Fractional Reserve Banking and Steemit - Questions for Experts ...
Inspired by recent posts by @complexring and the very interesting discussion that followed them, I intended to write an article comparing Fractional Reserve Banking with the Steemit concept.
Important note:
I have a very limited knowledge of economic principles. Supply and demand is about it. So, please, consider this post as being the level of understanding I, the author have now. My goal here is to learn from feedback, not to write the definitive Wiki on the subject. W.I.P.
Phase 1: The Steemit Whitepaper
As I started searching the Steemit whitepaper for relevant info, I found a paragraph titled "Full Reserve vs Fractional Reserve". BINGO, right? Not really. For some reason this paragraph only discusses the "Fractional Reserve" in terms of bandwidth, ie. the max. number of transactions per second. While the concept is comparable, this obviously is not what we're looking for.
Side note: usually when talking about transactions per second, one would use the IT jargon of "bandwidth management" or "network congestion" instead of the economic terms "fractional reserve" and "reserve ratio", which are rather misleading. A more paranoid person might even think this is done intentionally by the authors, to convey the impression that the issue of Fractional Reserve (the economic concept) has been addressed in the Steemit concept.
Note^2: I believe it's wrong to use these economic terms to describe a concept (bandwidth or transactions per second) that has nothing to do with actual value or assets.
Phase 2: Questions not answered in the Whitepaper
While I understand the meaning of "Fractional Reserve" when applied to banking, I seem to have trouble applying the principle to Steem. Steem being not a bank and all ;) So, if anyone can clear this up, please do so in the comments!
So, I put my original topic on HOLD, and continued reading the whitepaper. Fascinating stuff, but sometimes it feels like certain topics are not addressed, be it forgotten or avoided.
I give you some examples:
1) Why are economic terms used for purely technical concepts?
See the rant about fractional reserve above.
2) Basing Steemit's value on Reddit data
The whitepaper often references Reddit as a base for comparison (for example in the number of transactions per second). This could be seen as overly optimistic, but let's stick to the math for now.
As per the whitepaper, Reddit is valued at 0,5 to 4,0 billion USD. As Reddit users on average vote 220 times per second and post 23 times per second, the total value per post/vote is then calculated to be between $0.06 and $0.50.
One could argue that the value of Reddit is derived from the profit-making potential of the website. Which is a key difference with Steemit, in my opinion. While Reddit has various income streams, eg. advertising revenue, Steemit's only source of additional cash are investors. The popular discussion stopper "users create value through content" does not mean anything in this case, as money and value are two very different things!
Anyhow, my question: as Reddit is too different, what is a more suitable company or asset to compare market value with Steemit?
3) Who pays for hosting?
The blockchain itself is hosted by the miners and witnesses, as is usual for cryptocurrencies. But who pays for hosting of the Steemit.com website? How does its webmaster make a profit? Could a "worker-committee" concept be implemented, similar to BitShares? Or what am I missing here?
Note: this issue is very much alive since the open sourcing of the Steemit website.
So, let's leave it at this for now, 3 questions at a time seems plenty ;)
... to be continued...
If any of you have answers or information concerning above issues, please step forward and enlighten us! (dev's very welcome to step in, too ;) )
youre not getting the overall point... the model. Steemit doesnt matter... idk if its even supposed to last. It might just be a big booster rocket until independant devs start to make their own interfaces.
All steemit is is a way to look at the steem blockchain.
thats the whole reason they had to create an complicated economic system instead of just issuing a crypto currency like everyone else.
Start here https://steemit.com/economics/@chiefjay/where-does-the-money-come-from-part-2-of-my-steem-economic-model (thats my post, i just was logged in as another account from a different browser)
There needs to be a vault to do what theyre doing, and the vault needs to work on a FR system... hilariously, for exactly the reasons complexring talks about. In fact, the money he got for that post was manufactured by the vault in exactly the same way that the money is manufactured for those corporations.
pay attention to the very end of that post... the part that got @lukestokes all moist... thats the beginning of an explanation of why the gears mesh together the way they do.
Im writing part 2 and 3 tonight. But steemit... its like a newspaper... and the steem blockchain is a way, ultimately, that the readers of a newspaper can pay the writers directly, based on value, without publishers to mediate the transaction.
But not just on that one newspaper... steemit isnt newspapers in general in this model, its just a newspaper. And anyone can start one.
THough there are some (hopefully non fatal) flaws in the idea, Its incredibly, incredibly elegant. Modeling systems like this is something i excel at. It took me a night to brute force blackjack basic strategy when i was 11, and this took me a couple weeks to even figure out what was going on.
