Steemit, Blockchains and money.
In the last days I've seen lot of discussions about the future of Steem, of the steem dollar, and the value of investors. This looked pretty weird to me, since I am just writing ... because I need to. Sometimes I feel the need to share my thoughts , which I just do. I have a little time, I write very fast, I don't draft, which means I just feel the urge to write what I think.
Of course I was aware this platform (steemit) was based on a blockchain and it was rewarding users, but It always seemed to me like a "metric" , to decide if people's content was appreciated or not. Given a fixed amount of any resource, if someone decides to give it to you, then he appreciated what you wrote.
In the latest discussion, I start realizing people has joined Steemit in the hope of making money out of it. Of course, you may hope whatever, I'm not here to judge, until I am a very precise person and a hope not surrounded by facts to me should name like "dream".
My first question was : why people was thinking to money looking at steemit, and why an application running on a blockchain was associated to money?
A blockchain , talking about technology, is nothing but a transactional system. We have some of them already, I worked with them in the past, like Tuxedo or CICS: https://en.wikipedia.org/wiki/CICS , or Tuxedo based systems ( https://en.wikipedia.org/wiki/Tuxedo_(software) ) .
Of course a blockchain has many pro, like it has replication , record ownership, transactional model, encryption, as a built-in, decentralization , and more and more. Sure. Still, is nothing but a transactional framework.
The reason this is associated to money is that, the first well-known application of it was Bitcoin. Being the first application a currency, then everyone associates "blockchain" with "money". When people is doing a "blockchain based social network", then is very easy to associate it with money itself. Also the idea of "mining" has triggered people to see a blockchain as a way to earn money just because of a computer working.
This is why is very easy to tell anyone "since this is a blockchain-based product, then you may make money out of it".
Being honest, under the professional point of view, I would not say that to a customer. If anyone told you that, he was a liar. CICS is moving a huge percentage of banking data. Which means a huge percentage of the planet's GDP. If I create tomorrow a social network based on IBM CICS, would you be easy to think this is your chance to be a banker? Just because in such a case I would use a platform well known to make banking possible, then you make a bank?
Uhm.
In my opinion, if anyone sold Steemit like that, was not very honest with you.
Now, let's go in detail: how you may make money with a digital currency? You must buy some, then you must hope its value will grow. Now, being a digital currency more a commodity than a currency itself (to have a currency you need a law saying this is a currency) , the value is made up of the classic market rule, which compares demand with supply.
In the case of Bitcoin, you may have:
- Supply decreases because of lost , unrecoverable wallets.
- Supply decreases because of inactive users.
- Demand increases because of need (India deleting cash stamp, China devaluating, etc)
- Demand increases because of exchange: more people using it (commerce, transactions, etc)
- Demand increases because of investments: people is buying it hoping it will grow in value.
Now, when it comes about Steemit, I would save 1,2,3,5.
About 1 and 2 there is a little to say: this is systemic. But , to have an increase of value you need there is demand. It will happen, but this is not the core business.
Now we have 3 and 5.
Let's start with 3. The "usage" of steem dollars is related to rewards to what people is writing. So that, the demand exists, until writers are here to get money, which means they are paid to write. In such a case, steemit behaves like a company which is paying people to write. Useless to say, the money will move from investors to writers.
Since internally the money can only move from investors to authors, the only hope of the investment to pay is that the platform makes so many writers that, to reward each writer, the demand increases. Meaning, people which plans to reward must buy this currency in order to reward, if we want the demand to grow.
What you need to happen to have your investments back is that the amount of people buying the steem cryptocurrency would grow in volume more than the amount of users which are being rewarded. Which means, the platform is cannibalizing itself.
When I say "it is cannibalizing itself" I mean that the need of reward from the writers will create an INTERNAL scarcity of the currency, which will deflate it internally, but unfortunately this is not mapping to a real demand/supply balance when it comes to "real money" to "steem currency".
To say that the internal demand will make the exchange value in dollars to grow sounds like saying that a growing GDP will make the forex exchange to grow. While is true that this happens, what we know is that this happens because of commerce, which means, because of some exchange. Meaning that, if my country is growing in GDP and there is exchange with the USA, the ratio with the dollar will increase. If there is no commerce with the USA, my domestic GDP may grow as much I like, but the ratio with the dollar will NOT change.
What exactly the steemit platform is commercing with the USA? Nothing. This is the point. Is not like bitcoin, where you can use it for buying on openbazaar, by example. Here you have BTC/USD link, which means, if the "internal" demand of BTC grows, this will impact the exchange.
Since there is no commercial link between Steemit currency and the dollar, whatever internal demand the writers could be able to generate, it will not impact the exchange.
What remains of this ? The fact more people could invest in it, creating more demand. Why people should, when there is no commerce? Well, people could use it as an investment, meaning they hope the value will increase. In the case this growth in investments will be bigger than the growth in rewards to writers, this will make the value to grow.
There is just a little issue in that:
- In the case the growth of your investments is due ONLY by the fact other people is putting money, and the other people depends by another wave of people buying, this is a Ponzi Schema.
- In the case the growth of the investments is overperforming the growth due the fact more people is buying , because of predictions of growth, then this is a clear speculation bubble.
either one of two, a person which suggests you to invest your money in such a situation is quite a strange person. Imagine we keep this phenomena into "being legal", so we may exclude the "Ponzi Schema". In such a case, this is a speculation bubble.
Now , to invest your money into a speculation bubble may be a good suggestion if you are into Venture Capital, like an Hedge Fund. This means HIGH RISK. Not for fund your retirement, for sure: the risk of becoming old thus needing money , in the long term is 100%, so that a retirement fund CANNOT add more risk!
So, I don't know who suggested to common people , which has little money to risk and little time to recover investments, to invest . I can understand people into Venture Capital doing that: but Venture capital means "Venture". Means High Risk. Means people which can invest money, and if they are lost, ok, it was the game.
If you are getting old, this is all the money you have, and you don't have another life to make them up again, Venture Capital is not for you.
Then, if anyone told you that a cryptocurrency with no real economy backing it (backing like Bitcoin starts to have) is a good retirement investment, well, I have a clear opinion about this person.
