Skate Where the Puck

Skate to where the puck is heading, and that puck is heading straight for immutable public blockchains.

So, let's say it costs $10 in Steem to use the Steem blockchain to post your content. Now, the Steem token supply is limited (with small inflation that deflates % wise each year), but the potential customer base is not. As the number of users grows in the ecosystem, the demand for Steem increases, once supply fails to meet the demand, the price will go upwards.

Just like with real estate, the land becomes more valuable to build on because the land is scarce. Just like with the "Putt-Putt" example, the value does not hyperinflate; fiat does. Therefore, Steem resources retain their value intrinsically, so hyperinflated fiat will keep falling in value to valuable, scarce assets that are in demand.

In the new world of decentralized value, the ability to "print value" in the beginning becomes very useful. With the right approach, one can actually use the creation of value to a powerful advantage without causing chaos to the token economy itself. When Venezuela inflates its currency, it devalues it when Steem inflates the circulating supply it brings more value to the ecosystem via mass adoption.

"Why not use fiat?" - First off, the spirit of decentralization is vital. Also, using government-issued currencies means relying on centralized third-party payment processors, which is both costly and no censorship resistant. Crossing borders is also a massive headache and depending on the fiat currency used, exposed to the risk of inflation and other government malarkey.

"How does a Utility Token increase in value?" - Just like in the examples with the can of Coke-Cola and Putt-Putt Golf, the value stays fixed while the currency fluctuates around the token, not the other way around.

The vision is in the future people won't know they are even using a token. Like Mike, Novogratz said with "DUber" (decentralized Uber): "Customers will look down on their phone, and it will say two prices, one will say: save 20% now - they will click that it will automatically convert their fiat to DUber Tokens." It will be frictionless, and people will not even realize they are using crypto at all. Then drivers would be incentivized to hodl DUber tokens, become speculators in the business they work in. Even customers who are investor savvy will start hodling DUber Tokens in speculation the ecosystem will grow.

With a custom Utility Token explicitly designed for a project, having custom control over the number of tokens in existence, inflation, built-in smart contracts, and governance structure in the future. For example, Bitcoin is scarce because only 21 million can ever be created, thus when demand is high, the price increases. If there were 21 trillion bitcoins, the price would not increase as much because the supply is so overwhelming.

Another situation of customizing a tokens economy we will look at Steem as an example: SteemPower needs to be locked up for a period is an excellent example of a decreasing supply vs. demand perk. With great minds comes great token economies which are vital for the longevity of the project. Let's not forget, a powerful driving force behind Bitcoins movement is the fact it is a deflationary currency and store of value, store of values needs to go up in price or remain at least stable in the long run for this experiment to be considered successful.

"What about the token velocity issue?" - To Quota Vitalk Buterin (https://bit.ly/2gXcYhh
): > "The market cap of an appcoin depends crucially on the holding time H [which is inversely related to velocity]. If someone creates a very efficient exchange, which allows users to purchase an appcoin in real-time and then immediately uses it in the application, then allowing sellers to cash out immediately, then the market cap would drop precipitously… Protocol tokens using this model may well be sustained for some time due to irrationality and temporary equilibria where the implicit cost of holding them is zero, but it is the kind of model which always has an unavoidable risk of collapsing at any time."

To avoid the velocity problem, tokens must have a way of being locked up. People need to purchase Utility Tokens because the utility is valuable to them. A token simply can't be like flowing water. If the token is treated like a hot potato, and no one really wants it, then the velocity problem will win out in the end. But in the case of a token like Steem, where the token is actually used similar to virtual real estate and is locked up so that businesses can and built on top of the Steem blockchain. This is a great way to stop velocity in its tracks.

I really like how Steem handles velocity, where people power up their Steem and lock it away. With natural dynamics and artificially created incentives, projects can find ways to reduce velocity significantly.