Money out of thin air… I love this quote by Dan Larimer (@dantheman). (img. from tcpermaculture.blogspot.com)
If you’re new to the community, your first thought is probably something along the lines of, “Wait a minute, wait a minute. How is Steemit FUNDING these marvelous stories? I don’t see any advertising. And there’s no membership fee…I don’t get it. Is this some kind of pyramid scheme…or worse…a PONZI scheme?”
No. It is not.
Um....OK….so then....where DOES the money come from? Huh? How did the top four stories today make over $4,500? Who pays for that ticket? I certainly don't want to invest my money just to write a story in the HOPES of it getting voted up.
Good, because you don't have to. And I'll explain where the money comes from. But first, I recommend watching the first 50 seconds of this video by Dan Larimer, CTO of Steemit: (or watch the WHOLE video. It gives a good synopsis of what I’m about to explain, since this is, after all, HIS platform).
IS IT A PYRAMID SCHEME?
Are there a bunch of naive little minnows swimming around, being "baited" by the glory of top-earning stories of the day, spending $10 here, $25 there...so they can Steem Power their way to the top, only to find that their story falls flat and some whale gobbled up all their money, and the only way to succeed is if someone else fails?
Or maybe their story makes it big, but half of their earnings get swallowed up by whales and other fish who only have more Steem Power because they gobbled up someone else’s?
Hmmmm.
(img from spectatortribune.com)
Or maybe….
IS IT A PONZI SCHEME?
Maybe the money doesn’t really exist. It was just created out of thin air, there’s no real asset or collateral to back it, and we’re all just involving ourselves with something that APPEARS to provide a good, sustainable return (because look, everyone else is doing it. It must be for real), when in REALITY, we find out the money was not there, only initial investors got payouts, and the whole thing will come crashing down. Down with ponzi schemes!
They are artificially inflationary, dangerous, fraudulent, and oh, very illegal!
Well, dear reader, Steemit is neither of these things. It is not any kind of scheme.
MONEY OUT OF THIN AIR?
But, you would be right about one thing: the money IS created out of thin air. But don’t worry. It’s not just arbitrarily “printed” out of NOTHING. That would be ludicrous, wouldn’t it?
HERE’S HOW IT WORKS:
In the Steemit ecosystem, you can contribute fiscally to your economy with your own cryptocurrency, which can convert from or to real money. However, it is not necessary for you to spend a dime in order to belong to or earn significantly in this system. Why, because money is made out of thin air! What a horrible awful thing??? Aaaaaahh!
Well, banks do it every day. That loan you got on your car? Thin air. The mortgage on your house? Thin air, folks.
1) At the Bank: money is created based on collateral like a house, grandpa's gold watch, or your spleen, for example.
(img. from jstsolutions.net)
You are given a note of promise that a certain amount of money suddenly exists and is yours to use, because you had the collateral to back it (which they could confiscate if you do not repay the money). So essentially YOU just created money out of nothing--but, it wasn't really nothing. It already existed in the form of your house, or some other commodity that YOU own, like your spleen, for example.
2) Just Like A Bank: Steem dollars are also created, and they, too, need some kind of collateral or they, too, will be worth nothing.
3) However, Unlike a bank, where collateral usually comes in the form of physical property like a house or a Lamborghini (which does appreciate, btw), the Steem dollar is created against the collateral of shares in a company. And why not? Banks could do this too!
The difference is, rather than taking collateral against just any stock in any company, well...Steemit banks it against their OWN shares.
Wait...that's wrong, right?
Wrong!
It's right!
Do you know what these shares do, that no other business can do? They give the MAJORITY of their interest to the shareholders, thereby creating INSANE ROI, thereby incentivizing greater investment, thereby generating more interest.
Do you know what these shares are called? Steem Power.
The REASON Steemit is able to do give a great return is because of one thing:
NO MIDDLEMAN:
There are no banks, no buildings, and no brokers: NO MIDDLEMEN.
(img. from gcpindustrial.com)
We as shareholders get a majority of the interest generated from our Steem Dollars. This interest is generated the SAME way interest is generated in the physical world—by LEAVING IT ALONE and allowing it to accumulate over time. Just like stock. It may have some volatility, but the interest still has a higher output to the shareholder than any other business.
The cool thing about Steem Power, though, is that you not only make more interest on it than you would with an ordinary bank account, but also, you can USE it to leverage more influence in the Steemi community in the form of votes. If you have any stake in the company, you essentially delegate a portion of it with someone else when you vote for them. Kind of like a venture capitalist.
This is a purely capitalist notion—so if you are afraid of Ayn Rand, then this may not be the place for you. There are no handouts here. Only shares. Which you earn. And grow. And share!
So…in answer to your question, where does the money come from? The delegated shares! To understand how this works, I recommend this video by @sterlinluxan.
To understand the economics of Steem, I recommend this really great video by @andrarchy.
Good luck! And happy steeming!