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RE: Steemit's Biggest Investment Problem - The Cost/Benefit Analysis Reward Curve
The entire reward fund is currently about $25K per day. Assuming a completely flat system (which this isn't, for good reasons), someone with 0.01% influence would have about $2.50 to dispense, spread across 40 full power votes. Now at current prices 0.01% ownership is about $8000. So, no, it isn't terribly realistic (nor will it ever be) for small SP holders to expect to be giving away money like Halloween candy. This will flatten out a bit as the largest SP holders continue to power down, but realistically "voting" means your vote gets counted along with other voters and that (and not your vote alone) is what allocates rewards.
The numbers you provided are very helpful. Thank you. It is a good frame of reference to understand the (estimated) influence associated with a particular sized investment.
The point you brought up is a really good one too, in that one should not expect to have much influence with a small amount of SP, based on the total vested amount across all users, and the size of the reward pool.
I do think that makes the case for my suggestion though, in that users need more reasons besides "influence" (and price speculation) to power up a small to medium sized amount of SP. If $500 worth of SP buys you so little influence, then why not keep the 500 bucks instead of powering it up?
The main reason to buy SP is that you expect it to go up in value (longer term). The rough analogy is SP being similar to buying a stock. When you buy stock you get to participate in shareholder votes, and you might also get other benefits (for example some companies offer discounts to shareholders). But the main reason you buy the stock is because you think it will go up in value.
In the stock example, if you were to hypothetically buy 100% of the stock of the company - you would own the company. Assuming it was making a profit, all of the profit would be yours. Even if nobody else wanted to buy any of your shares, you would still own the company and be entitled to all the profit.
The difference with Steem is that regardless of how many 'shares' you own, if there is nobody to buy those shares from you, there is no intrinsic value behind them. You don't really own anything that is making a 'profit' besides the coins themselves.
As long as there is a buyer for every seller though, then the currency has value. Arguing the other side - one big thing that makes Steem different than shares of a company, is that it can also be used as a currency - similar to Bitcoin, and currencies have value. As the currency is accepted by more people, they are assigning value to it. By accepting it as a form of payment, they are essentially willing to 'buy' the coin - in exchange for whatever goods and services they are willing to provide in exchange. This basically ensures that there will be a buyer for every seller - which is a good thing for the coin.
The responses I have gotten from this post (including yours) have been interesting. There have been lots of people arguing for changes in the payout formula (which I am fairly strongly opposed to). Pretty much everyone who has provided a reason to buy Steem is saying the same thing as you. You buy it because you expect the price to go up. That seems to be the main argument in favor of buying Steem.
There are going to be speculative investors. There are going to be marketplaces opening up that will accept Steem/SBD. Both of these things will add value to the Steem coin. That is a given.
There is potential to do so much more though!
Assuming Steem/it takes off and becomes as big as everyone hopes/thinks it will, there are going to be millions of excited users. Some of these users (I would argue a small amount) will invest in Steem because they see it is a good investment. There are not that many "investing" type users though.
On the other hand, tons of people dump $20, $50, $100 into all kinds of online games that they play (Candy Crush, Pokemon, etc.). Steemit is a game. If there is enough of a motivation to "play", and advance by paying a bit out of their pocket - a lot of users will happily "invest" in order to advance in the game.
With the right incentives (outside of the payout/influence formula) to power up and earn/buy more SP, we will tap into what I believe is Steem/it's biggest potential investing market - its millions of active and excited users who want to play and win the game.
I actually came here with an upper 5 figure amount to invest, but .. As you can see by the comments of the community as a whole and whale comments here. I am just not sure how or why anyone would invest. I tried to help some friends sign up today, when there were problems, I looked for help..... I don't know what to say, but
Well, in my personal opinion I do feel that Steem/it is a good long term investment.
There is a lot of potential here, and I think the owners + developers are doing things right and taking the site/community in the right direction. I've interacted with Dan/Ned/the dev team regarding the wish list, and I think everybody is on the same page as far as where we want the site to go.
People/investors need to understand that this is a long-term project, and what you see today is not the final product. They are going to make significant improvements, fix most of the issues that people have with the site today, and add a lot of new features.
In this post that I wrote on the price of Steem, I talk about the fact that the site is not setup for minnows right now. They had their "whale" recruitment, where the initial round of investors/miners got in very early. Right now, they are in their "dolphin" recruiting phase. It does suck for minnows, and I believe that minnows will be the most important demographic for the site - but at the moment, minnows are not the focus. Dolphins are. They do plan to make the site way more minnow friendly, but that is not the focus of today.
I think the main two things you need to look at regarding potentially buying in (especially in a large amount) are:
Obviously you need to make the right decision for you, and Steem/it is a risky investment. I would not recommend investing anything that you wouldn't be comfortable loosing.
If you are comfortable with the risk though, and you believe in the potential Steem/it has, then there are good reasons in favor of investing.
SP can't be used as a currency, for obvious reasons, and, really, STEEM can't be a very good one either (due to the very high inflation rate).
So it has to stand as a sort of "stock" (obviously not a literal equivalence). You make good point about not making a profit, and indeed this is one of the real problems that some investors have with buying into STEEM/SP.
If it can't be used as a currency, and it doesn't make a profit, then why should you buy it? If you figure that out, please let investors know because most can't come up with a good reason (beyond selling to a "greater fool").
Exactly! That is the sentiment of most potential investors right now.
I do feel that there is legitimate potential for speculative investors to make money by investing in Steem/SP. Most likely (in my non-professional opinion), the price of Steem will go up if/when the site moves out of beta and (hopefully) becomes more mainstream.
At some point though it will reach a point where there are no more speculative buyers left to push the price higher. Ideally it could reach an equilibrium where the price remains stable enough for the SP holders to beat out the inflation with the SP interest. This I think is the best argument in favor of "speculative" buying.
There are two potential game changers that Steem/it could implement - which would add significant value to the investment. One would be to tap into the "game" portion of the site, and hopefully get millions of people to power up (mostly in small amounts). The other way would be to find some way to commercialize on Steem/it in some way, such that the holders of SP would have the potential to be making some type of profit.