Steemit's Inherent Flaw

One must ask the question. Whose money is funding this?

When you vote, curate, or submit a story. You are rewarded with money. Whose money? In a typical capitalist exchange, a customer pays a business or individual for providing a good or service. The question must then be asked, what service are we providing that we are receiving money, who is paying for it, and what value are they receiving in return? We as content providers, commenters, and curators are not the customers here. We are the ones providing a service. Yet, we are not providing a service to those who are also participating in that content.

So we must ask, what service are we actually providing, and who is actually paying us for it? Even though this site operates on the premise of being paid for providing content, that content in itself is not actually providing value in real dollars. There are no ads here, and we, the users, are not paying to access that content. So what are we actually being paid for? Because a crypto-currency by itself has no actual value unless people value holding it, and this is true for currency at large. Currency is only valuable if people value holding it. This has been true for every currency in history, if people did not think a currency would operate as a store of value, then they would be unwilling to hold it. To answer that question, I probably would not be the first to say, we are being paid in the hopes that we will hold SteemDollars and not sell them. If there is a low supply of sellers, it will make it easier for the currency to increase in value from speculative buyers.

However, most people here came out of a natural, rational, self interest to earn money that they can then put in their bank account, or use to buy things they need or want, or to invest. Only a handful of people are willing to take the long-term risk of holding the crypto-currency in the hopes of it appreciating over time. And why should they? For the time being, the dollar doesn't appear to be losing much value, and there is a much larger and more visible crypto-currency called Bit-coin that has attracted most of the speculative buyers. This unfortunately means that Steemit is inadvertently creating a large volume of sellers without creating buyers. In economics whenever sellers outnumber buyers, we see a continuously falling price, which is what we've seen since Steemit went online a few months ago.

This chart is comparing the value of Steem to Bitcoin since Steem started in late July. In that time Steem has lost a large portion of it's value against bitcoin. In that same time Bitcoin ranged from roughly $675 US to $525 US. Currently it's around $650. So it's rather near to it's starting price when Steem was created. Which means in real dollar terms, the value of Steem has been falling steadily since it's inception. Which of course shouldn't really be a surprise. They have created a large volume of sellers, us, but have not created much in the way of buyers, and probably will be unable to create more buyers than there are sellers.

This is the fatal flaw, and I wonder if there are even any real buyers of Steem? If not, then where does any of the money come from whenever we sell Steem? It must come from somewhere, someone must be on the other end of the transaction in order for the order to be filled. Who is buying Steem? More importantly, who would want to buy Steem in the future? Personally I can't see any rational scenario where Steem appreciates. It would require people going directly against their own rational self interest, or a manipulative investor with tiered buy orders to prop up the price and possibly entice smaller retail investors to buy in after a rally. Even that scenario though ultimately ends in a crash, as such a manipulative investor would have to sell at some point, and when they did the prices would fall.

It is a fatal flaw, and ultimately cannot be overcome. Economics are immutable, and are incentive driven. People only follow their own rational self-interest and cannot be expected to do otherwise. There are a lot of altruistic individuals posting on steemit and I feel sorry for them the most. Those who attempt to hold their SteemDollars with the intent of waiting for them to appreciate will end up taking them to their grave. It's a one way market, and without an infusion of real money, either from advertisers, or another form of offering value to entities in exchange for money, the SteemDollar will inflate into nothing. Every day that you hold steemdollars they are worth less and less, this is textbook inflation and is what happens when there is no demand for a currency.