If you get nothing else out of this article please take the following line with you: Steem is supposed to fall.

If want to know why, keep reading.

Firstly, somewhere on the order of every few days or once a week I see an article titled similarly to the first part (before the dash) of the title of this post. It's not too surprising. They tend to make a decent amount of coin reliably.

However, while I certainly don't think the authors intend to be dishonest (most of them), these articles are incredibly misleading and hurt faith in the platform (which can effect things like user retention and the amount of people powering up... which in turn actually can hurt the price of Steem and SBD).

Now, in my research I've discovered that this is hardly the only article talking about why the price of Steem always falls. However, I think that as this is a relatively early stage of the Steemit platform these kinds of articles need to be written periodically to combat the other kind, which are much more prevalent.

Why the Price of Steem Falls

To make sure everything is completely clear, we'll be using the Steem Whitepaper to show why Steem prices are falling/will fall. Let's start with this tidbit:

STEEM is constantly increasing in supply by 100% per year due to non-SMD incentives. Someone who holds STEEM without converting it to SP is diluted by approximately 0.19% per day. While the rate may appear high, for transactions that take less than 10 days, it is still cheaper than credit card processing fees. Furthermore, the daily token creation is insignificant next to the daily volatility.¹

In other words, more STEEM is always being added daily, so this creates an inflation effect. But wait, isn't that bad? Well, not necessarily. You see, STEEM is meant to do this. It's a short term investment vehicle meant to be held for no longer than a day or two before being converted to SBD (STEEM Dollars) or SP (Steem Power). These two forms of the currency are designed to be much more resistant to the inflationary effect. The whitepaper even says as much:

Once STEEM has been purchased it should be converted into SP or SMD to mitigate the impact of dilution over the long-term. ²

STEEM isn't meant to be held for long periods. New STEEM is created each day and the majority of it goes to existing STEEM holders. SBD adjust the amount of STEEM they are worth according to the inflation of STEEM and it's worth compared to the dollar:

The majority of inflation is actually an accounting artifact rather than true reallocation of wealth. 90% of non-SMD inflation is distributed back to existing holders of STEEM proportional to the STEEM value of their SP balance, making inflation more of a “split”. Only about 10% of non-SMD inflation redistributes ownership in the network.³

And in another section...

The increase in the supply of STEEM is mostly an accounting artifact created by the desire to avoid charging negative interest rates on liquid STEEM. Negative interest rates would complicate the lives of exchanges which would have to adjust user balances to account for the negative rate of return of STEEM held on deposit.⁴

But.... Hyperinflation. As I said before, STEEM is not where the value is held. It's held in SBD and SP. Yes, the inflation does become a problem, but not for the reasons you think:

A side effect of increasing the supply is that the network will require ever increasing levels of precision in its accounting. On average the number of bits required to represent a typical account will grow by 1.3 per year. It will only take 10 years before numbers involved no longer fit within the 53 bit precision supported by JavaScript or the 64 bit precision supported by CPUs. Over time the magnitude of the numbers involved grows beyond human scale and comprehension; furthermore, the least significant bits have so little economic value as to render them meaningless.⁵

In other words there are numerical limits on the amount of STEEM (or anything) that a computer can currently handle. In order to prevent things from getting out of control STEEM has a novel solution:

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.⁶

That's right: every three years all STEEM is essentially divided by 10 to 'reset' the process over again.

So, to reiterate:

-STEEM is supposed to fall in price and is designed this way to encourage long-term over short-term investment of resources into the currency and platform.

-The true (long-term) value is held in STEEM Dollars (SBD) and STEEM Power (SP). A unit of STEEM Dollars is basically an amount of STEEM that is close to a dollar in value. Though more STEEM might be required to approximate that value, the STEEM Dollar itself will always be close, making it resistant to inflation.

-STEEM Power is the longest term investment, holders only being able to withdraw it over about two years. It's resistant to inflation because most of the new STEEM created goes to existing SP holders as more SP.

-STEEM IS DOING FINE RIGHT NOW. There were some decent arguments recently that it was falling a bit faster than it should be, but it's begun to fall at a pretty decently shallow rate recently (with some spikes even).

How You Can Help

Now, some of you might have noticed something strange about the title. If STEEM is okay, why in the world would you need to help it?

Well, as people that have put time and energy (sweat equity) in the platform we have a vested interest in making a culture that helps the platform survive. Little things implemented now will help as STEEM and Steemit become more popular.

One thing you can do is accumulate/avoid selling your SBD. Remember, we are the ones that determine how much our effort is worth. If we sell SBD for just anything... we'll get just anything. If we dump it at the fastest opportunity, that sends the market a certain message. If you need it, use it, of course. But try not to.

The second thing is to start making it a thing to give ourselves a small 'tax' on our STEEM earnings. If everyone started to use just a small amount to power up instead of selling it all, this could really help keep the price stable as the platform grows.

Follow: @jenkinrocket

References:
1, 2, & 3: Page 8 - Steemit Whitepaper.
4 & 5: Page 38 - Steemit Whitepaper.
6: Page 39 - Steemit Whitepaper.

Check out the whitepaper here for more information.
Check out @sykochica's great article on how Steem is generated here.
And check out my series for absolute beginners to cryptocurrencies here.
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