Steemit Crypto Academy- Steem Blockchain(Inflation, Recovery Account, Encrypted Message)- Week 7

Inflation

The governance protocol adopted in Steem Blockchain is DPoS(Delegated Proof of Stake) with (20+1) witnesses responsible to create, sign the transactions, and secure the network. The Block producing time is 3 seconds. The Block production is done in rounds and each round is of 63 seconds.

In PoW chains, the beneficiary of a Block reward is a miner and they are all randomly selected.

In DPoS, it is definite, not random. The top (20) witnesses plus one backup witness receive Block rewards, 10% of the total reward pool(inflationary model).

Being a social platform, it incentivizes different types of actors for the overall growth and sustainability of its ecosystem. For that, it follows an inflationary model to mint a certain fixed number of tokens at every block as per the inflation rate.

Further, the inflation rate decreases at a rate of 0.01% every 250,000 blocks, until it reaches 0.95%. Initial inflation was set to 9.5% in Dec, 2016. Since then it is continuously decreasing at the defined rate.

The various actors(beneficiaries) of the reward pool in Steem Blockchain are:-

• Content Creators
• Curators
• Witnesses
• Steem DAO
• Vested Token Holders

Please note that, of the total supply of newly minted STEEM tokens 35% of the distribution is definite, but the remaining 65% is task-based(PoB).

Definite Rewards- The consensus witnesses receive 10%, Vested token holders(SP Holders) receive 15% and Steem DAO receives 10%.

If you are vested token holders (SP holders) then 15% will be added to your stake automatically(in proportion to your vested funds). Similarly, 10% will straightaway go to Steem DAO.

Example- If you have 1000 SP, you will definitely get your share(in proportion to your SP size) from the 15% of the total new supply(inflation). You don't need to perform any task to get your share.

Task-based Reward- Authors & Curators(PoB)

The remaining 65% of the newly minted tokens are collected and added to a reward pool, known as PoB reward pool. It is then distributed to the content creators and curators based on the defined tasks they perform and the distribution is governed by PoB. We have already discussed PoB in the previous chapter.

Defined Tasks-

• An author can earn author reward by creating content.
• A curator can earn curation rewards by curating content.

Simply being a user does not earn you an author or curator reward.

An author has to create content to become a beneficiary of the PoB reward pool (how much, will be decided through Proof-of-Brain). Similarly, a curator has to exercise his SP to become a beneficiary of the PoB reward pool.

In this episode, we will calculate the current inflation rate, the newly minted STEEM tokens per Block and we will also draw a contour of projected Block rewards over the next few years.

Current Inflation Rate

Current_inflation_rate = (978 - (head_block_number / 250000)) / 100

To find the Head Block Number--

• Go to Steemworld.org
• Click on System Info, then you can see the Head Block Number-- 52, 186, 297

(You can also use Seemdb.io to get this data)

=> Current Inflation Rate= (978- (52,186,297/250,000))/100= (978-208.745)/100= 7.692%

Total Virtual Supply

Total Virtual supply= Total STEEM supply in circulation+ Total SBD supply in circulation(in STEEM equivalent)

To find the total virtual supply--

• Go to Steemworld.org
• Click on Market info.

(You can also use Seemdb.io to get this data)

=> Total virtual supply= 391,804,970 STEEM

Nos of Blocks per Year

Block producing time in Steem Blockchain= 3 seconds.

=> Nos of Blocks being produced per Year= (365 * 24 * 60 * 60)/3= 10,512,000 Blocks

At every 250,000 Blocks, the inflation rate reduced by 0.01%.

So per year reduction in inflation rate= 10,512,000/250,000= 0.42%

New STEEM tokens being minted per Block

new_steem = ( ( virtual_supply * current_inflation_rate ) / (BLOCKS_PER_YEAR ) )

Virtual Supply= 391,804,970 STEEM

Current Inflation Rate= 7.692%

Blocks per Year= 10,512,000 Blocks

=> New STEEM being minted per Block= ((391,804,970 * 7.692%)/(10,512,000))= 2.866 STEEM

new_steem = ( ( virtual_supply * current_inflation_rate ) / (BLOCKS_PER_YEAR ) )

Nos of Blocks per year is fixed.