Precisely, Steemit is but one interface to the Steem blockchain.
Why, other than ideological reasons, would someone set up another instance of Steemit.com? Or any other interface with the Steem blockchain?
because it wouldnt be another instance of steemit.com... thats the thing... you can pick and choose the content you want off the blockchain. I can have nerdywhitedudeswithgraduatedegreesarguingabouteconomics.com and just have posts from from me and complex.
also... i dont think you have to pay with steem, or accoding to the votes you see here on steemit... it might have something to do with bitshares... i think you can use that to somehow integrate your own payment and voting system... or at least it might be theoretically usable that way...
Think about it this way... get rid of steem. get rid of steemit. get rid of SP, get rid of everything that you see in your account. Its neat and everything, but people look at it and they get distracted... like looking at a really cool car and thinking how neat it is but not realizing that the IC engine that powers it is a wonder of human achievement.
THere is still an underlying framework... a way you can take the consumer of content, the reader, and allow him to pay the creator of the content directly, and also to control to what extent that content is promoted.
Ok, but this time you are missing my point. I get that it doesn't have to be an exact copy, it can be anything. But who pays for hosting? It's a simple question :)
Yes, I get that. That doesn't mean its hosting is free though, right?
The site operator would pay for hosting ...
This.
or just advertising. Or charging a fee for access.
Basically, the site operator would monetize the same way site operators always monetize.
Also, FTR, hosting doesnt really cost that much. Obv i havent tested it under load yet, but I have it running on a $200 a month vultr host and it seems to work OK. Im sure if it was getting the kind of traffic steemit gets, id need something bigger. but still hosting is pretty cheap now. Especially when you consider you can run miners on your host too.
Its fucked lately (keeps crapping out) but part of running the steemd proccess that allows the site to work is (optionally i think) running miners.
I can tell you with 100% certainty who the first person is going to be that makes a(nother) fortune making his own interface. @abit making one for the chinese.
Also, a little bird told me to look for an onion site sometime in the near future.
Writing his own posts and marketing his material and also curating other people's content, or only show-casing what he / she has voted on through this portal.
@r4fken am I missing something in the article, or did you mistake a decimal point for a comma. That looks like $8200 to me, not millions.
Also, not 100% sure how it would effect server requirements, but having almost all your data on the chain (vs having to host it) has to count for something.
Right.... And where does the site operator get that money? Advertising?
@sigmajin Read the complete article, sweetie :) It's really millions.
I'm no IT-er, so can't comment on efficiencies using blockchain, but I can imagine it's still millions when dealing with that many users.
In this thread : http://www.reddit.com/r/TheoryOfReddit/comments/2gdv9z/back_of_the_napkin_calculation_reddits_server/ a Reddit employee confirms that $6.000.000 server costs per year is correct "ballpark-wise". That's a lot of posts our webmaster has to write... Unless ofcourse we assume that the whale-effect of attracting upvotes for being a whale, remains unchanged when Steem's userbase is more like Reddit's.
@sigmajin Really, an .onion? I love it already, the more use cases, the bigger the chance of success. I do wonder how this is compatible with the strong focus on strict verification requirements of a growing group of Steemians. I don't know if you followed that discussion, but the "pro-verification, anti-anonimity" sentiment has a large following.
im getting all talkative now... but think about it.
Imagine you pick up a newspaper.... and you can vote on how much of that days profits you think the paper should pay each individual author.
And not just journalists... advertisers, letters ot the editor, photographs...a ll the content.
but now imagine that you can pay to buy more votes, and so can everyone else.
"How much of that days profit" is what I don't get. Steem (or Steemit) doesn't have profits. They only have the perceived value of Steem in the form of a market cap.
But I should probably read your article first. Will do now. :)
Which all comes back to ... creation of money (though not through fractional reserve)
Should've replied here. See my comment below :)
Above! :D what a system lol
I've just finished part 2, looking forward to 3. So, am I correct if I say the "vault" always has a full reserve? As it's basically divided by 100% (vests) anyway. Right?
Im pretty sure its based on a fractional reserve. Because when you convert SBD, the steem you get comes from the vault
@sigmajin Hmm. Then why is there so much bashing on Fractional Reserve for fiat currencies? :D Is there a difference I don't yet understand? Or do people just like a good old bashing?
It becomes profit once it is cashed out .. pump-n-dump style, which is exactly what is occurring.
Ah, we have another opinion! Care to share what makes you think that?
Completely support!
Thanks :)
Hi! This post has a Flesch-Kincaid grade level of 8.0 and reading ease of 64%. This puts the writing level on par with Leo Tolstoy and David Foster Wallace.