For as long as there has been crypto, people have been asking . . . Where does the money come from?
This is meant to be a simple concept guide only.
When enough people decide something has value or is trade-able, people begin buying and trading it. When you purchase something you give it a value. If I buy Steem for a $1.21 I have reaffirmed the value of Steem is $1.21, at least it is worth that to me. When enough people think it is worth $100, it will be worth $100, because that is what they will be willing to pay for it.
Why would someone buy a digital token? One common reason is "As an Investment". I am going to buy it at $1.21, because I think in some time frame that is acceptable to me it will be worth more than $1.21. When you take Fiat and put it into crypto and buy and sell the crypto, you are monetizing it, which is just another way to say, you are exchanging the tokens for a currency that has monetary value.
Each day the blockchain creates and distributes new Steem with the help of our posts and our votes.
When you vote on a post in a way you are creating new Steem and SBD. Today's reward pool is roughly $605,200 according to @banjo. The reward pool is distributed by votes. The value of my vote is based directly on the amount of Steem Power I hold. If I hold a lot of Steem Power I get to have a greater say in the distribution of today's reward pool. If I hold less, I get to distribute less of the new Steem the blockchain created. As I read through the posts, when I click upvote I am saying, I want to give some of the new Steem to this Author. Depending on the power and number of votes the blockchain calculates the value of each post. Down-votes or flags subtract from the amount allocated to each post and upvotes raise the value.
After 7 days the Steem Power and SBDs earned from the post goes into your wallet where you decide if you want to keep it, spend it or sell it. If you decide to sell it, you will have to decide what is the amount you will accept for the Steem. You enter that information on the exchange and when someone is willing to pay the amount you set for your Steem, the value of Steem has once again been set.
Generally speaking if no one wants to purchase or trade Steem the value goes down. The more people who want to buy it the value goes up. Since we create new Steem each day, it is important to create demand for Steem and SBD.
If there are no buyers for Steem and SBD the value goes down.
I am always looking for simple conceptual ways to describe SteemIt and Steem to people. Questions, Thoughts, Feedback.. I would love to hear them in the comments.
@whatsup
I get asked this all the time too. It kind of surprises me that people can't figure it out. How does anything have a value? The most basic supply and demand princable that applies to everything lol
What confuses people is that other things have real value. You can actually eat an apple. You can drive a car. So, they expect cryptos to have such a basis for their value.
Except that currencies, in general (not only cryptos), don't have such a root value. To explain that to people, I usually use the $ Dollar example. I ask them where does the dollar get its value. Suddenly, they realize that not every thing needs a root value.
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I am always surprised that most people do not understand supply and demand at all.
It's funny how people ask where the money is coming from concerning something new as crypto currencies, while they don't question the current monetary system whatsoever... While in fact the crypto has more value, being backed up by technology, compared to most fiat currency which haven't gotten a single thing backing it up... poof, out of thin air...
Central bankers have good reason to be scared of decentralized blockchains.
I even catch myself doing that. I totally understand your point though.
This is a great post. I posted on a similar topic in which I was attempting to work out if we are truly generating wealth here on Steemit or just all spending someone else's money! Anyway your post helps to clarify and confirm a few things for me in relation to crypotcurrency, so thank you for that. I have also resteemed.
I am happy to hear it was helpful! I will check out your post.
@whatsup - Very valuable content Ma'm. It looks like we are minning steem. Love your work Ma'm. Therefore, I wish to ReSteem your post.
+W+ [UpVoted & ReSteemed]
@whatsup,
First I want to tell you "THANK YOU", because this article helped me to come out of a deep deep trouble :D
When I am spreading the name of STEEM and STEEMIT to my friends and family the main problem or the question of them is "Who pays us? Where this money came from?" So I gave them lots of answers coz I had no idea WTH is going on :D
Now you give me a simple, but well explained answer for that FAQ :D This is a greatest help for me and I am really appreciate your effort to share this experience with us! I assure you most of people don't know what is actually happening there! So I think I wish to resteem your post as TGA's (theguasia's) daily resteem!
Thank you very much for sharing such useful article with us!
Have a nice day for you!
Cheers~
Great intro to where money comes from. I've been thinking and studying for a long time a few questions. "What is money?" "Who creates it?" Adam Smith was the worst thing to happen to this world in terms of money. It's been way too long since this "Father" of Economics and his ideas surrounding money have been circulating the globe, polluting our understanding of money.
Great information and steemit update. very useful. thanks @whatsup
have a great day.
100% like andresteem
i have been wanting to know all this thanks :)
Now you give me a simple, but well explained answer for that FAQ :D This is a greatest help for me and I am really appreciate your effort to share this experience with us! I assure you most of people don't know what is actually happening there!!!!!!!!!!!!
This is the one question that stifles most new and even not-so-new people here. When I first came here, I thought this was just a pay-to-view kind of thing, just with cryptocurrency.
When I realised that even curation and comments earned money, I won't lie, I did think that this was a scam. One of the other things I thought was that they were spending venture capital to attract new people.
When I realised how it all works, only then was I ready to join the site. IMO, this should be one of the topmost answered questions in the FAQ. Otherwise people are just going glance through it, misunderstand the system, and yell to the world that Steemit is a scam.
Hi @whatsup, I just stopped back to let you know your post was one of my favourite reads and I included it in my Steemit Ramble. You can read what I wrote about your post here.
If you’d like to nominate someone’s post just visit the Steemit Ramble Discord
Value is an oddly abstract concept. We think of value as concrete. A dollar is a dollar. It buys you a dollar worth of goods. But when we realize that value can fluctuate (even though it does so in the case of a "dollar"), and that simply voting on value makes a difference, it suddenly becomes difficult to understand.
Very important information. Do you know whether there is an increase in demand for steem now?
I just went and looked and the current demand has the price at $1.21 :)
It should try to go up more than this.
Thank you for the good explanation!:)
What did your parents name me?
I guess they named you @banjo
You are not very smart.
lol, rude
You forgot my name for the fifth time in a row.
This post has received a 10.57 % upvote from @booster thanks to: @whatsup.
amigo #resteemia at your service
very useful information & actually i didn't know it till i read this post. impressive work @whatsup
ReSteemia
'UpVote ReSteem Comment'
If Africa could have more knowledge about investment in cryptocurrency i believe this could yield positive results.
Now that was a great informative article oh how does things work out great to see how things work the money flows in and out thanks for sharing you knowledge on this :)
yeah explained it pretty detailed and as long as there are buyers and sellers we can go up(Steem) ,and as for the popularity and use of Steemit everyday the community is going at large ,Seems like pretty soon we will Go higher with the value of Steem :)
Muy buen ejemplo me agrado así es antes era valorado todo en base a la necesidad o urgencia de la gente.