Bid Bots: can Steemians make money with them?

Hello Steemians,

I have been asked to talk about how to use Bid Bots, one of the “controversial topics” in Steemit. When I first joined Steemit these Bots were a mystery to me and some were expensive. But since they are part of the platform, I learned about them both by reading articles about them, studying the tracker webpage SteemBotTracker run by one of the Steem witnesses and by using them.

I am giving three references for further reading. These articles were written one year ago, so they don’t take into account the changes in timing for the upvoting if posts and penalties for the author for voting before 15 minutes. But other then details like that the other information is still accurate.

These three articles on bid-bots were written by @gabeboy. These articles don’t attempt to tackle all the issues of bid-bots, but instead discusses the way they work, how you bid and how you calculate your ROI or return on investment. I think it’s an informative series that points out the difficulties of profiting using only bid-bots.

You can find the articles here:

Part 1 here: https://steemit.com/steemit/@gabeboy/upvote-bots-1-purposes

Part 2 here: https://steemit.com/steemit/@gabeboy/upvote-bots-1-our-hated-best-friends

Part 3 here: https://steemit.com/steemit/@gabeboy/upvote-bots-3-quick-q-and-a-session

These articles contains very detailed explanations of the bidding process and some of the reasons for the various rules. I think these are short and easy to understand.

Next I will give you my summary of the bid-bot system, based on these articles and my daily use of bid-bots for nine months.

The first thing to understand is bid-bot voting power

We all have ten votes per day at 100%, but making a vote reduces your voting power by about 2%. So while the power of your first vote is 100 percent the next votes are reduced by approximately 2% each vote, so the second is 98%, the third is 96%, etc until your at 80% and then it takes 24 hours to regenerate your voting power back to 100%. So ten votes, 2% drop in voting power with each vote and 24 hours to regenerate your voting power to 100%. That’s the first thing to understand about voting power regeneration.

The next thing to understand is it takes 24 hours to regenerate ten 100% votes but only 2.4 hours to regenerate one 100% vote. So the bots wait 2.4 hours between each of their 100% votes. So instead of voting ten times and waiting 24 hours, the bid-bots vote one time and wait the equivalent of 24 divided by ten or 2.4 hours. This waiting gives the bid-bot back their true 100% voting power every 2.4 hours. So that’s why the bid-bots wait 2.4 hours for the next vote.

The third thing to understand is that you can give out percentages of your voting power using the slider. So if the Bots 100% vote is 10$, it can give out one 10$ vote every 2.4 hours or two 5$ votes every 2.4 hours or four 2.5$ votes every 2.4 hours or ten 1$ votes every 2.4 hours. But once the total bids equal 10$ there’s no profit left in that round So basically the bits accepts bids and assigns fractions for a certain amount of Steem or Steem Dollars until it uses up the equivalent of one 100% vote and then it waits 2.4 hours to vote again.

This is brilliant because the votes cost the Bot their initial investment of Steem, but after that the votes regenerate for free. So the Bot owners make Steem every 2.4 hours, 24 hours a day, 7 days a week. So they sell votes every day which are free taking in money and they get curation awards for voting on posts. This feature of Steemit attracts investors to buy and hold Steem or causes other Steemians to invest in the Bots to make money each day. Most other coins require investors to sell their coins and cash out to realize any profit, but Steem doesn’t so it’s unique in that regard. This anti-dumping feature can potentially help stabilize the price.

The next thing to understand and perhaps more important is how the bidding system works

This is my understanding based on daily bidding for nine months. A bot has a maximal amount it can vote, a 100% vote based on its SP. The bots pay every “round” or 2.4 hours, according to how much is bid or sent to the bot that round. This reward is calculated using the value of one 100% vote in proportion to the total bids during that round. The greater the difference between the value of the 100% vote and the amount of the bids, the greater the reward per bidder. Conversely a large number of bids reduces the reward or “return on investment”, which is abbreviated ROI. Bids are accepted during the entire 2.4 hours. You can calculate your ROI based on the amount of bids at the time you bid, but you don’t really know the total amount of the bids and thus the ROI until the very end. Because many people wait until the last possible time to bid, the ROI often changes from the time of your bid until the end of the round. This’s is best explained by examples.

Example#1
My bid-bot has a 100% vote equal to 100$
There are 5 bids during the round which total 50$
Each bidder gets paid the total value of the 100% vote or 100$ divided by the amount of the bids or 100$/50$ or 2$ per dollar invested. In this example the ROI is 2$-1$=1$ Profit per 1$ invested and 1/1 equals 100% Profit or 100% ROI. So the person who invested 2$ makes 4$ and the person who invested 20$ makes 40$. Every investor made money that round.

Example#2
My bid-bot has a 100% vote equal to 100$
There are 9 bids and the total of all bids are 90$
Each bidder gets 100$/90$ or 1.1$ per dollar invested.
In this example the ROI is 1.1$ -1$= 0.1 dollar, or 0.1/1= 10% profit or 10% ROI. The person who invested 1$ gets 1.10$ and the person who invest 10$ gets 11$. Every investor made money that round.

As you can see the ROI is dependent on the total bids per 2.4 hour round. And you don’t know the ROI until all the bids are made in that round, so you can’t control or predict the ROI.

