Hey guys, I am back with another article. For those of you who don’t know me or follow my work, I write about cryptocurrencies/blockchain technology. I search for new and upcoming projects, then when I find one which amazes me, I research it in-depth and invest if I can. I then compile my research into articles and share my work with this amazing community. I am a huge believer that blockchain technology will revolutionise the world and to be able to publish my work on the Steem blockchain via Steemit is just a bonus for me. The one thing I will say about the cryptocurrency space is that it is extremely volatile and a huge amount of research/ due diligence should be done before considering investing, I only try and aid peoples research.
So, what I want to do today is something different than the norm for me. I want to talk about Steemit and tell you why we have a great opportunity before us. From using this platform I have become aware that many people don’t understand how the technicalities of Steemit work, nor understand that is indeed a platform on the Steem blockchain. I have learned from Steemit that it is a platform for people from all walks of life and full of people with differing interests. I have learned so much about other subjects outside the technology field I write about and for that, I would like to thank the community.
Now I want to give something back, and talk about my area of “expertise” and explain how the crazy area of blockchain/cryptocurrency works. And what better way to do this than to talk about Steemit and share with you why I think we have an amazing opportunity to purchase Steem tokens at insanely low levels.
My biggest problem with Steemit is that I find the economy very confusing, so I am attempting to write this article to explain it better to myself alongside my readers. Please feel free to correct any of my assumptions about Steemit here, I will admit I am by no means an expert in how this platform works, but this piece is compiled from research I carried out so I hope it is correct.
Brief overview of blockchain technology
We live in a world today which relies heavily on the power of the internet. For those of you old enough to remember the days before the internet, you can see how this revolutionised the way we work and live. It is almost inconceivable to imagine a world without it today. Blockchain is the next technological leap. Blockchain technology brings with it decentralisation and security. Decentralisation refers to the ability to cut the middleman “centralised authorities” such as Facebook HQ or Twitter HQ, to manage the system; everything can be conducted off the network itself, essentially creating a true peer-peer network; the people make up the system.
Most of you will be aware of Bitcoin, this was the first blockchain to be created in 2008 and is considered a generation 1 blockchain, which could carry out transactions. Then came Ethereum (Generation 2) which implemented smart contracts (ability to write rules etc…). We now have many Generation 3 blockchains, I would consider Steem as one of these. Steem has the added advantage of allowing “content” to be stored on its blockchain, which makes it a decentralised social media platform.
I fully believe blockchains will take over the way we operate one day, but this will be a while down the road as adoption is just not there yet. I also believe more technological innovations will be required before mass adoption occurs, such as tackling scaling issues (another lesson). We have both public (anybody can join) and private blockchains (business purposes) in existence today and the space is full of new and improving blockchain projects entering the market.
Cryptocurrencies are used on blockchains to allow them to work, most of these are what we call “utility tokens”, which allow a platform to work. Steem, Steem Dollars & Steem Power are an example of these within Steemit, although one could argue Steem Power could fall under securities.
Blockchains work on what we call “Nodes”. These are the servers that power the blockchains. These host copies of the “Distributed ledger”- which in turn houses a record of all transactions on the blockchain. These nodes verify transactions, keeping the network safe and basically running it. These nodes are paid in “cryptocurrencies native to the particular blockchain”. This area is more technical than that and many blockchains operate differently, but this is generally how they work.
The next layer within a blockchain and perhaps the most important element is the “Consensus”. These are algorithms built into the blockchain which determine the validity of transactions. For a brief example, Bitcoin uses “Proof of Work”- where computer hash power is used to solve functions to verify transactions. This creates blocks which are attached to the chains and verified/updated by all nodes on the network. All nodes compete to solve these functions to gain rewards (Bitcoin cryptocurrency). There are a lot of different types of consensus used by various blockchains today and each operates differently.
For the Stemians reading this article, we are already using a platform (Steemit) which is built on a blockchain (Steem), there are other platforms operating on Steem also (not discussed here). Adams and More, (2018) claim this platform is a new kind of attention economy. The Steem token itself uses “smart media tokens using proof of brain properties” according to Isige, (2018), this is to enable it to distribute rewards for content.
We earn Steem cryptocurrencies simply by using Steemit. Steemit is a blockchain-based social media platform which was launched in July 2016, the Steam blockchain itself was launched in March 2016. I like to consider Steemit the best of Reddit and Medium, but with the added advantage that it is a truly decentralised platform. I believe Steemit was designed to operate similarly to Reddit. This means that “voting” is the centerpiece of the platform, where more votes reveal your content to a wider audience. It is a genius idea as Steemit combines this visibility with financial rewards. As you all know we get rewarded for upvoting, posting and commenting, with Steem cryptocurrency and the more you contribute the higher your influence on the platform.
A great quote I found by (Dangi, 2018) states:
Simply put this platform utilises the power of blockchain to allow content creators to be paid for their work if it is of value to the wider community. It also rewards people who curate the best content from upvoting other peoples work. This is all done via the cryptocurrencies on Steemit.
