Are we losing 10% of our money every year? I came across an article online that says that we are. It really struck my curiosity so I felt like I had to post about it.
While perusing the interwebs I came across this article which has me somewhat concerned.
Now I don't know much about steem dilution because I've only really been into steemit for about a month or two but this article seems to state that we lose money every year just by having invested it in Steem or in Steem Power.
These are direct quotes taken from the article: Note that I did not write these, they are taken from the article written by Anthony Akentiev on www.medium.com
Profit for investor?
Q1: Ok, if I buy 1000 STEEM (for $200 dollars in the beginning) and just sit and wait for 2 year — what profit will i get?
A1: In the long run you will lose your money. 1000 STEEM will cost $50 dollars after 2 years in the free market without speculations. However, that doesn’t mean that in the short term in the real market (with speculations) you can get huge profits.
Q2: Ok, if I invest 1000 STEEM ($200 in the beginning) and convert it to Steem Power and then just sit and wait for 2 years — what will i get?
A2: You will get back 4000 STEEMs back. But the value of this amount will be equal to $160, because of ~10% annual dilution. You loose $20 per each year.
Q3: But if STEEMs are diluted (100% each year) and STEEM Power is diluted too (10% each year) and I lost my time (2 years minimum to get my money back) what do I get?
A3: You get ability to vote (curate) and earn money by writing good contents.
Q4: Does that mean that if I don’t write or curate i can not earn anything just by holding STEEM or STEEM Power in the long run?
A4: Yes. If not taking into account short-term STEEM trading and market manipulation -> in the long run just holding STEEM or SP will let you lose your money.
I then began looking for more information about Steem dilution and found this article written nine months ago by @hisnameisollie: https://steemit.com/steem-help/@hisnameisolllie/accounting-in-steem-steem-dilution-why
Here is a paragraph from that article:
Note that this is a direct quote taken from the article written by @hisnameisollie, NOT something that I wrote myself
The Daily Dilution rate will fall day in day out until we hit 0.19% sometime towards the end of next year (It will continue to fall because the daily amount of Steem created remains static, but the Total Steem in Circulation increases each day). When we hit 0.19%, the number of Steem created per minute will begin to increase in Gross terms to keep the daily Dilution rate at 0.19%.
Now the first article claims that we lose 10% every year no matter what, so that it is impossible to invest and make money because you will constantly lose it.... and the second article is just downright hard to understand.
So are we losing 10% or 19% or are we gaining money by investing in Steem? What exactly is steem dilution?
Sources: medium.com and @hisnameisollie
Good and fair question. Here is your answer:
Go to https://steemit.com/faq.html
There you will find:
There could be another STEEM blockchain hard fort that changes this at some point.
Have a great weekend!
Steem on,
Mike
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
I will check out that link. Thanks for commenting.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Interesting post! Never thought about it that way.
Hmm...
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
A lot of the information out there is old because they are using old numbers prior to various hardforks. As of now the yearly inflation rate of STEEM is less than 10% and it will linearly decrease over the next 20 years until it reaches 1% per year (at which point it will remain at 1%). Your Steem Power will actually experience a slightly lower effective inflation rate because 15% of newly created STEEM is effectively distributed proportionally among the existing Steem Power. Calculating the exact inflation rate of Steem Power is a little difficult because it requires also knowing what fraction of STEEM is held as Steem Power versus liquid STEEM, but you can assume that its effective inflation rate will be at least 15% less than the inflation rate of STEEM.
If I am not mistaken, I believe the annual inflation rate for STEEM is currently 9.8% while the effective annual inflation rate for Steem Power (i.e. how the fraction of Steem Power relative to total STEEM supply decreases assuming passive investment) is approximately 7.7%. Keep in mind these are rough numbers and the effective annual inflation rate for Steem Power can change at any time depending on how much STEEM is powered up. Also, both inflation figures can be changed because of the effect converting printed Steem Dollars (SBD) can have on the supply of STEEM. This effect cannot be predicted because it requires making assumptions about the future price of STEEM and the future conversion behavior of users, and trying to model this is very difficult. The effect can either be negative (i.e. increasing the effective inflation rates, although only up to a limit since there are protections in place to break the SBD peg floor as a last resort to protect STEEM holders) or it can be positive (in fact two months ago this SBD conversion effect apparently caused a decrease in net STEEM supply despite new STEEM still being printed to be given out as content/curation rewards during that time). As a rule of thumb, I would just ignore the complicated SBD effects and just use the annual inflation rate number (the one that decreases linearly to 1% over the next 20 years) as a rough estimate of how much you might expect STEEM supply to grow by over the next several years.
