buy Steemit. In fact, someone recently published (an unverified, I believe) claim that Facebook contacted @ned to buy Steemit. So I'm not the only one thinking that throwing some financial information to the traders is important for Steem's successful rebound.
But without stopping or significantly reducing Steem printing, nothing will break the current trend. Btw, I see less and less payouts on people's posts - maybe there was a fork we didn't hear about and this is already in effect (or it's just whales thinking that Steem should not be distributed to minnows at this point).
the payout pool is in line with the market cap which as you've said currently decreasing. So basically as the price of steem goes down, so does the payout pool. It isn't that "whales" want to pay less, it's just built into the protocol.
Payouts are in SBD, which means the weaker Steem is, the more Steem and SP is paid per SBD.
But you are saying that the daily generated pool for post upvotes decreases with the price of Steem.
I'm obviously missing something between these two opposite mechanisms. Would you please elaborate in what currency and how is the daily pool generated (i.e. what factors determine its size). Thank you!
As I understand it, payouts are priced in STEEM. Half of the payout is distributed in SP, and the other half is distributed in a mix of STEEM and SBD at current conversion prices. (It used to be half SP and half SBD, but that changed a while back.) I'm not sure exactly how it determines how much SBD vs. how much STEEM. Something to do with liquidity levels, I think.
So in short (all else being equal), since the payouts are priced in steem: when steem's price is high, payouts' dollar values are high and vice versa.
No, no, I understand payouts. I don't understand how the daily reward pool is generated (its size and in what currency)?
Btw, the payouts are in SBD, which is then split as 50% SP/50 % (SBD and Steem). So the lower the price of Steem, the more Steem we get per SBD (since it's price is "fixed" to the dollar). Right now 1 SBD = 4.77 Steem. Play with the calculators on http://steemdollar.com/ to understand the relationship between SBD and Steem.
Nesting limit reached. Replying to:
Check your author rewards in the history section:
Author reward of 0.003 SD, 0.114 STEEM and 0.132 STEEM POWER for dek/no-more-steem-margin-trading-on-poloniex
You were paid in all 3 currencies. 50% STEEM Power (SP) and the other 50% was split between SBD and STEEM. The proportion of SBD and STEEM varies according to some formula that I don't know, but it always seems to be 50% SP.
The whitepaper is vague on that. As far as I can find, it only gives annual numbers. Basically, total numbers of STEEM are inflated at 100% per year, 90% of the new STEEM is distributed to existing SP holders. The remaining 10% "...is distributed to users submitting, voting on, and discussing content.... the actual distribution will depend upon the voting patterns of users..."
That annual reward distribution is described here: https://steem.io/SteemWhitePaper.pdf#page=35, but I don't know exactly how that maps back to the available pool for any particular post.
We are both saying the same thing - it's 50% in SP and 50% in Steem and SBD (the latter two's proportion keeps changing according to the economic logic of the developers - it's not just a formula, they change it by hand, from what I've seen).
The White Paper is written as vaguely as possible. This suggests to me and any investors, that the developers had no idea whether their project was economically sound or not, and they intentionally did not specify certain aspects clearly, which would allow them to tweak things as the system develops. This, however, makes the system rather vulnerable to market speculation - traders are not investing in the system itself, but are speculating on the economic knowledge and whim of the developers. Since modern day trading is all about analyzing widely available data and not the private thought process of a couple of people, this makes Steem rather unattractive (or rather - attractive for bearish trading).
That said, according to page 35 in the White Paper (which you've linked), it seems that the daily pool is generated in Steem. There's also a mechanism for reducing the incentive for mining Steem after a certain block number.
Think about this - either the developers had a perfect vision for the future of Steem and knew at which exact point in its development significant inflation (or oversupply of Steem) would kick in (it's now obvious they overestimated the popularity of their project and actually didn't have a good idea), or they have very bad ideas about programming (hard setting variables is a no no for most programmers) and economics (which no one on this planet fully comprehends; what they've did is put a flag in the middle of a river, over which they now have little control).
Anyway, it's a long topic and I'm grateful for your comment!
That was a joke/satire page. There's no evidence of any communication with/from Zuck
My point was there should be, as investors need something to convince them that Steem isn't (progressively) becoming worthless.
There are so MANY factors now that dictate the Steem price that its a toughie to unravel, but your attempt is one of the best so far ;)
If we are talking about a fiat currency, used by billions of businesses around the world, then I would agree. Since we are talking about Steem and there are only a couple of services accepting it (and none at all as influential as Steemit is), then we can reduce the list to the most obvious ones, which I've done in my article.
If I'm missing anything important, please do correct me, I will be glad to introduce it in my expectations for the future of Steem and - for the lack of anyone else using Steem at the moment - the future of Steemit.
I find the Steem price and volume relationship is quite a complex one - trying to work that out is to look into the soul of Steemit itself.
There are many factors to consider indeed, but take a look at @remlaps's comment below, as well as my reply.
Steemit is brand new, Steemit will do whatever it wants to; I will rely on starter people to make it stable and to make it work.
I will leave it to the experts and just try and show some love and try and make my shareholdings improve for myself and others, just like others should be making my shares portfolio better while I am asleep . . .
But I understand some of the issues. Who knows what the future holds for anything, right now some giant asteroid is hurtling through space with " DESTINATION EARTH " ' Stenciled ' on the side of it ! ! !
In the meantime I have comments and votes to do...
Who are you referring to when you say "smarter people" and "experts", and what do you think that you can change as an author and curator?
Take a look at how many good arguments I have pointed out, and how many more others have mentioned in the comments. We are the smarter people, and we are discussing the flawed mechanism of Steemit. Think hard on what's written and consider what you're investing your time in.