So New STEEM tokens being minted per Block is directly proportional to virtual supply & inflation rate.

The inflation rate is constantly decreasing at 0.01% every 250,000 Blocks.(approx 0.42% per year)

The virtual supply is rising on account of inflation.

Virtual supply is also affected by the STEEM/SBD ratio. If more STEEM tokens are required to back one SBD the virtual supply will be more.

At every 250,000 Blocks, the inflation rate drops by 0.01%, which is roughly 8.68 days.

Assuming the current STEEM/SBD ratio to continue, Let's project the virtual supply and new STEEM tokens on account of inflation over the next 15 years or so.

_{Please note that the actual contour of Block Reward and virtual supply will be a little different because the STEEM/SBD ratio is not fixed, which keeps on changing every minute.}

Observation:-

• The inflation at the start was set to 9.5%(Dec' 2016), since then it is continuously decreasing by 0.01% every 8.68days(250,000 Blocks). The current inflation in Steem Blockchain stands at 7.69%.

• The inflation rate is being decreased by 0.42% every year until it reaches 0.95% after which there won't be any further reduction in inflation, it will saturate at 0.95%.

• The new STEEM tokens being produced per Block on account of inflation, simply Block Reward. Currently, the Block reward is 2.866 STEEM.

• From the above projection, the Block reward remains mostly flat in a narrow range(initially increasing, then decreasing) over the next 10 years or so. The estimated Block reward in the year 2031 (March) is 2.276 STEEM per Block.
  (Present- 2.866, Highest in the next 10 years- 2.962(2024), Lowest in the next 10 years- 2.276(2031).

• However, after 2031, there is a steep decline in the Block reward for the next five years or so, until 2037. From 2037 onwards, the Block reward is also likely to saturate, at 0.70 STEEM per Block.

Observation:-

• The current virtual supply stands at 391.8 Million STEEM.

• The virtual supply is on a constant rise on account of inflation over the next 15 years, however, the rate of rise is likely to slow down after 2037 as the inflation saturates at 0.95%. So the virtual supply is likely to draw a flat contour after 2037. The estimated virtual supply in 2037 is 783.973 Millions.

Analysis:-

Considering the estimated projection of virtual supply and Block reward it is pertinent to note that those who build their SP over the next 10 years are the real winners(potential orcas, whales) and they are going to influence this ecosystem significantly. After 2031 there is a steep decline in Block Reward(new STEEM tokens), so after 2031, STEEM tokens are going to be scarce.

It will be too much difficult to earn easy STEEM from 2031 onwards. In the crypto ecosystem, we have observed that the reduction in Block reward also paves the way for higher demand of the coins. So it could be a strong fundamental factor for STEEM in the long term(especially after 2031).

Recovery Account

In crypto, not your key, not your asset. That's also true in Steem Blockchain.

So you need to be careful with your Master Password/Owner Key.

Please note that the password/key is not stored anywhere, so it is simply not possible to recover your Master password/keys.

However in case your account is stolen or hacked by a malicious element, the Blockchain has a mechanism in place to recover your account. But you can't recover it by yourself. There is another entity called Recovery Account who can initiate the procedure on behalf of you.

_{https://steemscan.com/account/sapwood}

The recovery agent can be anyone. In general, if you have created a Steem account through Steemit then by default the recovery account is steem. If you have created through any other services, then it can be different(the account creator).

But you should always be careful who is your recovery account, whether he is active in Steem Blockchain not, whether he is reachable/approachable or not. If he is no more active in this Blockchain then you should change your recovery account immediately.

In order to recover your account:-

• You must know the previous keys/Password
• You must initiate the recovery process within 30 days of your account being stolen/hacked, after 30days it's not possible to recover your account.

If you change your recovery account, that also takes 30 days to take effect. You can go through this POST to know "how to change the recovery account".

