I’ve been playing with the concepts of this platform for a while. I have a decent level of understanding of economics but I sometimes lack the proper technical terms to describe them. So, as a response to @timcliff proposal on reducing inflation in this post I decided to write an entire article, rather than just a comment, because it would have taken too much space in the comments area. I encourage you to read Tim's post first, but if you’re impatient, you can just go on and read my ramblings.

Steem Is Flowing Water

Probably the term “liquid” in the white paper description of STEEM influenced me in using this symbolic representation. How I came to this image is less important, what it’s important is to have a working model. So, let’s start by visualizing STEEM as a liquid medium that flows. The fact that more Steem is printed at a constant rate helps the metaphor. Just imagine a flowing river. That’s STEEM flowing on constantly, whether or not you’re doing something about it.

But, as water, STEEM doesn’t hold much exchange value, specifically because it’s s easily available. Everybody has access to it.

Steem Backed Dollars are Bottled Water

In order to create more value out of this river, SBD came in, under the form of bottled water. This form of STEEM is more expensive, but it’s also more valuable, specifically because it can be exchanged for similar products (other bottles of water, that is). The fact that SBD is pegged to the dollar signifies that a bottle of SBD water can be always bought at the price of 1USD.

If the peg is maintained, the size of the bottle will be variable: if, for instance, STEEM price will go down, it will contain more STEEM for the same value.

But at the core level, SBD is nothing more than STEEM, in a constrained form. It’s just a bottle, not a flowing river.

Steem Power Is A Dam - Here’s Where It Gets Really Interesting

Now, let’s imagine we put a dam in front of the river. Meaning we’re actually blocking the flow of the water in some physical form. "Powering up" blocks your STEEM from circulation (they can be released back to the market at a much slower pace, 104th worth of your SP every week). So blocking them creates some physical barrier in front of the river.

Why would you do that? Well, in order to transfer kinetic energy from the river (which would have been otherwise flowing freely, but untamed, hence, useless) into other forms of energy.

One form of energy would be, for instance, a mill. You use the river momentum to rotate a wheel that will increase the quality of your food, by processing wheat. It’s probably the least effective form of energy you can generate from that dam.

Another form of energy would be, let’s say, a sawmill. Now you take the energy of water, transfer it to a rotating wheel that cuts trees and produces logs (the real ones, you know, not the ones produced by your apache web server). Still primitive.

And yet another form of energy, probably the most advanced, would be electricity. Now you’re talking. Electricity can be used for much more stuff than just wheat or logs.

Steemit.com - Putting All This Water Stuff Together

Ok, so what you all know as being "Steemit.com, the online platform that pays you to blog", is just a specific use case of this Steem Power. It’s a form of translating the potential energy of the free flowing STEEM into something more valuable. Without SP, the value of STEEM would probably be a few orders of magnitude smaller, just like any other river (cryptocurrency) that is flowing in the digital universe. There’s a lot of water flowing around in the crypto world.

But this “dam” created by SP “forces” the free STEEM to travel faster, because it puts pressure on it, in the form of expectation (we are trusting the platform, by blocking value in it), and that expectation is to generate some sort of energy.

Now, how effective is this dam, that’s the real question. The energy we’re creating is really valuable, advanced? Or we’re just a glorified sawmill?

What’s The Most Effective Insertion Point?

The trust created by blocking STEEM in SP creates that solid dam, but that’s just the primary condition, not the entire process. It just creates momentum, it reveals the potential, it doesn’t contain yet the mechanisms for creating really useful stuff.

The July bubble was just the inauguration of the dam. It created a lot of momentum. But that was just a simple dam, nothing more. It just indicated that the energy of free floating STEEM can be harnessed into something. And that something was the community: people creating content, interacting and so on.

That was it. Some people took this dam for a nuclear plant and invested a lot of money into it. That’s sad. Losing money is never fun. But that’s also a lesson to be learned, for everybody.

The current status of Steemit.com is that we’re putting together a sawmill. And not even a very powerful one. We’re just learning how to create a more effective energy from that momentum. A blogging platform with 1000 posts per day is not very much. It’s not very effective, in terms of energy generated. It’s just a small sawmill.

But the potential for electricity is still there. The market cap (or the actual water supply in the river) is still enormous. At the moment of writing this article, there are still 25 millions USD floating within STEEM and that’s way more than any other app coin that I know (please don’t mention those not launched yet, like Synereo, or social media sites using different paying models, like Tsu).

So in my humble opinion, the most effective insertion point would be to do some serious R&D at the dam level. Or, in other words, to find different use cases for STEEM, different ways to consume it. The sawmill is a good start, it proves that we have something working on. But it has a much bigger potential.

Instead of trying to regulate the water course (intervening at the inflation rate) I think we should focus on more user features and more apps built on top of STEEM. News about scalability enhancements (@dantheman articles are very interesting in that area) are signaling that we’re going into that direction.

More Abstraction In The Blockchain

But I think we need scalability not only at the blockchain level, but also at the processes level. By that I’m referring to the types of processes which are hardcoded into the blockchain right now: posting content and voting. Other than transferring value, there’s not much you can do in Stemit.com right now, apart from posting content and voting. It’s like the dam is engineered only to be a sawmill. In order to become a power plant, it needs some serious re-engineering.

As I see things, a much deeper abstraction of processes at the blockchain level will be really helpful. Users could - and should - interact with the blockchain in many other ways.

Posting content and voting are just too specific. I see them much more like public functions of an abstract class called, let’s say Interact. That class could have the functions PostContent and InteractWithContent. In the case of this specific blogging platform, Steemit.com, the Interact class could be just instantiated and then the two public functions can be overwritten as “PostBlog” and “VoteContent”, respectively, which will be then private to Steemit.com. But other platforms could overwrite also the parent properties, like “CreateEvent” and “AttendEvent”. It will still be the same blockchain, the same users, the same underlying STEEM. Or it can be in the same platform, but just different types of interactions, like Facebook has right now.

My take is that if we play too much with the fundamental elements, like water (for SBD, read the next paragraph) the whole mechanism becomes too shaky and the potential diminishes dramatically. If we have too little inflation, STEEM supply can become too small, the water level in the river decreases, hence no kinetic energy at the dam level (not too much interest from people in the platform). If we make the dam mellow (allowing SP to be powered down faster than 2 years) it could break down and the kinetic energy will be lost (STEEM will remain just a speculative coin).

What About SBD?

Well, SBD is just a contract, the value it holds is just because it’s related to something familiar and valuable. In my opinion, it could be allocated in the financial engineering area and managed from there, semantically it doesn’t belong to the dam metaphor. I don’t see a big problem if it will eventually disappear entirely, provided the energy created at the dam level is more valuable. As it is right now, SBD is just an exchange token between a river and other rivers, but all rivers are just water.

As I said, the real power of this STEEM thing is in the type of energy that is generated at the dam level (during the time we’re holding on to SP and transform that potential into some for of energy). In other words, we should just focus on creating really good stuff.

Feel free to contradict me in the comments and to destroy my entire construction, if you want.

Also, feel free to resteem this post, because, at the current level of Steemit.com, content discovery is still difficult and we need many more opinions and different angles.

The more we collaborate, the faster we’ll make things happen.

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I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.