What gives Steem value long-term?

in #steem8 years ago

The creation of tokens

The way I understand it, Steem tokens are generated all the time, with each new block added to the blockchain. They are given to:

  • Steem Power (SP) holders simply for holding SP
  • Steem Dollar (SMD) holders simply for holding SMD
  • Content creators for posting and curating content
  • Block producers for producing blocks
  • Maybe other rewards I forget

However, as far as I can tell, there's no mechanism for destorying tokens, other than the occasional user losing access to their wallet.
That in turn means, that altogether the sum of the various tokens in the ecosystem will keep rising forever.

So the question is, how can something have long-term value if more and more of it is just constantly generated for all eternity?

The short-term hype

Steem is in its infancy but clearly gaining popularity. At this stage, it makes sense for early speculators to buy in, hoping that this will drive the price up and other speculators arriving later to the party will still buy in for the same reason. Also, most newly generated tokens are awarded to Steem Power holders, which provides one more reason to buy in early.
In my opinion, the increasing prices seen at exchanges can be explained by these two factors alone, which both come down to 'short-term hype' but do not guarantee any long-term value for the tokens.

The inevitable value drop

Like all other currencies, Steem tokens obviously have no intrinsic value. But all the people who invested time or money to get Steem tokens have needs. They need food, shelter, services, luxories, whatever. Given the history of other cryptocurrencies, I think it's fair to say that a few years down the line, even if all goes well for Steem, to satisfy most of these needs, people will need to exchange their Steem tokens for other currencies, most likely still fiat.

As time goes on and the price keeps going up, less and less people will be investing speculatively. As content creators, as well as people already invested keep generating tokens out of thin air, more and more people will want to exchange their tokens for more tangible assets that satisfy their needs.

At some point, inevitably, more people will want to cash out than buy in. The price of tokens will drop and keep falling as people are trying to get rid of the abundant but useless Steem tokens. Producing content or investing won't be worthwhile anymore and there will be a new hype-coin to invest in anyway. The Steem ecosystem will die.

The only way out

There's another possibility though. Maybe Steem manages to do what no other cryptocurrency could so far. Maybe before this breaking point happens, Steem tokens will have gained enough popularity to also gain real 'value'. 'Value' in the sense that they can be exchanged directly for food, services, products and one can live a normal life just by earning and spending Steem tokens without worrying about exchange rates.
In this case, we need to give some serious thought to what kind of currency Steem tokens are. For every one token awarded to people investing time and energy, nine are awarded to the rich already holding tokens.
Is that a currency worth having?

Closing thoughts

Needless to say, these are two extremities. The reality will probably end up being somewhere inbetween. But either way, my point stands: While I understand why Steem is desirable to short-term speculators, I do not see how it provides a long-term value to humanity.

Feel free to convince me otherwise or just point out why I'm wrong in the comments.

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Steem Power gives people influence and clout on the platform. This is something of "intrinsic" value which will provide the base of demand. Everything else is all perception.

Git em Dan ! He didn't think this one through before he shat posted all over the place. Prob took him 4 hours to write that

The way I see it, people buying Steem Power are not doing it to gain the power of curating content all day. They buy it as an investment, to double it - triple it, and somehow buy a yacht or whatever one day.

The value of any tokens is the community that is built around it. Adding the social layer on top of cryptocurrency is what was the killer app all along.

Suggested read: https://steemit.com/steem/@dan/steemit-s-evil-plan-for-cryptocurrency-world-domination

Also, Steemit is only the first app. Private blog will be built on top. Wikipedia replacement, scientific paper curation website and much more.

The network as no transaction fees too with 3 second transfer. How does that compete with bitcoin?

But how would you convince someone to buy Steem Power?

  • You get the power to curate content
  • You get the power to reward authors
  • You may get your investment back in 2 years, IF people are still willing to invest in SP at that time and the price doesn't drop significantly, even though by then the total volume of tokens will be a lot higher

The first two are noble arguments, but in my experience people are not too keen on donating to content creators (eg. patreon, flattr, etc) or free services (eg. wikipedia, free software).
And although I'm no expert in finances, the third one just doesn't sound very convincing to me.

But most likely I'm already biased in formulating these points, so how would you describe the value proposition of investing in SP?

Would love to hear what Ned and Dan have to say.

I am convinced that there is more in the pipeline.
If you have an active community with a micro-payment system, you can one day open the box of pandora.
But there is no guarantee.

There is actually a mechanism for destroying tokens. From the white paper:

In order to compensate for the ever increasing precision, the STEEM network performs a 10:1 “reverse split” every 32,000,000 blocks (about 3 years). At this point in time all balances of STEEM are divided by 10 and all prices are multiplied by 10. Cryptocurrency exchanges will have to suspend trading around this time and update the account balances and price history to reflect the “reverse split” before resuming trading.

That's just a technical detail due to the way we represent numbers on today's computers. No tokens are destroyed, it's just that we shift the accounting a by a few decimal places. It's precisely the consequence of generating tokens forever without destroying them in any way :)

Interesting post. Interesting to see I'm not the only one that is thinking about this. The biggest group of uneducated investors in mankind has to define the trustworthyness and price of a crypto. It's an interesting world we live in. I really advice people to take a look at: https://www.coincheckup.com. An amazing crypto research site. They researched every single crypto out there. This is truly great.