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So the natural inclination of those who visit Steem is to wonder who's giving out the money? Is this monopoly money? How does this all work? Many are naturally skeptical. Some may just dip their toes in the water. Others might dive in and ask questions later. Whatever the case, almost everyone probably wants a better idea about the theory behind Steem dollars, so here is a brief explanation:
A blockchain-based software network creates Steem dollars, to be used as currency, from loans on the value of Steem digital assets. Steem digital assets represent the ownership of this software network and have value because they're useful and they are scarce.
In general digital assets can be used as money, act like company shares or be used to access specific digital resources. The more people use any particular digital asset, the more they are worth. The estimated value for various digital assets can be found on the website Coinmarketcap.com. The website lists digital assets that are collectively valued at over $12 billion and growing and many of these digital assets like Bitcoin have value because they are both useful and scarce. The question just becomes how useful and valuable are each of these assets? Most people have a hard time understanding how something digital can have that much value. Isn't software easy to copy, corrupt or hack?
Digital Value? Beginning of Virtual Economies.
In the last decade, multi-player video games with virtual economies have demonstrated that digital goods have real world value. Some may treat video game items like collectible baseball cards. Others may find video game items useful to improve their virtual lives and satisfy a material, emotional or psychological need. Scarce items such as powerful weapons in a medieval fantasy game called Diablo or gold in World of Warcraft can take hours to find, earn or accumulate so they become valuable. In fact a game item in Diablo 3 sold for as much as $16,000. Many people have bought and sold virtual gold and other game items on World of Warcraft for dollars or exchanged them for real world goods. In the game Second Life, users create virtual characters, live in a virtual world and buy things like virtual real estate. Linden dollars, the virtual currency used in the game Second Life, are also traded for real dollars. One estimate of the secondary market of real money changing for digital goods was $2 Billion as early as 2007. This was just the beginning of virtual economies.
Is it Secure and Who Owns It? From Video Games to Bitcoin in the Real World.
The establishment of Bitcoin followed an independent path from the video game industry, but the value of virtual items and currencies had already been demonstrated. However with video games, game creators ultimately controlled the supply of these digital assets. If a system were to be created for the public, the control of the system would have to be more decentralized. There were also some key technological issues that had to be addressed to create digital money & asset systems that are secure & decentralized enough for broad public use as explained here: 鈥淏itcoin: What Took Ye So Long? Bitcoin became the first real world experiment with blockchain-based money. Ever since the Bitcoin currency started in 2009 with unknown speculative value, it's since grown in value from millions to hundreds of millions and is currently estimated to be worth over $10+ billion. As mentioned earlier Bitcoin and alternative digital assets in total are estimated to be around $12+ billion. All this value is stored digitally on a network of computers using software. No banks or institutions are required! Today Bitcoin and other digital asset systems are practically impossible to hack or corrupt because they use advanced consensus mechanisms and military-grade cryptography.
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