This was basically a question that @lovewild asked of me and I thought it was such a good question that I felt my response was worthy of an independent post on the subject so that I could share it with more Steemers.
My disclaimer: I'm not an expert and the information I am about to share is my honest, humble opinion on how things generally work when it comes to Steemit and other crypto-coins, from my perspective. My goal is to break this down into terms that will provide you with a very basic understanding. If anyone else reads this and can offer a more accurate accounting of the inner workings, by all means, please correct me and share what you know so that we can all learn together. My intent is not to spread dis-information but to help people understand how it works and then give them easy language so that they can teach others, if they so choose.
First of all, you must understand that we aren't talking about money. In my mind, the only true "money" is physical gold, silver and various other precious metals that have multiple industrial uses. True money is a physical object that you can hold in your hand and it has a value that is worth more than paper because of it's other uses...like in industry, technology and applications in health, for example.
"Currency" is completely different. Currency is a name we give to fiat paper bank notes that get referred to as dollar bills. Currency also includes all the different banks' fiat digital vehicles that they use to account for and track the value that is assigned to your bank accounts. Paper, as a commodity itself, is worth a very small value that is relatively the same from one piece of it to the next. Basically, as long as a piece of paper is roughly the same size and thickness, it has the same intrinsic value or worth. When a bank, like the "Federal Reserve" prints on a piece of it, they get to determine what value they assign to it and the general population of the planet, goes along with their decision and agrees to recognize the value that was assigned to it. The Federal Reserve also gets to print more paper bank notes whenever they "justify" that they have a need to. By adding more volume of currency to this fiat system, the Federal Reserve is making the perceived value of their bank notes less valuable because they aren't rare. (That's called inflation.) This fiat system hinges on perpetual growth which isn't sustainable. When there isn't growth, the Federal Reserve justifies printing more bank notes to prop up the economy. (It's a diseased system and it's hard to even believe that the general population agrees to participate in it.)
Currency is meant to flow, from one person or corporation to another person or corporation. It's also meant to flow from one country to another country. This is why it is called currency. It has been designed to fluctuate and move. This makes it volatile and forever changing in value based only on its perceived value which is tied to the amount of debt that has been incurred against it and how many pieces of it are in general circulation at any given time.
Perceived value is a funny emotion to describe but it's a very real thing.
Take a baseball for example, we generally can all agree that a brand new baseball has an assigned retail value of approximately $10. Now, take that $10 baseball and add Babe Ruth's authentic signature to it. The baseball is still really only worth $10. The only change to it, is some additional ink, but now that same baseball has a perceived value of $100,000. This is mainly due to the fact that it is extremely rare and it is sought after by collectors or a group of folks who all have a very strong desire to purchase it and own it.
(The picture of the baseball was sourced from the web and marked for re-use. I do not own an autographed "Babe Ruth" ball.)
Just like fiat currency, Steem and each individual crypto-currency have a perceived starting value that has been assigned to it. As more people become interested in crypto-coins as an alternative currency, the perceived value of each individual type of cypto-coin increases. (Some faster than others, I might add.) There is also a set number of coins available for any one particular coin, so as each type of coin gets purchased or mined, they become rarer and their perceived value increases, too. This is due to the fact that there is a set number of each coin in circulation with a cap. Once the cap is reached for each type of crypto-coin, no more will be generated or made.
In my mind, I understand that crypto-currencies and fiat currencies share a commonality between them.
They both share a set starting value and their value fluctuates as their perceived value changes.
Crypto-currencies are different than fiat currency in that they are also companies that offer services for sale and they build blocks of information on the internet called blockchains. It is through the building of the blockchain that coins are made by the respective blockchain that each cypto-currency company is building. The value of each of those crypto-coins rise and fall depending on their perceived value at any given time and they can be traded on exchanges just like any other commodity can. People make more currency when a coin's value increases and they lose currency when the value of the coin decreases. Some people are only interested in the currency that can be acquired by purchasing coins when their value is low and selling them when their value is higher. This is what crypto-coin traders do and how they accumulate currency.
Here's my understanding of how the building of a block chain works: each piece of information that gets added to a block is verified and added to a general ledger so that the transaction is fully transparent and can be viewed. This verification process is performed by folks who are typically called or referred to as miners. Once they verify a certain amount of pieces of information and register it as such, a block is completed and added to the main block. All this information gets linked together and that's why it's called a blockchain. The miners, then receive payment for their service in the form of a coin or multiple coins. It is the individual blockchains that produce and pay-out coins to the folks who have chosen to do this verification work. In Steemit's case, we call the folks who verify the Steemit Blockchain, "witnesses" instead of miners and our witnesses are people who have been voted into their position by the Steemit community at large. There are only so many witness positions available and they are also sought after and Steemers compete for the chance to be witnesses.
It is my understanding that with Bitcoin, anyone can decide to mine bitcoin but it is really expensive to run the software and the number of dedicated computers needed to stay competitive in bitcoin mining because of the sheer number of people who are all trying to do it. Which translates to verifying the transactions that are occurring and build blocks of information. The miners with the fastest computers secure the coins that are produced by the blockchain as it grows because they can verify the transactions the quickest.
Steemit's situation is unique because we have bloggers who are creating information every minute of every day and each time any piece of information is posted whether it's a simple comment, a payout or a blog post, all of that has to be verified and add to Steemit's blockchain. Everyone who is part of this process ultimately receives a little piece of steem, for fulfilling their role in building Steemit's blockchain. Plus, you don't have to contribute any of your own currency to the system if you don't want to. You can earn Steem-coins by blogging, commenting and curating.
To recap, Steem-coins are a form of digital currency which can be traded and mined. The end result of the activities of trading or mining Steem-coins is where the currency comes from that fuels Steemit, pays everyone and keeps the system up and running. The number of Steem-coins that can be generated by Steemit is fixed and as such the value of Steem-coins will increase, over time as long as peoples' perceived value of what they can do with the coins stays intact.
I welcome your comments, (I think, please go easy on me. LOL!) and I invite you to follow me on my journey.
~ Rebecca Ryan
Thank you for the explaination. This does help! It is a pretty in depth topic. How does the bitcoins or Steem power turn in to currency or paper dollars? Sorry I just keep asking more questions!
That's actually the easiest part. On an exchange of your choice (like Poloniex or Bittrex) you can take your Steem, convert it to bitcoin and then covert that to whatever fiat currency that you want.
There are aslo credit card companies (like mastercard) that you can load your Steem or choice of cryptocoin onto. @thearcanebear posted this a few days ago: https://steemit.com/steemtofiat/@thearcanebear/how-to-spend-your-steem-although-we-dont-recommend-it
Then. when you are in a store, you just use your credit card.
Alternatively, there are companies that sell gift cards for bitcoin. In Canada, If you wanted to buy a giftcard for Costco, for example, you can buy a $1000 Costco card from https://coincards.ca/. They charge 5% per amount on the gift card as their handling fee. In this example, you'd pay a $50 fee and the $1000 card would costs you $1050.
@rebeccaryan I thought it was just magic internet money...
hahaa nice unicorn
Thanks, just got new rims put on it.
Hahaha! It feels like magic, the last 2 days!
Maybe it is! ; )
nice written article. anywhere i can find out quantity cap of steem or steem dollar?
Well, @syn999 I didn't know the answer to that myself so I did a quick google search and I found this site that shows the total supply of steem coins.
https://coinmarketcap.com/currencies/steem/
According to them it's 250,467,506.
Hopefully others will answer if they know for sure.
Thanks, but i am not sure if thats the total cap
It seems way to low to me...but I haven't had time to dig around and search for it.
Thank you @rebeccaryan for your great work! An exciting photo! Thank you for sharing!
Thanks @olga.maslievich!
Great article with an easy to follow explaination.
Thank you for your very clear explanation, it gives me more confidence as my husband gives the unsusal it isn't real but neither really is paper currency when you look at it as you have described and not many people have a lot of confidence in anything at the moment.
You are most welcome @houswhisper! I absolutely agree and that's the exact point I am trying to make. Paper and digital assests are very similar in that they are made out of next to nothing and have nothing backing them up really, accept their perceived value.
Thank you Rebecca
I am a little late to the discussion, but I wanted to add my voice of appreciation for all you try to do for us. While it is not too late to join the Steemit steamroller, for those of us who are just beginning. It seems like we are entering a race that has long since started, and well underway.
Feels like a panic to catch up. Ha
Loved your explanation of how Steemit works. Even more impressed with your knowledge of money, as opposed to currency. I think; hope that the flood gates of understanding our dilemma has been opened wide, so preparations can be made for the coming shock of the system.
You get a huge thumps up from your followers:
Thank you for caring enough.
Francis
Hi @francisk!
Thanks so much for taking the time to read and comment.
I just want to say that even I feel like there is somewhat of an urgency and like I got a late start, missing the first 5 months of Steemit history. I keep reminding myself that Steemit is still in beta format. The general masses don't even know that it exists yet and if they've even heard of bitcoin, they have no confidence in it because they don't know how blockchains work.
What I can do is bring new Steemers up to speed faster by teaching them how Steemit features work and what to do to leverage them.
We are all in this together and I want to see every single one of us fulfill our dreams and be able to truly live instead of being slaves to a broken system bogged down with nothing but debt. You'll get there and so will I. Along with anyone else who is willing to work a little bit and be patience for steem to grow in value. It's really just starting to take off. :)
It's comes from steemit community . Steemit is blockchain and have plants for generation of Steem coin.
Thanks for commenting and reading @how2steemit!
Ultimately the currency does come (eventually) from the efforts of everyone doing their part in the Steemit community. :)
yo're right.
Thank you! It is really interesting and useful information!
You're most welcome!
Good read, and well explained.
Thank you very much!
Great explanation. Thanks.
You are most welcome!
followed
Thank you and Welcome @versonika! I have followed you back.
You seem to have a very good grasp of the situation. Well done!
@andrarchy also did a series of videos about money which were excellent and @lovewild might also benefit from the edited version of Dan Larimer's interview where he touched on this subject.
Thank you very much. I upvoted this when you posted it and have watched it. I respect @dantheman very much and think that he has a brilliant mind. I pinch myself everyday because I feel exceptionally lucky to be an early adopter of Steemit AND one who has stuck it out and survived. 8 months ago, I knew nothing about crytptocurrencies other than I could tell you that I had heard about Bitcoin and Dogecoin and that was only because Dogecoin managed to send a bobsledding team from !JAMAICA! (where there is no snow) to the Olympics. I thought, if they can do that, there is no stopping them. A month ago, I bought some Dogecoin for my coin portfolio.
Now, I have a question that I am hoping you might be able to answer. Do you know how many times a person has to use a new tag before it gets recognized by Steemit as an official tag?
Thanks for the nice reply! As per your question I know that I read something about that somewhere but I don't remember.
Thanks, I'll keep trying to track the info down on what it takes to create a new tag.
Very informative, thanks @rebeccaryan
You're welcome!
Here is a link to a great video that clearly explains what fiat currency is and where MONEY COMES FROM:
Everyone SHOULD watch this!
Thanks @happyme! I'll give it a watch.