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What Cryptocurrencies Pay A Dividend?

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.

Introduction

For the sake of keeping the terminology simple on this page, one should realize that dividends do not exist in the cryptosphere, but rewards do in the same manner that a chicken or watermelon plant pays a reward through a form of yield. A chicken may pay yield with eggs, but eggs are not officially recognized currencies; in the same manner, a token may say that it pays a reward, but this reward is only as valid as Main Event tokens. Also, all rewards is incredibly high-risk, in that there’s no guarantee that what is being rewarded will retain its value – it does not have the power of stability like government fiat. In general, while the cryptosphere uses the name cryptocurrency, most of these are actually tokens in that they are not recognized by any government and could easily collapse to 0 tomorrow without any intervention. Think of a token that you receive from an entertainment place, like Main Event, that allows you to redeem them for items – both the items and token are heavily restricted. For this reason, the term “cryptocurrency” is very inaccurate in describing what it is. These tokens are as valid as Main Event or Peter Piper’s Pizza tokens.

By contrast with government currencies, a total collapse is less likely with government currencies because governments will try to intervene when their currency begins to fall (while not impossible, it is less likely to occur); for an example, in 2014-2015, the Russian Central Bank raised interest rates to 18% to prevent the Ruble from declining too much. On the other hand, we have seen issues where central banks do not intervene much, or where their intervention fails (Zimbabwe) and the result is an absolute loss for citizens.

Due to the nature of change with cryptocurrencies, we will only feature 2 on this page since it’s too much work to keep up with changes. We do occasionally discuss the pros-and-cons of reward based crypto-tokens on our podcasts.

Starting after podcasts 39 from enough enrollments, we’ll be discussing some crypto-tokens with warnings like our Zcash warning, which saved readers from massive losses to our opportunity posts like our Dash assessment post, which showed a huge opportunity in Dash.

LBRY (LBC)

LBRY may offer the ability to receive rewards relative to how one uses its platform, provided that the team iterates in a manner which favors this use.  In the past, one could have bid on one of the main domains that was featured on the start-up page, like lbry://one and offered that spot for rent to anyone selling a digital good.  This use generates reward through a rent-like setup, like a billboard.

Advertising isn’t going anywhere.  The LBRY team would be wise to include an advertisement spot and a best seller spot on every page for every category.  In the long run, this is the only organization that makes sense: the opening page (right now Home) could show the best sellers in all categories with advertising spots as well. A user could select a category, which would have its own page with the top sellers and advertising spots. A “landlord” wanting regular rewards would reserve a top advertising spot, like:

lbry://gardening/one

lbry://humor/one

He would rent this spot out to anyone with a digital product. Whether he takes a set fee or takes a percent of every product that is sold, both he and the producer win. In the case of a percent, he could choose to switch to someone else if the product doesn’t sell. In the case of a set fee, he could choose a set time.

This does assume LBRY developers use an intuitive design: an opening page and category pages. At the current time, there’s too much noise on their opening page and adding category pages will help reduce this noise. As for the producer-consumer balance, an opening page and category pages with each page featuring both best sellers (consumers like) and advertised products (producers like) creates equilibrium. I agree with anyone who would argue that the developers might miss this design. While possible they miss this, at this current time, I think the development team has shown creativity with their design. It would be a huge blow to LBRY to build a non-intuitive design that neither benefits producers or consumers.

Risks. Some of the risks:

  1. Since a person is reserving spots with a wallet, he must practice excellent digital security.
  2. This assumes the developers build creative ways for many people to make and earn LBC.  LBRY offering flexibility and creativity, outside of what most would think of, will be the only way ideas like this can happen.  Developers must think about the vision of people they may not normally consider.
  3. The person who does this will probably take a big risk early – like owning 1 million or more LBC. This type of risk is above what most people would do, which is why the risk will have a massive payout if LBRY succeeds and innovates in a manner that allows him to earn yield this way.
  4. It’s possible that advertising spots don’t perform at all. While unlikely, this is still a risk.
  5. The LBRY project could change in a manner that is detrimental to early investors. We continue to see this in the cryptosphere and this is a major risk with any project.

One point to consider here when thinking about which spots will command the most value in terms of advertising: the 80-20 rule suggests that only a few categories will be heavily profitable (like humor), so for investors willing to take this risk, accumulating a significant amount of LBC may be required. I would fully expect that top advertising spot in humor to have significant competition, assuming the LBRY developers build in this functionality. The risk-reward ratio may look like:

Cary risks less than $43,000 to purchase 5,000,000 LBC for retaining a top spot (he was a student, so he bought at the right time). He rents out one of the top spots and with 5 million LBC, it is highly unlikely that anyone will compete with him for that spot, since LBC’s supply is fixed at 1 billion LBC. Users begin to rent the spot and this yields him 100,000 LBC per month or 1.2 million LBC per year. On an LBC-only basis, it would take over 4 years for Cary to recoup his LBC principal, which on a yield basis is 24%. Whether this becomes a good investment is heavily related to other items mentioned above this.

DigixDAO (DGD)

At the current time of this writing, Digix asserts that they will allow quarterly rewards to be claimed by holders of the DigixDAO and from their site, this reward will be in the form of Digix Gold Tokens. Digix terms this a quarterly reward and makes it clear that one must claim the reward, in order to have access to it. This is key for many reasons and the most obvious is that if one does not claim the reward, then they get nothing (by contrast, one does not need to claim yield from a REIT fund). From their site:

DGD holders get to claim rewards on transaction fees of DGX. Transaction fees are at 0.13% of balance sent, capped at 1 DGX per transaction.

