Are Steem author/curation rewards sustainable?
Hi everyone, I'm relatively new to Steem and still trying to get a thorough understanding of the whole system before I potentially make a larger investment.
My current understanding of how the author and curation rewards are paid out is below, as well as some questions about parts I don't understand. I would really appreciate it if someone more knowledgeable than I could help answer my questions and correct my understanding. Hopefully this will also help others to gain a deeper understanding of how the rewards and the overall system works.
- Each new block created by the witnesses creates a set amount of new Steem.
- The majority of this new Steem created with each block is divided up and paid out to the authors and curators of content on the platform (is it paid out to only the items included in that specific block?)
- The amount of new Steem created with each block will decrease over time as the inflation rate decreases.
Based on the above, it seems like there is a set amount of Steem available as rewards, so if for example the number of active users on the platform doubled, then would the rewards be cut in half? Meaning if my upvote is previously worth $1 it would now be worth $0.5? If that is the case then I don't see how the platform can sustain significant growth, which is in theory what we are all hoping for.
Thanks in advance and I will send a small SBD tip to anyone who can help me understand this!
Very pertinent questions. In fact, I'm also searching the exact answers to these. Do update here when you find one.
Let me share my understanding so far.
Yes, Steem is an inflationary token with 9.5% APR as on HF-16 in last December. This rate decreases by 0.01% every 2,50,000 blocks or about 0.5% annually. In 20.5 years it will get stabilized at 0.95% annual inflation.
No, it isn't paid out instantly to items included into the block. Since the payout period for all posts & comments is about 7 days, the Steem is added to the total reward pool and a potential reward is assigned to posts for which the no. of vesting shares / Steem Power is used to vote / downvote proportionately, according to the transaction written in a block. Current Reward Balance at the time of writing this comment is 699030.589 Steems and total vesting shares are 376629998005.335737 VESTS.
Very true. Currently about 43,000 Steem is created daily. A new block is created every 3 seconds. But as I said in point-1, the total amount of Steem being created will decrease every 250,000 blocks. But only until mid-2037, not forever.
You are also right when you say that reward pool of Steem per active user will decrease with the increase in size of active user base. But this certainly does not mean that your upvote value will decrease from $1 to $0.5 if the userbase doubles up, In fact, it will behave just the opposite i.e. your upvote value will increase. This is what is called network effect. Today Steem is worth just about $1.25 whereas Bitcoin is worth about $4,000. So you may ponder a little as why is Bitcoin worth so much? What is so unique about it? Isn't Steem better?
You need to understand the value of a network. I'll quote a paragraph from Steem's recent Whitepaper, which will help you understand this better:
So not only this platform can sustain but thrive.
Hope it is of some help to you. Did I miss to answer anything?
Thanks! This is some great information - I have a question about your last point (#4). You say that if the user base doubles my upvote value will increase, but is that ONLY if the value of the Steem currency more than doubles?
For a simplistic example, let's say that there are 10 STEEM available in the reward pool and STEEM currently trades at 1 STEEM = $1 USD. Then if there are 10 total upvotes submitted with equal power, each upvote should award 1 STEEM or $1 USD reward.
Now take the same example but the user base doubles and there are 20 upvotes...then each upvote would only award 0.5 STEEM or $0.50 USD as a reward UNLESS the value of the STEEM token also doubles.
Is my understanding of this correct?
Exactly. The value of upvote does not depend on the no. of Steem tokens it gives but the value of the Steem tokens. You must have noticed in last couple of weeks, the fluctuation in the vote worth of several whales and bots because of the turmoil in the market.
Network effect will always increase the value of currency more (greater than the sum of the
parts). The value of currency lies in its usage (increased no. of transactions), user-base (increased acceptability) and increased distribution (resulting in stability and safety). So higher the circulation, more will be its value.
Amount of users double, than yes, we will have to share the reward pool with more but don't forget that double amount of users will also grow users who want to invest a bit and that will push price up. If Steem is 3$ instead of 1$, reward pool will be triple. It is around 10% a year which is the inflation rate for that reason.
I invested seriously in the last months as i really think it will go to 3$ very soon. The platform is very addictive and userbase is seriously growing.
In maximum half a year, all crypto inestors will bounce their head saying why didn't we see this one coming :-)
Hope that answers your questions a bit, ask me more if you want to, no need to send me SBD, cheers
Thanks! So it sounds like it's really dependent on the price of Steem going up, which makes sense since that should happen if more people are using the platform.
Yes, the next upgrade (hardfork 20) will open up Steem to the masses so this is an excellent time to jump in. There are a lot of really cool people out here and that draws a crowd for sure.
Hi @yabapmatt,
Welcome to steemit.
These are interesting questions. I guess I don't have a better answer than what @bubke gave, since I am not really knowledgeable about the block chain system.
Good luck in finding the answers you want and sharing them with the rest of steemit users :)
Thanks, I appreciate your taking the time to read and reply even if you didn't have a better answer. There's a lot of value here but I think it's important that people know how it works. I don't think most people will put in the time I have to try to figure it all out.
I totally agree with you. Most of us don't know
The ones that know are the ones that become whales. Then the money pool is shared between them almost exclusively, sad to say.
This makes it even harder to find our way and figure things out being busy looking for a way to make more money or to befriend whales to get in their good side.
It is hard to be new on this platform and have no money to invest in your SP, neither knowledge to know what you are doing.
Anyway, don't want to complain too much. Hahaha.
I hope you will figure out something. I am following you in hopes you will learn more and we will all benefit.
Good luck and I am happy to respond anytime with whatever I know :D
Take away the $, just as the difficulty increases in mining bitcoin or another altcoin, the value would INCREASE if not double every few years.
If that did not make any sense, let me know and I can elaborate.
I was starting to type an answer and the read some of the comments which I realize say everything I was thinking! It looks like since you shared this link on my witness post you have some amazing replies by several people I recognize as comment regulars on my posts! What helped sell me on investing here is seeing how helpful people can be! The more user growth the more demand will come for Steem leading to a nearly certain price increase to at least $10 if not $1000 which would equal the valuation of Facebook.
@jerrybanfield - thanks so much for your comment and support! I have gotten some great replies and ironically getting answers to my questions have led me to have even more questions! So I plan to continue doing research and asking the community and I really appreciate any help you can provide to add visibility since I think the questions I have will be shared by many others.
This post recieved an upvote from minnowpond. If you would like to recieve upvotes from minnowpond on all your posts, simply FOLLOW @minnowpond
In case you didn't see - I am offering a $10 SBD reward to the best answer to my questions in this post! Details here:
https://steemit.com/contest/@yabapmatt/free-usd10-sbd-guaranteed-for-best-answer
So far there are no replies...seems it's very difficult to give away money on here!