"Current institutions within state finance dictate the rate at which monies created."
What happened yesterday!?
Yesterday I posted about a potential reversal on the STEEM charts, and by the end of the day we had returned back to our lengthy downtrend. Despite everything I had mentioned and, the introduction of some extremely fundamental changes to both the platform of Steemit and the infrastructure it's built, the price has continued to decline.
There's one reason for why it didn't retrace and I believe that reason is Inflation.
Today I will attempt to school you guys on what inflation is, why it's the problem, and how it can be fixed.
Inflation
If you're not economically savvy, then let me break it down for you in laymen terms.
Just as a basket ball inflates over time with air, a currency also inflates over time with its creation. As a money supply is created to keep up with the rate of demand, the supply over all becomes much larger and therefore more accessible. The more accessible a currency is, the more easily it can be bought & sold. If a currency is being created at a far greater rate than which it's being sold, then that currency depreciates in value.
When it comes to debt based economics, a currency is based on the idea that it's worth something at the point of sale. This means that it's a derivative because its actual value is derived from something else. To put that in a more easier to understand way, STEEM is only worth what it's valued on the market at the time of sale. There is no fixed value to STEEM, which is the case with all derivatives. It fluctuates over time and that fluctuation of price is dependent on what its market is doing.
Right now the current market sentiment is this: There are many more people selling STEEM than there are people buying it, and that's because there's a lot more STEEM to be sold and very little incentive for it to be bought.
In recent changes we've since seen a change in rewards which has resulted in an increase of STEEM being created and a decrease in Steem Backed Dollars being created. This is, in my opinion, was a bad decision. By increasing the creation of STEEM, you potentially increase inflation. As of right now there is over 1 Million STEEM up for sale on the markets that trade STEEM, and as rewards are continuously given to content creators, the amount of STEEM being sold increases.
This is a classic example of why inflation needs to be managed. Supply & demand is a fundamental aspect of economics. If there's too much supply, then there is little demand and that supply becomes worth less. So, just like the basket ball, if you inflate it too much it will eventually explode and become worthless.
Disinflation
When it comes to economic stability, current institutions within state finance dictate the rate at which monies created. Federal banks decide announce different policies throughout the year to slow inflation & deflation within the market. This is called a Disinflation method. There are many ways that banks choose to stabilize their currencies, and each policy has its own purpose.
When it comes to excessive inflation, the result is a deflation in price. In a debt based economy, taxation is created to decrease excessive inflation by insuring there's a continuous revenue stream. A revenue stream is essential in keeping a currency afloat as it creates a perpetual supply of income. If a currency does not have a guaranteed value then it's value is based entirely off of speculation, which is what we see with STEEM.
STEEM currently has a yearly inflation rate of 100%. Because STEEM is doubling annually, the selling of STEEM would also need to double annually. STEEM relies on investors to keep it afloat. Technologically it's a good investment, however because the rate at which Vests are created & sold far exceeds the rate at which they're being purchased, the value of its Vests eventually become worthless.
My Proposal
The solution to this problem is obviously to decrease the rate at which STEEM is being created. However, by simply decreasing the creation rate you're only patching the problem for a limited time. If we only decrease the rate at which STEEM is made, we will eventually face the same issue because supply is still increasing.
I propose that we introduce a taxation on rewards & an annual share of dividends.
By introducing a taxation method we can in turn recirculate the supply of STEEM and decrease the rate at which it's being created. This reduces the amount of STEEM that can be bought & sold and increases demand, therefore increasing the value of STEEM. And, because the underlying technology of STEEM has intrinsic value, keeping STEEM within its own economy and off of the markets, introduces a revenue stream whereby the economy pays for itself.
Eventually though, with this taxation method, you will face an excess of supply within the economy just as you did on the market. I propose that that by introducing a dividends for Steem Power holders we can distribute that excess among our investors, easing inflation even more and creating an incentive for investors to buy STEEM. By creating a real incentive for investors, you create an actual revenue stream which is not based off of speculation. Banks pay dividends to their customers for the exact same reasons. Because we operate without transaction fees, there is no revenue stream. If we create incentive for investors and a reason for Vest holders to retain their Vests, we will not only decrease the amount of STEEM being sold, but we will also increase the amount of STEEM being purchased, which increases the value of STEEM on the market.
These are simple fixes, and obvious ones. If you have other ideas or would like to propose your own solutions to the problem, please do. With recent changes, witnesses can now vote to introduce new proposals on the Blockchain. We as a community can help Steem & Steemit by introducing proposals of our own for which they can vote on.
Thank you for reading.
I want the price of steem to keep falling for at least 2 more months, because I am powering up steem everyday for 2 months, I had to wait patiently for 3 months for steem to come back down to these prices, and it needs to stay low and keep going lower, I would power up $5000 worth of steem at 1 cent steem, the inflation rate of steem and those powering down is perfect.
That's one way of looking at it. I'm doing the same as it drops. Cheap investment which could one day compete with Microsofts database technology. I think what we have here is great, but our currency and its economy need some changes if they're going to be viable in the future.
I want to buy as much as I can before they start adjusting the inflation rate a few months from now, it will be nice when witness can simply make an adjustment to the inflation rate and raise the price of steem, then readjust it to push the price back down again, the power of community driven transparent market manipulation
Market manipulation is illegal.
