Tag Archives: what gives crypto currencies value

My theory on the most important factor in the price of crypto currencies, and how that applies to STEEM

If you haven’t heard of Steemit.com, it’s a blogging platform that pays you to post blogs with the site’s proprietary crypto currency called STEEM. One of my first posts on Steemit was “An Introduction to Crypto Currency and Steemit for Minnows.” This explains what crypto currencies are and what gives them value, but after reading a post today by the user, aaagent, titled, “My journey through the Matrix and how I found the red pill (gold, crypto, politics, economics, & geo politics),” it made me realize I didn’t stress enough the most important factor in why/how crypto currencies gain value, which is:

HOW MANY PEOPLE ACCEPT IT AS PAYMENT FOR GOODS AND SERVICES

There are hundreds of different types of crypto currencies, and they each have a gimmick. Some are centralized. Others are decentralized. Some have more transparent histories. Others are more secure and untraceable. Doge Coin is just a generic coin that isn’t backed by anything and has a joke for name. STEEM is backed by the popularity of its social media platform, which is a cool gimmick, but ultimately won’t determine whether or not STEEM succeeds or fails.

Even if Steemit becomes a great site, people will stop investing in STEEM eventually if they can only spend it on one or two websites. Even if the Steemit admins never make another improvement in the social media platform, if they focus all their energy on getting businesses around the world to accept STEEM as payment, the price will go up and never come down.

Compare STEEM to Bitcoin and Gold. Most of the people who buy Bitcoin probably don’t understand how it works. All they know is that a lot of people accept it as real money. Therefore, it must be real. It’s like gold. Gold is useful in the real world, but most people won’t use gold for anything other than buying things with it. Very few people know why gold is so universally accepted, and they don’t need to. All they need to know is, they can buy anything with it, anywhere in the world.

This leads me to the number one reason I haven’t invested money in buying STEEM yet. (Emphasis on the word “yet.”) Steemit practically forces you to keep your STEEM tokens locked up in Steem power, and it takes months to turn your power into tokens and sell them. I’m convinced the only reason Steem power exists is because the admins want to keep timid investors from crashing the price in a panicky sell-off.

This makes the price of STEEM look stable on paper, which impresses speculative investors, but if everyone’s STEEM is locked away, then nobody is buying anything with it. The fewer people who spend STEEM, the fewer people will accept it as payment, because they’ll have nowhere to spend it, because nobody else uses it. When intelligent investors realize they can’t use STEEM for hardly anything except selling it to speculators, they’ll probably stop buying it, which will make its price go down until it dies a slow penny stock death.

When it took two years to power down your account, I had zero faith in Steemit, but I knew the program was in its beta phase. So I used it hoping the problems would get fixed. When they lowered the time to three months, it restored some of my faith. However, it’s all for naught if more businesses don’t start accepting STEEM as payment for real world goods and services. If anyone can share some links to articles of STEEM catching on with merchants, it will make me more of a believer.

You can use this concept to predict the future of other crypto currencies too. Dogecoin is doomed to fail, because it’s not based on anything, and nobody is seriously trying to convince businesses to accept it.

There will always be a real world need for hard-to-trace currencies like Dash and Monero on the darknet, but the value of privacy-centric currencies are likely to stay pegged to the size of the black market. It is possible another Bitcoin could break out of the black market though. So investors should keep an eye on which currencies are growing in popularity there.

The crypto currencies with the most potential are ones like Etherium, Zcash and Ripple, because they’re designed with business in mind, and they’re focused like a laser on getting their currency into circulation, unlike Steemit, which is more focused on manipulating the appearance of its value.

That’s harsh, but I’ll be fair, Steemit did take a step in the right direction by lowering the time it takes to power down your account. If they just do a little bit more to improve the circulation of STEEM, I’ll put my money where my faith is.


%d bloggers like this: