Great article. I have a few considerations here, and please point out any concepts I missed in your article, because you provided a lot of good information.
The first thing I want to mention is that I don't believe the creators ever intended SMD to be used as a general purpose currency. It was strictly just supposed to be "influence" and "power" on the platform. I remember Ned and Dan talking about this one one interview they conducted. They explicitly stated that this was something new and different. Their hypothesis was that value for Steem could be created by enlarging the community around the coin and platform.
This also answers your question about how the platform creates demand for Steem. Apparently, demand is created as a result of people seeing value in the currency for various reasons. Someone mentioned that some companies would want to buy Steem power just for the purposes of promoting certain articles or pieces of content, and Ned mentioned that they have already been asked how to go about doing this.
However, in one of the comments below, you do say that an advertising function could be given to the authors to promote their material. I am certainly not against this idea, and that could come in handy. The creators did say that they expect a lot of different businesses to be built on top of Steem since it is open source.
Again, good job on the analysis, because I share many of your concerns, but perhaps I am just more optimistic. But even if it fails, this idea will eventually be perfected, as I am sure you agree.
In my mind, this suggests that there are a lot of ways, many of which have not been imagined yet, for continuing to add value to Steem as a cryptotoken.
Thanks for the read Sterlin.
"The first thing I want to mention is that I don't believe the creators ever intended SMD to be used as a general purpose currency."
Many that I have interacted with have argued that this is the goal and one of the prospects for long term growth and sustainability. Dan has intimated as much by talking about SMDs being used on markets to exchange for goods. Here is one example:
https://steemit.com/steem/@dan/steemit-s-evil-plan-for-cryptocurrency-world-domination
"It was strictly just supposed to be 'influence' and 'power' on the platform."
Well vests, i.e., "steem power," are strictly for platform power and cannot be traded or used as currency. SMDs are pegged to the US dollar to promote their use as a stable currency.
"Apparently, demand is created as a result of people seeing value in the currency for various reasons."
Sure, steem generates demand based on investment prospects and the unique utility of the platform (and I'm sure for other smaller reasons). But to continue reward payouts there needs to be a reason for a broader user base to buy in, otherwise the steem inflation will drive the price down. For the average person buying steem now and powering up that translates into basically no voting power. So where will the new investment come from?
I think integrating advertising could provide one major answer to sustainability. I'm sure it's being worked on.
"But even if it fails, this idea will eventually be perfected, as I am sure you agree."
I do!
"In my mind, this suggests that there are a lot of ways, many of which have not been imaged yet, for continuing to add value to Steem as a crypto-token."
It's possible, yes. The platform has potential if the problems can be overcome, and with a strong community that becomes more likely.
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This is one interesting point you made, which I think should be discussed heavily:
"Sure, steem generates demand based on investment prospects and the unique utility of the platform (and I'm sure for other smaller reasons). But to continue reward payouts there needs to be a reason for a broader user base to buy in, otherwise the steem inflation will drive the price down. For the average person buying steem now and powering up that translates into basically no voting power. So where will the new investment come from?"
My question is this first, is speculation and investment the same thing to you?
Also, Steem inflation is supposed to be counterbalanced by the fact that most Steem is locked up as vests, plus the fact that dilution from SP holders also goes into payment of rewards, or can be calculated that way.
What do you think? You are much better at the number crunching part of this than I am.
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I think one of the ideas the founders are working with here is that people involved in using the currency and seeing value in it subjectively, is what is supposed to keep it afloat. In this regard, investments are not inherently required.
Tell me if I am missing something.
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"seeing value in it subjectively, is what is supposed to keep it afloat"
I think they need a more concrete reason than that. I agree of course that value is subjective. I mean, look at Dogecoin. I think it was started as a joke. But it's still going because people just think it's funny. Humans will value things for an unlimited number of reasons.
For steem though people are treating it as a potential social media game changer. We should be able to identify reasons that people value the currency.
I do think a major part of that is speculation/investment. People are expecting the market cap to increase.
Another part is the utility you get out of using the platform because it's so unique.
"investments are not inherently required"
Not inherently no but I think that's what got the ball rolling. Someone had to start trading bitcoin or whatever for steem in order to give it a price. I think a lot of that was from speculators. So if their future expectations are not met in the form of an increased market cap they might bail.
People also put money into the currency because of the utility it allows in using the platform. As I argued above for various reasons I don't think this will be sufficient to sustain payouts.
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