Where Does the Money in Steem Come From?
Three ways to easily understand where the money in Steem comes from:
Recently I have been getting a lot of questions from new users who are skeptical or simply wonder about where the money in Steem comes from. So @thj, @camilla and myself ( @bitspace productions ) went to the University of Oslo to do some filming. The aim of the video is to explain where the money comes from in an easy to understand way.
The video is informative , short and succinct! I think its going to be quite difficult to retain the dollar sign representing the actual value soon. I still fear that in the long run, it is not better to just reward people as much actual value they bring to the site and pay a percentage slice from that added value?
At the moment, the value of an author reward is roughly 1/3rd of the displayed dollar amount.
(Post Value x 75% )/2 = SBD payout
The other half is paid in STEEM power which is essentially locked up for 2 years.
The fallacy here is that the steem power paid out is quoted in dollar value when it is almost impossible to ascertain what value steem is going to have 2 years from now. A more accurate calculation of steem power shouldn't be "The value of steem power if it were converted to dollars on the fly at today's prices of steem / btc" because the nature of this particular asset is such that there is a maturity date set some what far in the future.
In that case, we can only extrapolate and speculate what the value of steem may be 2 years later.
TLDR; Steem power should not be counted towards to the dollar value payout of the reward. Dollar rewards should be adjusted to just SBD / SP because pegging the price of the dollar gives unrealistic notions of how much reward is being handed out vs how much a person actually receives.
I believe what is displayed is just the author rewards so you get 50% of what is shown on the post in SBD. I agree it may feel a bit misleading to new users, but people are getting the dollar value in Steem power so technically it makes sense. I think it's ok, but if too many people feel otherwise perhaps it can be changed.
It's hard to objectively quantify value on the Internet. Businesses and online advertisers will try to estimate value based on traffic, but there are still uncertainties about the quality and relevance of traffic. There is also a long lead time before popular content online is recognized on search engines and generates a lot of traffic. That's why subjective measures like the way the system works now is fairly good and members are able to curate unique quality content more quickly.
BTW your English and grasp of all these technical concepts is incredible. It's as if English is your native language. I read your last insightful post re: livestreaming vs. Steemit. Cheers.
The larger reward figures are a good marketing tactic though. Sure, they're slightly deceptive, but they're not actually wrong. The more people see these larger amounts of money, the more they'll be motivated to take part.
Tanks, this is realy a great knowing.
Keep up the good work, i love to follow you and the bitspace project.
Very nice and appealing video - especially for relatively new people that might not even be familiar with bitcoin or cryptocurrencies in general - or how fiat money which they already use works for that manner ;-)
i heard before that the bloggers pretty much do the same thing as miners somehow but now i actually understand it thanks !
Yeah I know this video from another post on steemit..... :)
Excellent video explanation. It's basically value for value.
Those who put more into this platform (generating interest, followers, comments, etc.) will get more out of it, in the form of financial rewards, sort of like an employee-owned self-publishing venture, only online.
Is that a good analogy of steemit, or is there a better one I'm missing?
That's a great way to look at it. I was curious to see what analogy people seem to like best, and that seems to be it.
Nice job on this, thanks!
Great explanation for newbies!👍🏼
So now i get it! You have to look at the "Steem" value and not the USD value.
It's like when someone says "what's bitcoin worth today? " but turn it on it's head and ask "what's the Dollar worth today in bitcoin or Steem? It will sink in once you get it. ;)
Thanks Guys that is great TEAM WORK there
👍👍👍
The real question is not where does the money comes from. The real question is this: Is the price of Steemit sustainable in the long term if only speculators and traders are buying it?
Content creators don't need to buy it, they create their own. Why a speculator would buy Steemit for the long term? It'll only dilute, yes you can power up but that means it will eventually dilute too, just a lot slower.
So what's the incentive to buy Steem? To power up and earn more curation rewards? That math doesn't add up. That's the question no one answered me yet.
