Where Does The Money Come From On Hive?
The eternal question
Anyone who has ever told people about Steem or later Hive has been asked this question multiple times. I guess people are so weary of Internet scams that if you tell people they can earn coins on some website for posting, commenting and voting particularly if there are no ads, then it must be a scam. It's actually a very sensible thing to ask. Every scammer on Earth will promise easy money and when the mark gets sucked into the scheme, then the requests for money start coming. Nothing new here.
But what's surprising to me is how few long-time Hive users are able to explain in clear terms where the money comes from to everyone's satisfaction.
The blockchain creates the tokens out of thin air
It is really simple. First of all, the blockchain creates tokens out of thin air according its programmed schedule and rules. Some the tokens go to content creators based on votes.
What makes the tokens valuable, then? Simple, the fact that they're being traded on cryptocurrency exchanges. Supply and demand.
Why would anyone buy the tokens?
Think of HIVE and other altcoins as a type of derivative of Bitcoin. The price of Hive and the price of Bitcoin are correlated. But the price swings of Hive are much bigger. Any altcoin trader who wants to increase their cryptocurrency portfolio has the possibility of trading one cryptocurrency for another. The fact that traders keep buying and selling HIVE back and forth against its trading pairs gives it liquidity (=possible for you to buy it or sell it) and a price in Bitcoin and ultimately dollars, euros or other fiat currencies.
That's it.
Why does Bitcoin have any value?
If the price of Bitcoin has only speculative value, will there come a time when the music stops and the whole cryptocurrency space goes to zero? I'm not expecting that to happen any time soon. Central banks will see to it. The global money supply has been growing faster than the economy since the financial crisis of 2008. All that excess liquidity has gone to the financial markets where central banks have been buying up government debt and other financial assets at an accelerating rate to keep the system from crashing. Bitcoin's supply is hard capped by the protocol, which no single entity can ever change because control over Bitcoin is decentralized. Central bank money is like torrential rain and the bitcoins you own are like a barrel you use to collect the rainwater. Because the value of HIVE is tied to the value of Bitcoin, some of the value held by that massive central bank liquidity created out of thin air to keep the financial system from crashing can be collected by owning HIVE tokens, too.
The difference between Bitcoin and Hive
Bitcoin, HIVE and other cryptocurrencies are like hedges against inflation. Anyone can earn HIVE by using social media apps that use the Hive blockchain. The HIVE cryptocurrency will have value because traders use it as a vehicle to increase their cryptocurrency portfolio. You as a blogger earn HIVE through your blogging and curating (if you own Hive Power). Some cryptocurrencies use a process called mining for securing the chain where useless hash function values are calculated in order for a miner to have permission to verify a block of transfers. Hive uses a group of people called witnesses who verify the transactions on their computers. Hive witnesses are elected in a vote where your voting power depends on the number of tokens you hold. The tokens are distributed based on social interaction to motivate the users of Hive to create a community responsible for electing the witnesses and overseeing them.
Conclusion
If you can get people to understand this, then they will no longer wonder where the money comes from, looking at you sceptically. It's important that you understand this yourself and know how to explain it to anyone who asks.
Twitter: https://twitter.com/markku_jantunen/status/1284188277159985154
What makes the tokens valuable, then? Simple, the fact that they're being traded on cryptocurrency exchanges. Supply and demand.
So no real inherent value.(going off your statement). I agree, btw.
The tokens are distributed based on social interaction to motivate the users of Hive to create a community responsible for electing the witnesses and overseeing them.
This is not true.
Conclusion
If you can get people to understand this, then they will no longer wonder where the money comes from, looking at you sceptically.
If you get people to understand this, you are not telling them the truth.
Inflation is not money.
Distribution of inflation is based on many things, rarely social interaction.
I don't know, but after 4 years here, I would say discussions between parties off steem/hive, have a far greater influence as to the where the distribution of inflation goes(nepotism).
It is not a merit based system.
They are like casino chips. If you want to take part in the game of stacking up crypto as fast as possible by trading because you think you're better than others at predicting the price action of BTC and HIVE, then clearly the chips are what you must buy to play win the game.
So you say.
That's a very strange statement. HIVE tokens are fungible. One created today is exactly like one created yesterday.
On Hive, social interaction is one of the basis on which the newly minted tokens are distributed.
That's a false dichotomy.
....false dichotomy?
I wasn't hypothesizing two options, just putting forward two of the reasons highlighting how your 'distribution model', was incorrect.
It it incorrect to say that it isn't meritocratic to any degree. In reality, it is both meritocratic and based on who's friends with home to some degree.
Some accounts specifically say that they will not upvote a post - no matter how good - if the poster does not adhere to hodling and powering up. (instead of using the token in a 'supply and demand model' that you pointed out)
Merit based systems do not work if two unconnected, yet conflicting, pressures, come to bear.
Meritocracy is a reward based on quality/service of product - posts in this case.
(without other considerations)
You're confusing two different things. The trading happens on exchanges with liquid coins. This is what gives the coin it's external monetary value. That's what I was talking about in the paragraph where I used the phrase "supply and demand". All the posting and voting and who gets how many coins from the reward pool is mostly irrelevant to the token price.
Of course, not rewarding those who sell their coins earned by authoring posts could decrease the number of liquid coins on the market but only to a small degree. There are 100 million liquid HIVE already on exchanges. Another 100 million liquid coins are on non-exchange accounts. There exists 200 million liquid HIVE already. About 15 million HIVE (equivalents) are distributed as author rewards annually. Even the total annual inflation of 8% is ridiculously small compared to the price swings caused by traders who trade the liquid coins on exchanges and the price swings of the main trading pairs such as BTC. STEEM went from 7 cents to $8.57 in ten months in 2017. That's a 124x increase! Who gives a shit how much of the author rewards are sold and how much powered up? Clearly the traders who trade between BTC and STEEM didn't. The volatility is from a different universe compared to the insignificant games some people play with token distribution.
So the posts must be voted on 100% based on their merits or the system cannot be meritocratic to any degree. That's illogical.
The culture (I refer to) that it cultivates, is self defeating, and very short sighted - It's based on trying to control others.
The market is more powerful than peoples petty attempts to direct users behavior.
(hence self defeating).
If posts are not voted on, based on it's merits, then the system produces something else.
Systems not based on merit always decay, sooner or later....the 'something else' that it produces is irrelevant.
Trying to reinvent the wheel is an exercise in futility. And stupidity.