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RE: Steemit is NOT a Ponzi scheme. But is it sustainable?
Great, thanks a lot for the link, I wasn't aware of these changes indeed. However, none of the modifications they mention would solve the issues outlined here. It shows that they are well aware of the problems inflation will cause in the long term but all they're doing is reducing the speed at which the car is going to crash. The inherent structure of the system remains flawed.
My impression is that the economics of Steemit need to be rethought from scratch. There are lots of ideas to keep and the overall vision is pointing to the right direction, but the fundamentals of the economic model need some serious and radical rethinking if they want the system is be sustainable.
Maybe, but a car crashing at 100 km/hr kills everybody involved; a car crashing at 9.5 km/hr is barely worth calling the insurance company about. Just because two numbers have the same sign doesn't mean they're not qualitatively different.
But who knows? Maybe you're right - time will tell. In the long run, the inflation rate isn't what will make or break Steem; the real problem is that Steem needs revenue.
As a food-for-thought comparaison, bear in mind that Bitcoin has had 4.5% inflation for the last four months and greater than 9% inflation for its seven years prior. Would you say that Bitcoin needs revenue? (I am not arguing that revenue is a bad thing.) I am merely pointing out that this is a token system and it works whether the tokens are worth $0.000001 or $10000000.
Bitcoin is generating revenue through transaction fees. I'm not saying this is the best way to do it, transaction fees suck. But Bitcoin and Steemit cannot be compared in this regard because their contributors are not compensated using the same economic model.
With Bitcoin, contributors are compensated by the users of the platform (through transaction fees) while with Steemit, contributors are ultimately compensated by the people who bought Steem money. The point is that the Bitcoin economic model relies on users (users leave, everything stops) while the Steemit economic model relies on people buying Steem money (users stay but these people leave, everything stops).
As long as you'll have more people wanting to cash out than to cash in, the fact that Steemit is a token system is irrelevant. For now, contributors will want to cash out. So again, the question is how do you create a revenue model that allows Steemit to be sustainable during the period needed for Steem money to become value in and by itself (thus making cashing out irrelevant).
I agree, two numbers of the same sign might well be qualitatively different. However, that's not the case here. The point is that there is a structural flaw in the economic model of the Steemit platform, just the way there is a structural flaw in our conventional credit-based model of money creation.
Reducing the rate of inflation is a mere bandage on a deeper wound. The money supply should not be determined ex ante by a predefined rate, it should be determined by demand. An ideal monetary model would be one in which prices are not affected by changes in the monetary base, thus keeping inflation close to zero. How to do that technically is a question that needs to be explored. But that's the direction to follow to develop a sustainable and attractive model.
On the fact that Steemit needs revenue, I totally agree with you. At least, until Steem money becomes valuable in and by itself. I'd sum things up slightly differently actually: revenue might be the short term problem (1-2 years) while inflation might be one of the long term issues (5-10 years).
I saw that the platform also faces immediate challenges with early adopters wondering whether they should stay or leave, but that should be manageable with a clear action plan and good communication.