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RE: Steem: Where DOES the money come from?
This clears out a lot of things but the Steem Dollars part still confuses me.
You said SD are loans created from collateral of Steem/SteemPower. Does that mean The company or whoever creates the loan is liable to someone else who provides the loan? Who provides the loan? Is the person/entity who created SD in debt to someone who provides SD? What happens if the person/entity can't clear the loan?
Is SD an IOU like it's mentioned in this video?
@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.
SD can only be created by the blockchain itself. New Steem are created and immideately locked up as collateral.
I love the video... I have been giving this some though. Steem differs from Federal reserve notes like this:
Finally (probably a re-cap) .. Dilution is really cool because it is so efficient and seamless. It is the best way I know of to help distribute growth of the platform and share price back out to active users and content providers. So, just buying in and holding and getting very rich can now be offset a little by re-allocating some of those profits to new active users. When you re-allocate you are basically forcing a re-investment. That re-investment can in turn offset the dilution if it triggers growth and demand. That only happens in bull markets, even during the bull markets prepare for the bear markets and make profits by providing content. When you see full circle like this you can simply just average everything. Large movements in price don't mean much it is only the average that matters. Additionally, we have the Steem Dollar where it is undesirable to invest and price stability is needed (to pay others, for base expenses or liabilities, etc). Welcome to self-made entrepreneurship, enjoy the ride!
IOUs are not bad in their essence...the concept was used even when people were bartering. It is how they are created and who is backing them that make them of good quality or bad quality...same thing for derivatives.