How marginal utility suggests a price dip after the hardfork
So there are some excellent posts trending, discussing the change to the reward structure after the hardfork; and it'll certainly be interesting to watch.
Austrian Economists talk about the concept of Diminishing Marginal Utility, which sounds complex, but is quite simple.
A glass of cold orange juice is lovely, another one is nice too. A third will just take up room on the table and get warm, the fourth will attract ants.
You might pay $5 for one glass, but only be willing to pay another $2 for the second, and straight out not want the third or fourth.
The value you place on an item is affected by how many of that item you already have. This difference depends largely on the nature of the asset.
Your 50th diamond is almost as good as the 1st, but your 50th glass of water is not.
Being easily transferrable, and taking up zero space, crypto currencies don't often come up in conversations about marginal utility, but it still has a very interesting role to play.
I bought some bitcoin in 2013, at $50 AUD. Assuming the price would eventually either grow immensely, or crash to zero, there was a point at which I judged buying an additional bitcoin would prove unlikely to have enough impact on my destiny either way, to justify the expenditure of another $50. I had bills to pay and mouths to feed, like anyone. I judged my first bitcoin was worth more to me than $50, but my 16th wasn't, so I only bought 15.
Up until now, Steempower has delivered voting power in an exponential fashion, which is something of an affront to the concept of marginal utility, since each new unit of steempower delivers more voting power than the one before it. As marginal utility reduces the value you personally place on each new unit of steem, the current model increases the usefulness of each additional unit by more than each previous unit.
Now I don't claim to know what motivates whales, but I'm sure they have mouths to feed and bills to pay, too.
They may have been unwilling to power down and cash out 50% of their steempower at the cost of 80% of their voting power, but they may be willing to do so at the cost of 50% of their voting power.
They may have been willing to buy up more steem at $2 when each new unit meant an exponential increase to their voting power, but are perhaps less likely to do so under the new, linear model.
I anticipate a reduction in whale demand for steem after the hardfork. Whether that is balanced by minnow demand is yet to be seen, but I believe unlikely.
With the recent influx of new users, and a lot of small dolphins enjoying some healthy balances, the future is certainly bright, but don't be surprised or panicked if we see a correction in the short term.
The ocean can be scary, and has waves, but it's vast and beautiful, and there's plenty of room for all of us.
Hang on tight.
Very interesting theory @mattclarke. The glass of water explained it beautifully. You make a strong point and I tend to agree with you regarding the whales not getting enough motivation to spend and buy more. Just a few hours left before the HF now..Fingers crossed :)
I'm far more concerned about August 1st.
Steem forks are interesting.
Bitcoin forks are terrifying.
We are living in interesting times :)
I can honestly say I don't understand it all but it sounds important so I am learning whatever I can, little by little. Following, upvoted and resteemed. Thanks.
You're here, so I know you're smarter than the average bear, which is what matters long term.
You can learn your way out of ignorance, which is pretty fantastic when you think about it.
Are you struggling with the concept of marginal utility, or the difference between linear and exponential rewards?
I get the gist of your article, I get the examples of value you presented. I understand that hard fork 19 is happening today and have been reading and listening to posts this morning regarding this. I think that a hard fork is a major change that happens when growth demands it? I also think that you are saying not to be worried about a dip but to expect it. It is just all new to me. I am excited about steemit. Already learned so much and eager to learn more. I kind of understand what you mean by both "marginal utility" and "linear and exponential" but it you would care to clarify if a little more, it would be appreciated. Thanks.
The bitcoin hard fork has come along because some people believe bitcoin needs to be able to allow more than it's current 7 transactions per second.
The steemit hard fork is different. It didn't need to happen to allow for growth, it's just a few tweaks the witnesses agree would be improvements.
There will probably be fewer hard forks as steemit gets closer to leaving beta and launching officially.
Marginal utility is the proper term for the concept I touched on.
A third car might not provide enough 'utility' to justify it's cost, putting it on the 'margin'.
The law of diminishing marginal utility just means you value each possible unit less than the ones you own, since they're already meeting your higher priorities.
(Driving to work, picking the kids up, running errands etc)
Linear just means its a straight line, like a ramp. Each dollar you have in the bank increases your buying power by one dollar.
Exponential is more of a curve, like a skateboard ramp.
Each additional digit in your PIN increases your security x 10
Thanks so much for taking the time to explain this. It helps. Still so much to learn. It is an exciting time to be alive. So glad I found steemit.
Absolutely. In the years to come, anyone who joined before 2018 is going to be revered as a very early adopter.
This place is only just starting :)
Yeah!!!!
Following your line of reasoning, it does seem that whales have more to lose than minnows have to gain. We shall soon see. As for me, I'm looking forward to throwing a little more weight around :)
We have to remember it's still in beta too, so change is always just around the corner.
I believe you might be right about a decline in price in the short term, but for me it's not scary at all. Those who believe in the long term project will probably see it as just a STEEM sale , a great opportunity to load the truck.
Years from now, the prices of today will seem like a bargain and we'll wish we had bought more now.
You're singing my song; I'm just hoping to reassure some of our flightier members that the sky isn't falling, just in case it starts looking that way.
Thank you, very nicely explained.
Hadn't thought of it this way, but you are right of course. Well done.
You bring up an interesting point that I hadn't considered, re:
Perhaps this is the way that the "93% of all Steem is owned by 1%" statement that I've seen recently can be addressed?
Maybe it will take time to occur, but if low SP users can actually earn it, and can be motivated to invest the time to make it work, there can be a more equitable balance in the rewards pool.
Long term I think it's probably good for the platform.
I wrote this to allay fears after the hard fork.
"Don't panic, the price dip is actually expected"
Of course it's always nice to be right :)
Well, the price dip wasn't isolated to Steem.
Correlation does not prove causation.
... but I avoided being wrong :)
Sorry, I should have put that up front. ;-)
Maybe I thought that was a given?
I guess only time will tell my friend, What do you think is going to go down with bitcoin?
I think the FUD is built into the price.
I anticipate a seamless fork and a doubling of the price by the end of July.
I just saw "Skateboard Ramp", so I liked it. Haha, joking (not really), Nice post Matt!
Feel free to check my last post, maybe you’ll like it! <3