Encrypted Message & use of Memo key

In a public Blockchain like Steem, everything is publicly visible except your private key. But wait. You can still send a private message(encrypted) to your counterpart & using the Memo key you can see the decrypted message.

The best feature of Steem Wallet is its hierarchical key system. Being a Social platform, here the keys are frequently used to record social activities, therefore the hierarchical key system is a requirement for such a platform. With that, the frequent use of the Master key/Owner key can be avoided(and should be avoided for security reasons).

So you all are quite familiar with posting key and active key in Steem Blockchain. You use your positing key to post a blog/commenting etc. Similarly for making a monetary transaction, you need your active key.

In a similar way, you can also send an encrypted message (using the memo field of your wallet section) to your counterpart using your Master Password. To decrypt it, you need either Master Password or Memo Key.

Encrypted Message

• In order to send an encrypted message to your counterpart, you need to prefix the message with "#"(without any gap in between)

• You can also encrypt the memo tag while you make a transfer to the designated exchange. You just need to prefix the memo tag with "#".

• The sender and receiver can see the decrypted message using Master Password or Memo Key.

Important- Please note that you need the master password to send an encrypted message to your counterpart. So if you are not sure how to handle the Master Password don't do this. You should use the master key to send encrypted messages only when you feel that you are required to send sensitive information to your counterpart which should not be visible to others. For general purposes don't use this method, because frequent use of Master Password should be avoided for security reasons.

How do I send an encrypted message

• Go to Steemitwallet.com. Login using the Master Password.
• Click on the small "inverted triangle" located next to your STEEM or SBD balance.
• Click on Transfer.
• Enter the account username in the "To" field. You should enter the lowest possible amount e.g. 0.001 STEEM(if your objective is purely a private message). If you want to make a transfer to an exchange account and encrypt the memo tag then you should enter the amount that you wish to transfer.
• In the memo, add # just before the message, without any gap in between(in other words prefix the message with #). Similarly, if you are sending a transfer to exchange and want to encrypt the memo tag then prefix the memo tag with #.
• Click on Next, then check whether the input is correct or not. If you are satisfied then proceed with OK.

You are good to go now.

In order to check the decrypted message, Login to your Steemit wallet using Memo Key, you can see the decrypted message. The transfer is visible to all, but not the Memo(or the details inside the Memo), only the sender/receiver can see it using the Memo key.

Thank you.

Homework Task

(1) As most of the STEEM tokens will be minted in the next 10 years or so(on account of inflation), how important it is for you to build your SP in the next 10 years and build significant influence power in the form of SP? How difficult will it be to earn STEEM rewards after 2031? From 2021 to 2031 how many STEEM tokens are going to be minted(approx)? In which year the inflation and Block reward is likely to saturate(tentatively)?

(2) Who is your recovery account in Steem, how do you check it(Hint- Steemscan), include screenshot(s)? In the case of any unforeseen event like hacking what information do you provide to the recovery account(or the trusted account) to initiate the recovery process?

(3) How do you send an encrypted message(private message) to another peer in Steem Blockchain(include screenshot/process)? Which key is required to send a private message and which key is required to decrypt it? (Example/Screenshot)? Either send an encrypted memo-tag to exchange and send a private message to another user?

Guidelines

• Your article should be at least 300 words.
• It is always better to gain user experience before submitting your article.
• Refrain from spam/plagiarism. This task requires screenshot(s) of your own experience. Use images from copyright-free sources and showcase the source, if any.
• This homework task will run until 28th-Mar'2021.
• Add tag #sapwood-week7 #cryptoacademy in your post and should be among the first five tags. You can also use other relevant tags like #blockchain #steem #steemit or any other relevant tag.
• Those who include the real examples/screenshots will score better.

(Please feel free to join the comment section if you have any doubt on Homework-Task)

Cc:-
@steemitblog
@steemcurator01
@steemcurator02

Unless otherwise stated, all the images, infographics, charts, tables, etc(if any) are my original works.