Example #3
My bid-bot has a 100% vote equal to 100$
The total of all bids in the round is 100$.
Each bidder gets 100$/100$ or 1$ per dollar invested.
In this example the ROI is 1$-1$= 0 and 0/1 equals zero % profit or zero ROI. Every investor got their investment back with no gains and no losses.

Final example
My bid-bot has a 100% vote equal to 100$
There are 11 bids and the total of all bids is 110$. In this example the total bids are Greater then the value of the 100% vote. Each bidder gets 100$/110$ or 0.90$ per dollar invested.
In this example the ROI is 0.9$ -1$= -0.1 and -0.1/1.0 equals -10% or a negative 10% ROI. Every investor lost money that round.

Please note:
Some bid-bots pay out the entire vote so 100% ROI is possible. Some bid-bots limit ROI to 10% so you can never make greater the 10% regardless of the number&amount of bids. Some bid-bots limit your loss to minus 10% or zero loss. Some Bid-Bots limit your loss to zero before curation. So it is important to know which Bots are exceptions to the general rules.

The application steembottracker calculates the ROI for you at any given time during each round. If investors check the ROI they can be warned there are to many investors and no profit or possibly a loss. Your success or ROI with bid-bots depends on factors you can’t control and a bit of luck.

The above is just half of the discussion regarding profiting from Bid Bots. We must discus the second half and you need to understand it before investing your hard earned money. So please keep reading.

There are certain facts we must remember and then compare the numbers. Fact #1: You as the author get 75% of the total rewards on any post. Fact #2: 25% of the rewards on any post go to curation. These two facts lead to Fact#3. Fact#3: If you invest 1$ in a Bid Bot, you only get 75% of any reward generated by that Bid Bot. Fact#4: Since 25% of your total post reward goes to curation you have to get a 25% profit or ROI on your money invested in the Bid Bot just to break even. Those are the words, let’s look at the numbers.

Example:
You invest 80 (eighty) SBD in a Bid Bot.
You get a 25% ROI or Profit from the Bid Bot, 25% of 80=20 SBD, and 80 + 20 = 100 SBD
Now your probably dancing because you got a 25% profit!
However we are not done here.
The Bid Bot pays you 100 one hundred SBD in rewards.
25% or 25 SBD goes to curation.
75% or 75 SBD gets paid to you.
So now you look at this investment again.
You invested 80 SBD
You got 20 SBD from the Bid Bot=100 SBD
25% or 25 SBD went to curation. 100-25=75
75% or 75 SBD went to the author, you.
Your net return from your 80 SBD was 75 SBD
You lost 5 SBD or 5/80= 0.0625 or 6.25% loss!

You probably lost your urge to dance at this point and your wondering why people use Bid Bots. Well you can make a profit if you make a larger ROI. It’s just difficult and unpredictable.

Why do people use Bid Bots if there is no guarantee that the investment alone will be profitable?

First
In a word visibility visibility means people find and read your post, the first step in it getting upvoted.

Visibility: Part one.
Posts with large rewards go to the top of the list on the Trending Page, which is the first place many people go to find posts to read. So using Bots can get you near the top. If your near the top more people will read your post. Many believe that this leads to more upvotes and more follows. Also the visibility of high reward posts attracts people looking for curation rewards. Many believe that these increased votes make posts which use Bid Bots profitable.

Visibility Part Two: Advertising
Sometimes people use Bid Bots to Advertise or diseminate a point of view or advertise the item in the post. The large rewards from the Bots push these posts up on the Trending list to where people will read them. In any list of articles the ones at the top usually get read and the ones at the bottom usually get ignored.

Pride
The other reason I think people use Bid Bots is pride. They think the post is full of valuable information or that the artwork is of good quality and deserves a large reward amount. So they use Bots to improve the perceived value of their posts. It’s a well established business concept that appealing to people’s vanity is profitable. The multi billion dollar cosmetic industry which appeals to the vanity of people wanting to look young is a good example. I am sure you can think of others.

Perception of Profit
I also think that Bid Bots give the perception of large profits. Unfortunately the rewards system for Steemit is complicated and it is easy to look at the large rewards and be happy with the 10% or 15% ROI the Bid Bots generate. Unfortunately it’s only when you truly understand the way to calculate ROI on BidBots and the 75/25 split of rewards math that you find out that what initially appeared to be a 20% gain is in reality a 6% loss.

Increasing your Reputation
If you chose to use Bid Bots and those Bots have a higher reputation score then you, this will help raise your reputation score. This is another reason people use the Bots even if they are only going to break even.

Conclusion:
Bid Bots can be profitable if you can manage to get a high enough ROI > 25%. But ROI is truly unpredictable due to the bidding process. However there are other things then the initial ROI which can make posts profitable due increasing visibility and increasing potentially the number of upvotes your post receives. Additionally there are other nonprofit motives which motivate people to use the bots.

The only guarantee is that the provider of the bot will make a decent profit off the fee you pay and the provider of the bot also gets a large share of the curation rewards from your post. Some think it’s better to power up your Steem to Steem Power and either lease it or delegate it to a Bid Bot to make more consistent profits. But that is a topic for another post.

These are my personal observations on how these bots work, how and when they are profitable and some reasons people use them.

What do you think?
Let me know in the comments below.

@shortsegments