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RE: To SBD or not to SBD – Why is That a Question?
I agree with about 85% of your article, and you made some really good points that make me rethink some of my positions.
Here are a few points of slight differing views though:
- BTC is not a 'stable' currency, yet that has not stopped it from becoming a widely used currency. I agree that SBD goes a level beyond BTC and offers additional stability - but I would argue that having it is not a requirement for wide adoption. A fluid STEEM <-> fiat conversion ability would largely solve the same problem.
- I personally don't think that 'confusion over SBD' is the main argument for getting rid of it. I think it is more the systemic risk that it presents, as well as the cost it presents to the network of STEEM holders to maintain the peg. As Dan has pointed out though - the cost can go the opposite way too - but it only benefits the network in a rising price environment - which we have not seen too much of recently.
What is interesting is that I think SBD has a lot of value in mass adoption, as you have pointed out so well in your article - but it is unclear how much of that value adds to that of STEEM, vs how much of it is actually achieved at STEEM's expense.
This greater risk only exists when STEEM prices are too low, relative to SBD supply. That's not a problem with SBDs. That's a problem with STEEM supply/demand fundamentals and the inability to attract interest in the currency. This will cause a STEEM failure regardless of the existence of SBDs.
The problem of risk is there due to the volatility though, not the direct price of STEEM. If STEEM went up to $20, then crashed down to $1 - we would have the same risk (although on a larger scale) that we have today with the price recently being at $0.20 with the possibility of it dropping to $0.01.
Sure, but then the volatility isn't due to the existence of SBDs. So, SBDs don't necessarily pose a systemic risk. There just needs to be a better means for creating and managing them.
If a crash occurred from $20 to $1, there are bigger things at play that need to be addressed. A 90% loss doesn't just happen for no reason. If STEEM and SBDs were more widely used as an actual currency, and if the Dollar peg remained intact, then the odds of a 90% crash in such a short period would be virtually zero at any given time.
There are ways to discourage holding SBDs and there are ways to manage the relative risk of having them. Scrapping them because it might be too hard at some point sounds like a pretty lazy solution to me.
I have my personal views, and while I am leaning in one direction, I haven't made up my mind yet..
One question that I have though - Other than the reasons SBD is good on it's own (stability, easy for adoption, easy to understand, etc.), in what ways does it actually benefit STEEM holders?
I have some of my own thoughts, but I am curious what you think.
More use of the blockchain benefits STEEM holders directly. In order to engage in a large volume of transactions (for example as a merchant or payment processor, but perhaps even someday as a regular user) you need to hold sufficient SP. That defines your bandwidth allowance, is the substitute for transaction fees in this system, and in turn contributes to buy-and-hold demand for STEEM. The need for more SP (i.e. the implied fee rate) will increase as usage increases and blocks start to fill up.
Despite the currently-low usage (most blocks are relatively empty), I experienced this directly in needing to power up more SP to my market maker bot to avoid having its transactions blocked by the bandwidth limiting (though it was still only a small amount).
However, that benefit (implied transaction fees) being said, I personally believe the greatest benefit to STEEM holders remains helping to build a larger user base for the entire platform and a larger user community, for the reasons described by @ats-david. Without a large user base this entire platform will inevitably become (nearly) worthless. We need to keep our eye on that ball. I guess it is a matter of opinion but I personally think that the presence of SBD helps a lot more with the critical issue of growing the user base than would the incremental simplification of removing it. The systemic risks and other issues are also a factor though.
I will give my main answer to my question:
SBD is beneficial for merchants. Merchants are really the ones that need a 'stable' currency in order to function.
For an actual business to try and sell their goods and services (which have fixed costs to produce) they need to be able to set fixed prices. Having a stable and widely used currency will attract more merchants to sell their goods and services using the digital currency.
Merchants are beneficial to STEEM holders because "non crypto" users will have more things that they can do with their earnings from the site.
I remember trying to explain the money thing to my non crypto friends, and lots of people lost interest when they heard you have to register in an exchange, provide your bank account information, trade your SBD (or STEEM) for BTC, and then sell the BTC to get cash. I did this on behalf of many of my friends, but not everybody is going to know somebody who can do this for them.
If someone could see that they can take what they earn and go buy an i-Phone (or whatever other good/service they are interested in) in the internal marketplace using their earnings from the site - that would be huge!
Why was it in the whitepaper to begin with? What has changed since then that has this discussion taking place at all? Who benefits from removing SBD? I don't see any reason to remove it, only benefits of keeping it. Enlighten me.
You are right. SBD beneficial for MERCHANT.
It only causes harm to Steem holders. I hate to say this but witnesses (include smooth)would make some good tip from it too.