Humans by nature collect and store data; the advancement of technology and in particular computer technology has allowed us to do this far more efficiently. Google is able to draw links between data stored on the internet and direct users to it. This allows data to be put to good use. Blockchain allows us to take this next leap, to make the whole processes more efficient, secure and decentralised. Steem is a great example of a blockchain making a real change to the norm, allowing value to make its way to the creators and curators of content rather than centralised authorities. Our data can now stay in our own hands and we can benefit from it.
I realise many of you may not know or care how this all actually works, but for those of you seeking fortune here, it is important to understand. Everyday Steemit creates these cryptocurrencies and distributes them to users, who can then trade them for “Fiat money” (USD etc…) We gain these rewards in 2 ways:
- Author rewards- When you publish content or comment and you receive upvotes for it, you get author rewards.
- Curation rewards- If you upvote others work/comments, you get rewarded a share of the value of your upvote as curation rewards, according to Mulders, (2018).
There are 3 different currencies on Steemit:
Steem: This is the base unit of the Steem blockchain; the other 2 cryptocurrencies below derive value from this. You can consider this the blockchains means of value, as Steemit is just a platform built on top of Steem. It is fully liquid, meaning it can be sold and exchanged by users or exchanged for Steem power & Steem Dollars. According to Adams and More, (2018) the inflation rate is currently at 9%, which will decrease by 0.5% every year until it reaches 0.95%. Steem is constantly minted to reward users in the “rewards pool”. With every block on the chain created, 15% of tokens are given to those who hold SP, 75% goes to content creators and 10% is paid to miners (run the network). When you are rewarded for your content you are typically paid 50% Steem Power & 50% Steem Dollars. This is because the vision behind Steemit was to incentive people with cash (SBD) in the short term and shares (SP) in the long term, as has proved popular in the centralised world (businesses etc…).
Steem power (SP): This is like Steemit’s internal currency and is locked/fixed as a long-term asset. Steem can be “powered up” to SP and vested for 13 weeks. The 50% SP you earn from content creation is vested for this 13-week period. By holding this you take an interest in the platform, it gives more weight to voting and gives one the ability to be rewarded more themselves. It is like an equity share of the platform, but cannot be traded. One can “power down” SP back to Steem but again it takes 13 weeks to turn it back to Steem. Essentially the more SP you have equates to more influence. Also, it makes sense to convert Steem to SP because Steem is subject to annual inflation. Also, if one powers down SP, it is a 1:1 ratio with Steem, as is a rule on the platform.
Steem Dollars (SBD): This acts like a debt instrument to grow the platform, where 1 SBD is pegged to 1USD, with a promise USD will be issued as some time in the future to holders of it. These days these can be traded on their own on exchanges alongside Steem, thus removing the requirement to convert back to Steem if you wish to cash out the 50% SBD you gain for content creation. SBD gain about 10% interest per year so it is considered a good idea to hold them. Where the confusion comes in here is that this is supposed to track 1 USD, but it does fluctuate (charts below). According to Mulders, (2018), SBD can be redeemed once price dips below 1 USD, so you will receive 1 USD worth of Steem for this and then the SBD will be destroyed, this ensures the economic model keeps the price relatively stable. So basically, if you have 1 SBD and wish to convert it to Steem and let’s assume Steem costs 50 cents per token. Your 1 SBD will net you 2 Steem tokens.
Assessing the charts to establish our opportunity
As many of you may or may not be aware we are in the middle of a huge bear market in the cryptocurrency sphere, this has had the result of giving us insanely low prices on many cryptocurrencies, dragging the price of Steem and Steem dollars down. For the interest of simplicity, I will show the retracements (dips) of these in USD in the charts below.
But before we get to the charts let me just reassure you that these price lows are completely normal. Bear markets occur in every market but when we look at cryptocurrency charts the emotional trading cycle occurs much quicker than in traditional markets. I am not going to go into too much detail on trading here, because:
Most of you will have no interest in how TA works. If you do wish to learn I can forward you onto one of the best TA experts I have seen in the space, who teaches this stuff and has an amazing community of like-minded people.
I am by no means an expert in this area. I do however understand how the emotional cycle works and understand why traders use tools such as Elliot waves and Fibonacci to forecast entries/exits to trades. I would call myself a student of this at present.
All I want you to understand here is that markets follow an emotional cycle. And I believe we are getting near the end of this bear market, at which point both Steem and Steem Dollars will be at their best price on exchanges.
Chart 1: The Emotional cycle of markets- Compare this to both chart 2 & 3 below.
Source: Hilarski, (2017)
All I want you to take from this above chart is that markets move in cycles. It is human nature to fear missing out, and as such many in-experienced people/traders will buy when the market is rising (Optimism, Belief, Thrill, Euphoria), then they get complacent in their position and eventually fear losing more than they already have lost and sell their positions at an even greater loss (Anxiety, Denial, panic, Capitulation, Anger and Depression).
This is something you learn in TA, about being on the right side of the trade. I could talk about how there are waves within waves, big picture/small picture etc... But this is not an article on TA. All I want you to do today is compare this to the Steem & Steem Dollar charts below.
