# This blog is incorrect.

And it is highly insulting for such erroneous misinformation to be highly upvoted while ridiculing me.

I wrote the blog post which bacchist is quoting and criticizing with this post.

Let's begin with the [Investopedia defintion](http://www.investopedia.com/terms/c/compounding.asp):

> What is 'Compounding'

> Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

> Also known as "compound interest".

The [Steem white paper says](https://steem.io/SteemWhitePaper.pdf#page=35) that for every 1 STEEM created for a block, 9 additional STEEM POWER are created and distributed proportionally to STEEM POWER holders. In other words, for every 10 new units of money supply created, 9 of them are STEEM POWER and earned as interest for STEEM POWER holders, regardless how you account for them as a ratio to VESTS.

The interest paid to STEEM POWER holders is taken from STEEM holders, **as a percentage of the market capitalization**.

The reason you guys are fooled is you are not accounting for the fact that the interest payments are taken from STEEM holders and given to STEEM POWER holders.

I am sorry for those who lack math skills and upvoted this incorrect blog post. Please note your names are listed on the list of upvoters.

> There is a big difference between what is happening to your Steem Power balance and what would happen to your credit card balance if you missed a few payments. There will not be exponential growth of the money supply and the attendant hyper-inflation that would bring. It's not going to happen!

There is exponential growth of the Steem money supply. Even if you keep the VESTS constant and account for tokens divisibility as separate parameter, the external unit of exchange are STEEM and the supply of STEEM is growing exponentially with a compounding on newly minted STEEM on every block.

Let me explain this another way, which will hopefully end all the confusion.

The debasement of STEEM units is 9/10ths to pre-existing STEEM POWER holders. The other 1/10th goes to new STEEM holders, not the pre-existing STEEM holders.

So if the ratio of STEEM POWER to STEEM is 9 (i.e. SP is 9/10ths of the money supply), then STEEM POWER holders have no gain in terms of the percentage of the money supply due to aforementioned debasement. If that ratio is less than 9, then STEEM POWER holders do have a gain; and if that ratio is greater than 9, then STEEM POWER holders do have a loss in terms of the percentage of the money supply due to aforementioned debasement.

It is a variable interest rate, which can even be 0% or negative, depending on the market conditions.

And that does not factor in the change in market price (and thus market capitalization) due to the debasement.

None of that changes the fact that when the interest rate is not 0%, there is a positive or negative interest rate compounding.

What is a fair criticism of my blog post, is that the effective gains in terms of percentage of the money supply, is much less than 90% APR because the ratio is probably normally closer to 9 than to 1 (or an infinitesimal).

The ~90% APR is always the case comparing the effect of the debasement on pre-existing STEEM POWER versus pre-existing STEEM holders w.r.t. to percentage of the money. However, that is rather meaningless effect, since new STEEM holders are created with 1/10th of the said debasement. Thus the constant 90% assumption of my blog post was an error. Yet also the claim of the OP of this blog that there is no compounding due to VESTS is also in error.

There is a compound interest rate, it is just variable and can even be 0% or negative at times.

Edit: and note afaics that 50% of 1/4th of the STEEM created is converted automatically to STEEM POWER as 50% of the blogging rewards. Thus this will tend to force the ratio to greater than 9 (a negative interest rate), which would mean that much of the debasement is being paid by the STEEM POWER holders.

thank you

Thank you bro for sharing this information , i think i was wrong  like most of people on steemit.

So even if our steem power goes up our Vests never will without additional investment? How would we calculate our returns then on Steempower. It doesnt seem like a basic interest rate calculation works.

To clarify a bit for those that are new to STEEM I will add this detail.
When STEEM pays out 1$ worth of rewards (whether from posting, commenting or upvoting) it simply creates the new units "out of thin air". This has the effect of diluting everyone's STEEM holdings since the supply has increased but your personal wallet's balance has not.
The way to protect yourself from this dilution is to Power Up.
What does this do you might be axkin'?
Well, for every 1$ worth of STEEM created to pay for content & curation there are 9$ worth of STEEM created to send to those that have powered up.

So you should only hold STEEM if you are planning on selling it, or sending it to someone. Don't hold it for a long time since it is being diluted little by little by everyday's payouts.
Power it up and you will lock in your value.

Hope this helps complement the main post!

Up and up

Similar to SP, SMD tokens cannot be purchased directly on an external exchange. SMD are primarily earned through contributing but can be purchased by converting STEEM tokens to SMD tokens.

Actually Steem Dollars can now purchased on external exchanges !
https://poloniex.com/exchange#btc_sbd
https://bittrex.com/Market/Index?MarketName=BTC-SBD

PS Abbreviation of SBD = Steem Backed Dollars
or just SD = Steem Dollars (not SMD please edit)
http://linkme.ufanet.ru/images/9d8c77c4463f7a2b3e24c27a8796fd79.jpg

I am upvoting this because people need to understand. The less 'get rich quick' dreamers there are in the network the better. Lol. I am in this for the long haul and plan to slowly accumulate steem through blogging and commenting and generally being a positive Steemerian. Oh, and also buying as much Steem under 5$ as i can! Anyway great explination @bacchist thank you for your service. 😉

Thank for sharing tthis info.what it mean is that you have to be continuing blogging posting for your atem to grow

The most powerful force in the universe- compound interest @bacchist
Glad you pointed this out, i was having trouble coming to terms with the exponentiality of it all- glad to see you have a sense of humour- upvoted

http://65.media.tumblr.com/tumblr_lz23ylenZl1ro09hco1_r1_1280.jpg

Do not regret Upvote to this article, 
it was interesting to read;)
Steem It Up
https://www.youtube.com/watch?v=DogrhWJESlA

The way I see it is:
You get a 1.9x split every year (annualized) if you are powered up.
Inflation goes up at 2x every year (annualized).
Doing nothing on the site, you lose 10%.
Posting and upvoting only get you some % back, but on average you won't break even (because of other payouts like mining and liquidity rewards).

That's if steem stays the same value. The currency value is swinging and is more volatile than the 10%.

SP itself does not create a compound interes, but dont you get more curating rewards if you have more SP? That alone creates a compounding effect doesnt it?

Basically anything that earns more money as time goes on and then that increased amount is what makes the money, compounds.

I believe SP has other compounding properties, but all that is needed for a counterexample to disprove an assertion is one instance, which I believe I have done.

tl:dr SP compounds over time