One should be aware of the risks with Digix, so this is not a guaranteed gain or loss. Digix points out that they make fees from the Digix Gold Tokens and that these fees from people holding gold tokens are paid to DigixDAO holders. Digix also allows users to do independent audits of the gold holdings. In addition, it’s probable that Digix honors these rewards, that they will also pay out quarterly rewards for other ideas they develop through their DAO that may have trading fees. At this present time, this is all experimental and to my knowledge, no one has received rewards yet. If Digix Gold Tokens become popular, then DigixDAO could be a huge winner. In addition, if Digix continues to develop ideas, the tokens may have other awards that holders can claim, if they choose.. In a sense, the risk on this project is high, but it’s also the lowest it will be if Digix continues – as the early bird always get the worm if an idea succeeds.

Risks. At the current time, Digix has taken more time than expected to develop its idea. This is not a major concern because smart money prefers an idea to be well-developed than the opposite, but they do over promise and under deliver, which raises concerns. This is an area they need to improve – rather than promise an early date, delay it back and over deliver. To be fair to Digix, almost every cryptosphere project has this problem.

Digital assets carry significant risks; do you know what these risks are and how you can reduce the likelihood of them affecting you? In the Millionaire Guide To Digital Security, we cover updated best practices with digital money. A 100% return means nothing if it’s hacked.

SteemIt (STEEM)

Before writing anything positive about Steem, let’s caution readers about the negatives of SteemIt:

  • In the beginning of SteemIt, Steem had an inflation rate of 100% a year. Worse, many early adopters of Steem acted as if this was not a problem. While SteemIt has changed to an eventual fixed supply in the 600ish million, SteemIt carries significant risks because most of its users lack economic knowledge. Steem’s founders and witnesses desperately need to read Basic Economics so that they avoid mistakes in the future. Remember that if a token changes policies, it can do it again. If you hold on to Steem thinking that it will retain value, don’t be surprised if they change policies in the future that hurts your Steem stash.
  • SteemIt’s security is highly questionable and has been challenged by other crypto-communities. Suppose that an account is hacked, how does a person get help and how does Steem verify the person is who they say they are? These become problems for people holding a lot of Steem. Since it is OpenLedger, transactions can be verified, but hacking will become a growing problem in the future. To be fair to SteemIt here, most crypto-token ideas lack good security and their security teams are an absolute joke. Before getting involved in any crypto-idea, we suggest the basic version of the The Millionaire Guide To Digital Security and asking yourself honestly if the cryptosphere is worth the risk. If you think it is, we recommend the advanced course, as a 100% return means nothing if you get hacked and many people have lost thousands (in a few cases, millions) in a hack. You did not read that carefully, so read it again slowly: some people have lost millions in a hack – their return was 0% – and this happened because of poor security practices.
  • SteemIt pretends that it’s a censorship resistant platform. In reality, it’s not. If someone put inappropriate content on SteemIt, the platform could get in huge trouble. The SteemIt team overestimates its ability to identify and protect against abuse. The reality is that some content on the internet is illegal: for an example, you cannot threaten people’s lives without possible facing legal problems. Advertising as “we allow anything” is dangerous and I would recommend that SteemIt stop this.
  • Like almost all crypto-tokens, SteemIt’s complexity is a turn-off to most people. Steem, Steem Power, Steem Dollars and eventually smart tokens all add unnecessary complexity. People love simplicity and simple ideas will amost always be better than complex ideas.

How SteemIt addresses these concerns and other concerns will determine how well it continues to do. As far as the positives – and there are quite a few:

  • SteemIt is the lowest risk platform for risk averse types. All people have to do is sign up, get a gift of some free Steem and begin writing, commenting or participating in the platform. There are a ton of games on SteemIt that allow people to grow their Steem or Steem Dollars on the platform without any cost.
  • SteemIt gives a gift of free Steem to those who sign up for its platform. They may change this in the future, but if you can get a free token or tokens, it costs absolutely nothing to experiment.
  • SteemIt has fast transactions, especially compared to some of the other crypto-token ideas. SteemIt is making one mistake here: in the future, it will need to charge some fees to reward stakers and it needs to convey the importance of this. Ultimately a 2-3% fee is nothing when the transactions occur very quickly. A fixed supply means that stakers have to get rewarded somehow; rather than complain about fees, people should understand that everything has costs (Basic Economics) and these are acceptable costs. By contrast, Monero has infinite inflation to pay for the costs of its network, but this means everyone is being diluted and this is hardly better than just paying a small fee.
  • SteemIt has shown a strong development team. This is a huge positive. If a token has existed for more than 3 months and shows no development, or very little development, it becomes easy to determine if the idea is good and anyone can use this logic. Steem has existed for over a year and its development has improved. The downside is that their economic consistency and knowledge are lacking, but if they improve this, good things will continue happening.
  • There have been a few mainstream people adopt SteemIt such as Neil Strauss and David Pakman. If this continues, we’ll see how their followers respond, or if they do.

With Steem Power, people can see their Steem grow. This is one of a few ways in which people can grow their Steem. In addition, people can also get gifts of free Steem or Steem Dollars by signing up for Steem, participating in games on SteemIt, or contributing to others. You can see people help people in a variety of ways and get Steem or Steem Dollars for this help. You can also see people grow their Steem or Steem Dollars by playing free games, often which involve guessing outcomes for fun. Provided we receive enough enrollments, we will later cover in the advanced version of The Millionaire Guide To Hedging, there is another way to use the platform that allows hedging not only for SteemIt, but the entire cryptosphere in general.

Even if a person never uses the platform outside of signing up, the growth of Steem with Steem Power allows someone to take a risk of nothing for the possibility that the SteemIt platform does the right actions in the long run and makes it worth the risk. Outside of this simple action, getting tokens on this platform may be a costly risk in the long run. Like all tokens, SteemIt may fail in the long run.

Warning

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.

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