The Real Inflation Rate Of Steem - Bluepaper Clarifications (Spoiler: It's Better Than I Thought)
A few hours ago, @steemitblog announced the release of Bluepaper, a revised version of Steemit Whitepaper. This new version will document all the changes that took place during last year (and boy, there were a lot of changes) and will be also opened to improvements by other community members. I salute the initiative and I invite you to download the PDF version from here.
The Real Inflation Rate
While perusing the information in the Bluepaper, something really stood out. Much of the information there I knew from scattered sources and from my activity as a witness, but this one was something that I didn't quite internalize, at least until now:
The rate that new tokens are generated was set to 9.5% per year starting in December 2016, and decreases at a rate of 0.01% every 250,000 blocks, or about 0.5% per year. The in ation will continue decreasing at this rate until it reaches 0.95%, after a period of approximately 20.5 years.
That changes everything!
I can't believe I didn't actually process this in a proper manner when it was announced, back in December (I think it was hardfork 16, if I'm not mistaken). I was probably under the impression of the huge inflation in the previous version (something like 200% per year) and I didn't pay attention to the fine print. Alas, it's always the fine print that changes everything, and not only in that mortgage contract you sign with the bank.
Let me explain.
If Steem would have a 9.5% fixed inflation rate per year, it means (in a very simplistic way) that there won't be any incentive to actually get a hold of the token, because there will always be more printed next day. It would be a predictable, never-ending flow of tokens. And when you have a predictable, never-ending flow of tokens, the price usually plummets. It happened in the fiat world more than once (see Zimbabwe, for an example in our present days).
But if the inflation actually drops in time, that means the never-ending part is eliminated. Next year we'll have an inflation of 9%, the year after 8.5%, and so on, until we stop at 0.95%. A 1% inflation rate is way more palatable and more viable, economically speaking.
What that mens for the layman?
It means your STEEM is more valuable than you think, because, in time, there will be less and less of it. Yes, it may take 20 years until that happens and yes, even in 20 years there will still be a 1% inflation supply that could provide some liquidity.
But the bottom line is that now is cheaper to get STEEM. The key word here is cheap.
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
https://steemit.com/~witnesses
If you're new to Steemit, you may find these articles relevant (that's also part of my witness activity to support new members of the platform):
Thanks for clarifying these numbers . It is difficult for us common people to understand their meaning.
Now, steem to the moon!
Keep holding your steem bro's. Easy money and its fun to interact on the platform with others
20 years?
Sheeesh! Just in time for early retirement, I guess.
Thanks for the good news! I really like the concept of slowly declining inflation rate. But you also have to consider that when the inflation rate sinks, you will get less and less for your SP. When your upvote is now worth 1$ and you don't change your SP for 20 years, the following things will happen:
If you add it all up, your upvote will only be worth 0.04$. Quite a difference, right?
Correct, but incomplete. The reward pool is now about 43000 STEEM/day, in 20 years it will be around 4300 STEEM/day.
Today 1 STEEM is (roughly) $1.5, so the entire reward pool is worth $64.500. But in 20 years, the price of STEEM can be 10x the price of today (in a very conservative prediction) so the future value of the reward pool will be worth 4300 * $15 = $64.500.
The reward pool decreases in STEEM, not in the market value of STEEM, which is something completely different. The same goes for SP.
Yes, you are correct. STEEM could rise a lot. But inflation is usually calculated under the assumption that market prices don't change.
Thank you for your elucidation - and for taking the time to explain the small print for us all :) much appreciated
dragosroua, Excellent analysis and insight. Is there an abitrage play as Steem Fluctuates between $1 to $2-3 and SBD between $1 to $1.5? Invested one etherium so far, reluctant to do more. The play between Steem vs SBD vs SteemPower is a bit convoluted for me. Happy with appreciation on GOLD, Bitcoin, Etherium. Steem is hampered for true appreciation. Perhaps when EOS arrives, things will change. Followed, upvoted and resteemed.
It is always a matter of expectations and trust. a whitepaper is not a forever-fixed law, as we saw in the last year. things can change any moment, and actually it happens. Imagine what will change in 20 years! ;)
This being said, for the long run, I believe that the best way to keep your earnings from steemit, is in SP.
Totally agree with you. All of the real rewards are in the long game. Steem tokens are a humble holding for now... but as the community grows, the development quality improves, the inflation rate shrinks... there are a whole lot of factors that will push that price to the moon.