LOL!!
So would you say right now it's best to hold onto steem or power up?
I like your ideas, To be honest I don't fully understand it 100% But I think I understand the basic idea.
I still continue to power up what I can because I feel this platform has a chance. I know the creators are working hard, But sometimes coming up with a workable system can be hard. So they gotta bend and change things. Hopefully things will get better soon! I'm hoping when the Steemit competitors come in, Those competators will increase the traffic to Steemit.
Everything here works, it's just the underlying economics that need adjusting otherwise the currency becomes unstable.
I am also looking forward to competition. It'll definitely light some fires under the seats of our developers. We'll see a lot more frequent changes when there's competition in the game.
STEEM is designed to be inflationary. That's how the system can pay rewards - basically an inflation "tax", similar to how governments finance deficits in the fiat economy. Within the Steemit economy, holders of the token are somewhat protected from inflation if the STEEM is "powered up" or converted to the pegged STEEM dollar. Anyone holding the native STEEM token as a store of value will be disappointed.
There is no inflation tax. It's 100% inflationary with no disinflation method in place. That's unstable in the long run and as we're seeing right now, creates unwarranted sell pressure. The currency will tank if a) inflation is not slowed, & b) a fixed revenue stream is introduced.
Currency faces downward price pressure if holders of liquid STEEM sell for fiat rather than power up. That's not a flaw in the system, it's a feature.
Yes, and without incentive to hold said STEEM they will keep selling it for a profit. That's why the creation rate needs to be slowed or controlled. STEEM needs to be kept within its economy.
The reason why Steemit is falling is obvious. Corruption - just like every other website - Facebook / Twitter, etc. It was just a chance that this sort of corruption didn't reach this (blockchain) market, and it already had. This is why all the devs and whales have bailed on this site - they are corrupt individuals sad to say. I personally REALLY hoped humanity would have proved to be better, but Steemit will go down as something to prove to everyone where we all truly are, and it's not what we hoped it would be - as far as Steemit. If anything, it'll teach us a lesson and hopefully new tech will route out these kind of scumbags.
There's nothing corrupt about capitalizing on something. They haven't bailed either, they're still creating changes for the platform as we speak. They just need to create better economic policy because right now it's fucked.
I don't personally believe the corruption has to do with making money, at all. It has to do with how millions of people are effected within that process. It's a butterfly effect - so people need to be careful on all extents. Steemit needs to go beyond and do what will make things right, like you have said their economic policies are truly fucked. So, until then it's not going to be perfect.
I still don't see what corruption you're talking about... If anything it's just poor management when it comes to economy policy. It's not hard to fix, they just need to agree on something, which will happen. Throwing out terms like corruption are serious accusations. I hope you have the evidence to back whatever this corruption is that you're talking about... If you're talking about pre-mining, that's a whole other story but it's not corruption.
Don't worry, buddy. Mark my words...Karma always has a way of getting back at people with selfish motives, either through personal finances, relationships, health or personal tragedy.
Indeed it does.
i just wish wonka would just talk to whoever's in charge...
unless their strategy is just to bail w/ as much money as possible -___-
Time will tell what their true intentions are.
The steem white paper says steem inflation is 10 fold every 3yrs, at which point there is a 1:10 reverse split. That is close to 1% daily inflation
A bit more than 1%. Pretty silly really.
Nice - instead of unnatural, very large inflation, which makes people nervous, call it a dividend, and claw some back for redistribution. Love it!
.. if I understand correctly ;-)
Exactly right. Create incentive for investors and a way to recirculate currency within the economy, instead of creating lots of STEEM for people to throw away. Annual dividends create long term incentive for investors.
Who are the investors anyway? Are those the one that invest money or also the content producers?
Both. Anyone that has is is going to have STEEM. We need methods that make them want to leave that STEEM on the platform.
Ummm you want to tax what exactly?
Potential rewards. I thought I made that clear. I guess not.
So if I make 100 in rewards you want me to tax that I.e. By 20% and pay this to vests?
How are we going to get money for the rewards in the first place?
STEEM is created to provide those rewards. If you taxed that STEEM at a fixed rate, STEEM that's crewated would go back in to the economy to be redistributed, instead of being sold on the market repetitively.
K. But that would still create inflation as we cannot tax at the rate of currency creation?
I don't see how this would change anything?
The point of creation is when a piece of content is rewarded... It would limit supply on the market which would lessen the amount being sold, and it decreases the overall amount being created by being able to recirculate it, like a bank does.
great idea .. cool presentation!
Interesting......
Did you read all of that in 2 minutes... What a speed demon you are!
I got right to your solution (proposal) in 2 minutes!
I hope you are right. I know very little about crypto or the mechanics of Steemit.
I hope if you are right that someone in charge is listening ☆☆☆☆☆
How about incorporating a secondary long term power-up investment option that will return a larger interest rate? For example with a longer power down period but offers higher interest for holding?
Nope, because the interest rate of STEEM is already a problem. Increasing it would increase the problem.
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Interesting your article.
http://moborate.blogspot.com
Shamelessly plugging your blog on my post, especially when it's completely irrelevant to my article, is lame. You should be ashamed of yourself.