It has been easily in the top three obstacles to adoption of BTC (possibly top one) ever since I've been around, which is 2011. BTC has gained some measure of success (though mostly in a few specific markets) despite this huge barrier. Even there, the presence of the high volatility adds significant friction as many participants (especially the larger ones) converting to USD as quickly as possible. There is little incentive or mechanism for the economy to grow organically in most cases (for example, by those receiving it keeping it and using it for their own payments to others).
I'm speaking of use as a transactional currency, not speculation (for which we have STEEM). To be fair a huge portion of BTC's so-called use is still tied in some way to speculation and/or mining (itself another form of speculation).
I think this point is lost on too many people. Bitcoin doesn't really act as a currency. From what I have observed, at least since 2010, is that Bitcoin "users" don't actually use it - as you said. It's not a transactional currency. And it is quite volatile, despite its current price, market cap, and trading volumes. This has always been the large barrier to widespread adoption for merchants.
SBDs actually resolve this issue and can change the nature of crypto adoption for merchants. With SBDs, they don't have to instantly cash out in order to protect themselves from volatility. The SBDs can be held, remain in the STEEM ecosystem, and then be cashed out only when needed to realize profits in native currencies. As long as the peg can hold, there's no immediate need to ditch the currency - and this actually serves as support for STEEM holders by stabilizing the currency and the network altogether.
This notion that SBDs are only harmful to STEEM is absolutely absurd. There is no eternal "downward pressure" on the STEEM price simply because of the existence of SBDs. The pressures on the STEEM price are multifaceted and mostly have to do with factors that are wholly irrelevant to SBDs. The largest downward pressure on the STEEM price is the huge lack of interest in the currency and the Steemit platform. SBDs are an afterthought in that regard.
Can you explain how having SBD's costs the network of STEEM holder to maintain the peg?
Here is a post that explains a large part of it:
SBD Debt Issue - Riding the STEEM Price Roller Coaster
There is also the interest paid to SBD holders - which is not a large cost, but it is still a cost none-the-less.
Thanks. That helped a lot.
In reply to your other comment (at nesting level 6)
The primary purpose of SBD is to provide a stable currency. Merchants who want to use the currency to sell goods want to have something that has a relatively fixed value. If the value were constantly going up and down, then selling things would be really difficult.
Example:
What do you charge for a shirt that cost $15 to make, when one day 100 of the currency is worth $20, and a few days later it is worth $15?
It is also easy for non-crypto users to understand. Getting paid $10 SBD basically means they have $10 worth of currency that they can cash out / use. If that $10 was worth $5 a few days later - it would be bad for the user experience.
As far as what has changed:
Just a quick note: you write
That's not quite true yet. Because they reduced the power-down period, all of the past inflation is being released onto the market rapidly, resulting in a rather dramatic increase in the effective inflation of liquid Steem. It will be at least 3 months before the effective inflation actually starts to fall. However, 3 months from now is when @ned and @dan are released from their no-power-down commitment, so if they decide to divest, the effective Steem inflation will continue.
Good point.
Your response is extremely helpful to getting my head around these discussions. Thanks.
The more I think about the pricing issues, ie.
This really is a mute point. With POS apps like BlockPay for example, it makes no difference. The merchant charges the same price they charge non-crypto customers. In this example, $15 dollars. The app would take $15 of Steem at the price it is at the time of purchase and the merchant wouldn't even have to think about it or adjust anything in their accounting or books.
I hope you changed your mind.
SBD should be gone. ASAP.
When I look at the big picture I think you may be right. One thing I don't hear anyone talking about on any of today's posts on the subject is how posts would be paid if we made the change.
Next to a post today, the earnings are expressed in SBD and we know this is pegged to the dollar. If the change was made, would the posts earning now be expressed in Steem? And if so, pegged to what? Dollars or today's Steem price?
SBD causes harm to average steem holders since it generates downward pressure on steem price but it gives good tip to witnesses. It's a rigged system man.
Whatever, I don't mind witnesses getting good tips, they deserve it for the work they do. There would be no Steemit without them. Show me a system that is not rigged. Doesn't exist.
Makes no difference if I earn in SBD or Steem to me.
One thing I don't see discussed is how would payouts for posts be determined if not by SBD? In Steem? If so, pegged to what? Today's price? $1 USD?
When we see our potential earnings next to our post in SBD, what would it read if we made that change?
That's not a serious problem. Just keep current $ denomination is one way, though $ price will be changing.
Change denomination to steem is another way and I personally think this is better way to go.
Or replacing SBD on a post with USD. Easy for noobs to understand.
You do realize that the current price slump in Steem is due to the recent hard fork and the reduce power-down time, right? Steem Power was hyperinflated for months, and then 2 weeks ago they made the change to suddenly release this inflated Steem Power onto the market, causing a dramatic increase in the effective inflation rate of liquid Steem. It will be at least 3 months before this effective inflation stops.
Downward price pressure is caused by people wanting to get out of Steem; whether I get out of Steem via SBD or simply by selling my Steem is immaterial.