RE: Steem: Where DOES the money come from?
@tshering-tamang I like Mike Maloney and consider myself a goldbug too and the video has many good points, but also misses a few concepts. Yes there are many things wrong with the current traditional fiat/central banking system, but that's another huge topic to discuss. With Steem, the software network distributes new Steem just like the Bitcoin distributes new currency to miners. Part of the allocation of new Steem is used to create Steem dollars. Let's say hypothetically the Bitcoin network wanted to issue Bitcoin dollars instead of issuing just Bitcoin to miners. The Bitcoin network could created 1 new Bitcoin and then create a loan on the Bitcoin of $35 and issues that to miners. Miners now have $35 in Bitcoin dollars backed by a Bitcoin that is worth around $700. People would be extremely comfortable with that. The Steem network does something similar and tries to maintain the debt level at 5%. That's very conservative. In the modern economy banks sometimes create fiat money at 100% loan-to-value (LTV) meaning if real estate prices go down banks have less collateral to back some of the money that they created in the past.
The Steem software network could be designed to just issue you Steem directly. However when you eventually sell $1,000 in Steem to someone else it could be worth $800 or $1,200. Instead the network issues you $1,000 of Steem dollars based on $20,000 worth of Steem collateral so you don't have to worry about the volatility.
Thanks @pharesim @cryptoctopus and @steemrollin This makes a lot more sense. The blockchain issues SD immediately after Steem is created at a very low debt level at 5% locking up the created Steem for collateral. Got it.
And, the SD is non-volatile since 1 SD = $1 worth of Steem. The number of Steem we can get for SD can change but the value of SD won't change.
Interesting subject. The concept of money and value are like matter and anti-matter, with today's global economy this thought has become fuzzy. Here I give my own opinion on how value has become underrated.
https://steemit.com/motivational/@aprez/the-new-paradigm-of-value
Does bitcoin create new currency? That wasn't my noob understanding that bitcoin "farming" is really just processing bitcoin transactions, and the bitcoin "farmed" is really just a processing fee. The number of bitcoin is finite, and no new bitcoin are produced in farming.
If this is true, this is why bitcoin is a good store for wealth. It doesnt suffer inflation or "quantitative easings" like governmental currencies.
That being said, I'm still curious about steem creating new currency. Mathematically, wouldn't this devalue currency at the same rate its created?
Yes miners process transactions and put them into blocks, but they are rewarded a new supply of Bitcoin with each block that is mined. The supply for each block is halved every four years. It started with 50 new bitcoin per block and currently is 12.5. Hence the inflation decreases over time. I have to double check what Steem inflation is, but it may be in the same ball park as Bitcoin.