Thank God, I thought I was the only one. Please read my article from a few minutes ago. I ask the gentleman in this video to please explain in his own words why Steem has been dropping in value. I know why but does he?
https://steemit.com/money/@moviefan/what-s-apple-got-to-do-with-steem
Another importand and unappreciated article goes unnoticed effectively raising more doubts and questions. Thanks for the great read.
Steem has gone up 20x in value, so even if it drops to half of what it is now, it is still a huge success. People always make up stories based on the direction of the price, but the truth is most cryptocurrencies behave like this, they go up 10x then they crash to half or one fourth of their peak price. 3 months ago 100 or even 50 million would have been seen as a success, but now it would be seen as something wrong. I think it's mostly investment psychology at this point, the underlying economics of steem can't really show itself on this short a timescale, speculators are clouding what we can conclude from the price swings.
The money used to pay bloggers could also be used to fund projects that could give ROI. Unfortunately I created a post about this and got no interest at all.
A marketplace could also help.
The "power" incentive doesn't work because people need to buy hundreds of thousands of dollar worth to have any significant influence, if dan wants people to buy steem power he needs to create a better more fair voting system.
Well said. I agree with you completely.
Just think of Steem/Steem power as early stage stock. Facebook wasn't making money early on. You could have said the same thing if you had the opportunity to buy Facebook stock in 2004. So the question is can Steemit generate the same value as the larger social media platforms or will it be Myspace? It's not so much the model it's the execution.
I could understand that if Steem price was supported by companies or ads therefore creating revenue in the form of Steem, sustaining creators and payouts. But as far as I know there's no plans for that in the near future. So you analogy doesn't make sense to me in the way it's currently laid out. You buy a stock based on the perceived company value and the chances for that stock and company to increase in the future.
I agree with this.
The payouts are too exaggerated, and not sustainable. The dollar payouts should be proportional to the amount of valued gained as a result of the viewership, and hence revenue from ads etc.
Not sure why you think companies won't purchase Steem for sponsorship or ads in the future. The ad model will be different than traditional online advertising, but imagine any company can buy $1 million worth of Steem, probably be able to payout a few hundred a day a day or $100k/yr in rewards as blogger sponsorship or to promote their own posts. That's valuable. We're also not even including the payments/commerce part of the ecosystem. That's valuable too as well as the network effect.
Yes that's more logical and I mentioned that. However, I don't see doing that myself if I was the head of marketing of a company, it's very risky to say the least. I wouldn't expose the company to downvotes from whales (1 million worth of Steem is a lot but a real whale can downvote your post in a second).
The only real option I see is integrating ads with a deal. Instead of paying with US dollars, they buy Steem (not SP) to keep the platform running.
I think the problem with many of us who are investors is a lack of direction in regards to monetization from the Owners. What you just mentioned sounds interesting but I have never seen an article or monetization plan from Ned and Dan. I would love to invest more but I can't just invest on a hope and a dream, we need to see the future vision to earn money. All we are seeing is how to give it away and dilute our investments thus far.
In fact, it is already happening. A week ago, I covered it in a piece - Demand for Steem is increasing among Online Advertisers.
You got it!!
Exactly, but there's not a single clear answer for this, it's just not sustainable, period. You buy Bitcoin because you think it will appreciate in the future, as with most other investments. If I could short sell Steem right now and cash out in 2017 I would be rich. We all know for sure it will dilute and therefore lose value. That's why projects with billions of coins/tokens maybe have a big market cap but a low price per unit.
Anyway most people don't even understand what's Steem, Steem Power, Steem Dollars, so they don't care and they think a blockchain creates "money out of thin air".
In the meantime the real questions go answered.
Yup, you power up and you can earn curation rewards. The voting power can also be used to promote content. For now it's the only way to speculate on the future of the platform - the platform is basically a global payment network with zero transaction fees and 3 second transaction times. I'll think about it more and maybe do a video on that as well :)
Taking the Blogging is Mining analogy and that Steemit can be used for payments just like Bitcoin, is Bitcoin only speculative as well? What is the incentive to buy Bitcoin and does the math add up? Has it all just been speculation the last 7 years?
