Steem Economics Part 3 where technology has financial impacts.

Steem Economics Part 3 where technology has financial impacts.

I wrote this article in three parts, but I decided to copy the creator of the famous Star Wars Movie Franchise and go forward in time to get your attention and then backwards to introduce you to Steem.

Everyone involved in cryptocurrency has heard of the Ethereum Blockchain. The famous third ever Cryptocurrency built after Bitcoin and Litecoin. The creator Vitelik was very active in the Bitcoin Community and the consistent refusal of the Bitcoin Community to expand Bitcoins capabilities to include Smart Contracts led to Vitalik leaving that Community and forming his own call Ethereum, whose focus was on Smart Contracts.

Ethereum is a fabulous Blockchain, and it is the home of the majority of blockchain projects which combine finance with technology and are call DeFi, which stands for decentralized finance. DeFi as many in cryptocurrency are aware, is the largest source of income outside selling your Bitcoin in the cryptocurrency universe and it is the financial tool category which includes many sub-categories. DeFi is a combination of financial investment concepts and technological facilitation or allowance. Which is my complicated way to say that DeFi is a money making strategy involving finance ideas which is dependent on technology. Additionally, although the financial concepts are old and time tested, the technology is new and is the source of DeFi vulnerabilities to theft and manipulation. While Ethereum is an advanced blockchain, it was the third of over 2000 blockchain projects created since the first blockchain project created, called Bitcoin. While Litecoin and then Ethereum possess some technologic advantages over Bitcoin, mainly transaction speed and transactional volume capacitance, they have been similarly surpassed in some technological aspects by blockchains which came after them. So while Ethereum is a work of art in the computer software world, it’s infrastructure is old and it is surpassed by some newer blockchains in ways that matter.

One of those areas in which Litecoin and Ethereum have been surpassed involve characteristics which are important to any business such as the speed with which you can perform business transactions, the cost of each transaction to you and your customer and your ability as a business to continue to provide good service as your business grows. It is in this regard that Ethereum and Litecoin have been technologically surpassed by the blockchains which came after them. While Bitcoin, Litecoin and Ethereum were built to be near the best of their time period, technological change and obsolescence appears inevitable in many areas of life and is most pronounced in technology dependent fields.

So while scalability sounds like a complex technological word, and the terms used to describe scalability are equally complex looking, they are based on very easy to understand concepts that pre-date the internet and blockchain technology. The underlying concept is as your business grows, can you provide the same good service you provided when you were small. This basic principle determines the success or failure of any growing business, because failure to maintain good quality products and service leads to a loss of customers and stops business growth.

While Bitcoin and Litecoin suffer from the same age related, business growth issues as Ethereum, Ethereum’s business model is much more based on what you can do on their blockchain using their token or tokens, versus just the inherent perceived value of their token like Bitcoin and Litecoin. So the issues relating to speed and cost of business transactions on the Bitcoin and Litecoin are an issue, but not such a big issue because the value is in the Token involved in the transaction. But in the case of Ethereum the value of the token is derived by the transaction, so factors effecting the speed and number of transactions more directly effect both value and functionality for Ethereum.

I think this difference can best be illustrated by saying that the value in Bitcoin is derived by the product like bread, whereas the value in Ethereum is more derived from the process by which we make the bread. Looking at it in this manner and reflecting on the technological superiority of the Steem blockchain over the Ethereum blockchain with Steem faster transactions, cheaper transactions (free) and Steems greater transaction per second capability, we start to understand how when the value of the process by which bread is made on Steem could be valued higher the the slower, more expensive process on Ethereum.

In conclusion, there is far more I could write about scalability as a concept, but I wanted to focus more on it’s plain word meaning and significance and less on it’s terminology, categories and technological minutiae. Those things are important, but difficult to read unless your are motivated and I hope I have provided you with some motivation, or at least an appreciation of the technology underlying Steem.

@shortsegments