Chart 2: Steem/USD chart
Source: Trading view, (2018)
This chart shows the price of Steem/USD. Simply put this is following a similar path to almost all cryptocurrencies, including bitcoin. In the cryptocurrency world we had what is called a “Bull market” in Dec/Jan time as can be seen by the large peak in price on this chart (This is the Optimism- Euphoria phases on the chart 1 above). Following this, we entered a “Bear market” and have been in it ever since. This has had the effect of dropping the price of Steem from a high of about 8 dollars to 0.78 cents (as at 9th Sept 2018). As of today, the market cap of Steem is $212,086,821 and is ranked number 38 on coinmarketcap. Even if we look back at July 2016, this market cap was $400,000,000 back then. I do believe at the early stages (2016) a lot of “whales” held a lot of Steem power, so this was open to manipulation, in terms of who got paid the most for content, but I believe today this has evened out a lot. When I look at this chart I see us nearing the end of our emotional cycle. I would nearly call Steem a steal at this price.
Chart 3: Steem Dollar/USD chart
Source: Trading view, (2018)
Similarly, if we look at the above Steem Dollar (SBD)/USD chart we see another huge retracement (dip) from the all-time high of about 13.5 USD to today’s price of 0.95 USD. The market cap here is $14,816,588. Again, this is just simply following the emotional cycle like most other cryptocurrencies. I do understand that when Steemit was launched the only way to “cash out” SBD was by converting to Steem (pegged to 1 USD rate) then selling on an exchange. However, exchanges have since allowed for direct trading of SBD, allowing this process to occur more easily. I still remain slightly confused here, as I thought the idea of Steem dollars was to peg the price as close to 1 USD as possible, but I suppose the market took over here.
Based solely on the data I have shown here, I feel we are close to the end of this “Bear period”. I do however feel we will go lower over the next month and then even out into our depression phase. The truth is nobody knows how long each of these phases takes but I believe the consensus in the TA community is we are nearing an end.
I am a believer that Steem will rise in value, we have a great platform here, which I feel will attract more and more people as we move more into a decentralised world and mass adoption of blockchain technology takes over. There may be sceptics amongst you who think this may not recover, but that is the beauty of investing in cryptocurrency, we are all entitled to our own opinion and in the end, speculation drives price.
I think platforms like Steemit will become the norm in the social media space for content creation in years to come and the price of the tokens at the time of writing this make this an amazing opportunity. Steemit has first mover advantage on its side coupled with the fact it runs very nicely and is working perfectly. Also, I hate centralised sites like medium as I feel they restrict content too much. I do believe that new users on Steemit face a huge uphill battle to compete with the already established content creators earning huge money. I am a believer that one’s following will grow based on the quality of one’s content, I hope this holds true for me. Surely the price of Steem tokens today warrants investment for those looking to compete in this space?
Based on the charts above, I feel we are close to entering the stage where it would make a whole lot of sense for content creators to purchase Steem tokens for use on the platform, we may never see prices as low again, this surely is the best opportunity to increase our Steem Power or improve our SBD holdings, would you not think so?
I personally use Steemit to help people and am sure people will discover me as my content reaches wider audiences. I also look forward to learning more from those people I follow in other categories on Steemit, those who may not be interested in how blockchain works. I hope that this article has helped some of these people understand this space more.
- Adams, C. and More, R. (2018). Steemit Review: How Does It Work and Can You Really Earn From It? - Invest in Blockchain. [online] Invest in Blockchain. Available at: https://www.investinblockchain.com/steemit-review/ [Accessed 10 Sep. 2018].
- Dangi, R. (2018). All you need to know about STEEM and Blockchains in general. [online] Medium. Available at: https://medium.com/1ramp/all-you-need-to-know-about-steem-and-blockchains-in-general-dd1d9c5878e [Accessed 9 Sep. 2018].
- Hilarski (2017). [online] Steemit.com. Available at: https://steemit.com/cryptocurrency/@hilarski/psychology-of-a-market-cycle-for-crypto-currency-and-trading-newbies [Accessed 9 Sep. 2018].
- Isige, J. (2018). Crypto Recorder – Your #1 Crypto News Source. [online] CryptoRecorder. Available at: https://cryptorecorder.com/2018/04/26/all-you-need-to-know-about-steem-token-steem-and-steem-dollar-sbd-the-cryptocurrencies-powering-steemit/ [Accessed 10 Sep. 2018].
- Mindover (2016). [online] Steemit.com. Available at: https://steemit.com/steemit/@mindover/steemit-for-dummies-like-me-everything-you-need-know-to-get-started [Accessed 9 Sep. 2018].
- Mulders, M. (2018). A simple explanation of the Steemit economy. [online] Cointelligence. Available at: https://www.cointelligence.com/content/down-the-rabbit-hole-steemit-economy/ [Accessed 10 Sep. 2018].
- Trading View. (2018). Free Stock Charts, Stock Quotes and Trade Ideas. [online] Available at: https://www.tradingview.com/ [Accessed 9 Sep. 2018].