The difference is that if you buy Bitcoin you buy into the blockchain tech, your money is "safe" and should appreciate as long as Bitcoin works as it's scarce. That's why it has been appreciating annually since it was created.
Steem on the contrary is a highly inflationary currency, you buy on a Monday and by Friday there's thousands more Steems created, so the price will go down. What value does it have for the buyer? I get that there's value in content, but there's a disconnection there. Buying Steem doesn't give anything back to the investor, it'll always dilute unless it's supported monthly by an external agent like a company or via ads/revenue. Speculators and traders won't cut it.
I see you're talking specifically about Steem not Steem Power. Steem is meant to be held for short term liquidity, not long term and its price is what dictates the market value of the entire ecosystem. You wouldn't expect anyone to hold Steem for a long time. You'd expect buyers to go from Steem to Steem Dollars or Steem Power and the rapid transition into and out of Steem should still reflect the overall value of the ecosystem even if people are in Steem for only brief periods of time.
Why would you buy either one of them? both are inflationary. What don't you understand? Is it so hard? I've never bought Steem, I've only earned it, there's no point at all to buy Steem. SP is even worse because it's still inflationary and you are locked for 2 years into that. It's like you are trying to sell me US dollars "to keep the economy up". Don't tell me you need to invest money to win more because we know where that discussion is headed...
No you don't need to invest more to win. Steem Power largely isn't inflationary (other than the 10% redistribution) because it's sheltered from Steem inflation. All that really matters is your % ownership of any company or ecosystem and in this case that's reflected in Steem Power. Inflation (or dilution) only effects the # of shares and is only one component to price. The other component is the subjective value investors have. In the early growth phase of a growth company, the company as well as its perceived value can grow at 100% rate hence if there is an equivalent dilution/inflation prices should remain stable. I'm not concerned about recent prices and that seems to have brought some people out of the woodwork. I doubt big investors would even question the mechanics of Steem/Steem power. At least I hope not and that would reflect poor due diligence. I thought Steem was way overinflated at this stage anyways. People who think that prices are always strongly correlated with fundamentals should try to explain why Bitcoin went down by 50-80%+ many times over the last 7 years.
Steem Power is no more than Steem and that's the single point of failure and where the actual money comes from. Money comes from fiat and btc and other cryptocurrencies into STEEM, that's what holding the whole platform together and creating the payouts. You already said SP is also inflationary (it's Steem after all too) so it doesn't matter if it keeps a similar price over 2 years, it will inflate either way and that's if you don't power down at all.
Bitcoin always went down because of fundamentals, it's all about fundamentals and sentiment in crypto, technical analysis is for the very short term. Bitcoin dropped when Mt Gox held most of the BTC for sale. Ethereum dropped from 21 dollars to 10 almost in a single day during the DAO hack.
Steem can't seem to find a bottom because traders and speculators are beginning to realize that unless you power up (which doesn't make sense to me but I can give you that some Steem believers will do) it's pointless to buy.
No. It's the Steem Power that has value and being allocated. Money doesn't have to flow from fiat/btc into Steem/Steem Power and people will still want Steem Power. It's just a matter of how much value do people place and that's up to the market. When I talk about fundamentals, I mean user adoption, transaction volume, real world use not sentiment, psychology or technical analysis. It's a standard hype and reality cycle like any other crypto. Look at the charts of every new coin and you'll see similar patterns. The bigger question is are there real world use cases and growth with any ecosystem. That's what I'm looking at. Anyways do what you do and I'll do what I do. Cheers.
@moonjelly, I've addressed the valid issues that you raise here in this post:
https://steemit.com/steem/@innuendo/should-we-establish-a-long-run-cap-for-steem-supply
I am curious to know what you think after reading my explanations.