Of course all of the above is just about monetary inflation (increase in STEEM supply) assuming passive investment, not price inflation which is what people really care about. If demand grows faster than supply inflation, then the price would still grow. You would have a smaller and smaller fraction of the overall pie (again assuming passive investment), but the pie would grow faster leading to an overall increase in the value of your holdings. Now, there are no guarantees about the future price of STEEM. However, if you speculate that the market cap is still highly undervalued relative to where you would expect it to be over the long term assuming continued growth of the user base (but also discounting for the risk that Steem will not be successful in achieving such a future of millions of active users), then you may possibly find that the growth potential in price is so high in these early stages to completely dwarf the relatively small yearly inflation of the STEEM supply. (By the way, this is not investment advice. It is up for you to do your homework and make that determination yourself.)
To provide some relevant context here, the annual inflation rate of BTC is currently 4% and the inflation rate of ETH is currently over 10% if I am not mistaken. So by the standards of the leading cryptocurrencies today, Steem's current inflation rate is not that bad and it will only get better over time. To be fair it is expected for the inflation rate of BTC to asymptotically approach 0% eventually (leading to a max supply), whereas after 20 years, Steem's inflation rate will remain at 1% indefinitely. This indefinite inflation rate is necessary because that is how new tokens are created and distributed to content creators and curators. Now I would say 1% is a small number, but it is still important to understand that it will effectively continue acting as a 1% yearly wealth tax on all STEEM in order to pay for the expenses of the blockchain (predominantly the content and curation rewards). This is the cost of using this decentralized social media platform that doesn't nickle-and-dime users with fees for each transaction and provides a source of revenue for content creators. Effectively, it acts as an indirect subscription fee in which users get to decide how much of a subscription fee they want to pay (but that amount also determines their influence in the platform via their vote weight, and therefore possibly affecting their earning potential, and possibly even affects their priority in being able to transact with the network in timely manner if their Steem Power holdings are very small that they get severely rate limited). I discussed this way of looking at the inflation in STEEM in a previous post of mine, but keep in mind that the content in that post is now old because it refers to the mechanisms and numbers that existed in Steem in its early days prior to the hardfork that radically changed the inflation model to what it is today.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Thanks that was a very helpful comment
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Great answer. Thanks for taking the time to post it. I must say it is all very complicated.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Glad you posted as I hadn't come across that before, lets see what the people that know have to say?
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
None of this is really surprising to me--of course there isn't any "free money"! But "losing x%" is not precisely how I think of it. If we're concerned about inflation, well, don't other cryptos all work in essentially the same way? Miners are constantly inflating anyway. And of course don't forget that fiat dollars are also being inflated at a rate higher than most will admit... :D
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
If you want to think it of a Ponzi scheme, its really not hard. But in that case all crypto would be. The idea that more new people infuse money and value into it and the people at the top take the profit only works if all the whales here take the steem and sell out. The powering down process makes it extremely difficult. If you look at a lot of altcoins they have no value other than what people are willing to pay for them. What they dont have is the value of content that SteemIt has. I have been thinking this through the last couple of weeks since i joined SteemIt. I am satisfied that there is value here and the more people are interested then the value will hold. There will continue to be value in the social community because people prefer to communicate this way now a days.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
I don't think of it as a Ponzi scheme and I definitely think that there is value here. I'm only curious about steem dilution which is a concept of which I've only recently become aware.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
I think the dilution is true only if the value for people purchasing it goes down. If there are people willing to buy it, because of the value, then the delusion of coins wont matter because the value will grow at a higher rate. Similar to what i wrote above i have been thinking about this a lot. That is my conclusion above. The ponzi scheme was mentioned in the article and i was thinking through the process and comparing it as well. It is an interesting subject but i think it is pretty comparable to most coins except that there might be a larger inflation rate here. Hopefully the growth of value covers that. The problem lies if inflation is more than the people are willing to purchase. Just my thoughts on the matter.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Good thoughts. Thanks for posting them.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Its a good post. Sorry if i rambled on and its unreadable. I am tired. I will wait a bit and resteem to get it out there.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit
Congratulations @jeezzle! You have completed some achievement on Steemit and have been rewarded with new badge(s) :
Click on any badge to view your own Board of Honnor on SteemitBoard.
For more information about SteemitBoard, click here
If you no longer want to receive notifications, reply to this comment with the word
STOPIf you want to support the SteemitBoard project, your upvote for this notification is welcome!
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit