Hive Rewards Distribution System: Good, Bad & Entitlement

Image by @doze

A few days ago @bluemist started a conversation on the topic of State of Entitlement encouraging us to talk about this topic and share our thoughts. I find this topic to be interesting and I believe it will remain to be an on-going topic of discussions on Hive for years to come. Many are attracted to Hive due to the rewards it gives to its participants and due to the nature of humanity we do feel entitled for rewards for one reason or the other. Most often the question of entitlement is raised because of the upvotes, downvotes, and impact of these actions on users' rewards.

Hive rewards are not only in the form of author and curator rewards. Hive also grants rewards to witnesses for producing blocks, to community approved projects via Hive Development Fund, interests to stakeholders, etc. All of these rewards come out of the total Hive inflation.

One of the main questions is Where does Hive money/rewards come from?. Simple answer to that is that Hive blockchain produces/prints the Hive coins and they are distributed according to the protocol. However, more precise answer would be that money come out on stakeholders' holdings as an inflation.

Currently, I think the inflation rate of Hive is just under 8% (updated), and decreases every year. The inflation is calculated based on the total supply of Hive. That is where the Hive rewards come from. 10% is rewarded to witnesses for producing blocks, 15% goes to stakeholders and interest on Hive Power, 10% goes to Hive Development Fund aka Hive DAO, and 65% goes to rewards distribution based on social content to authors and curators. Those content and engagement rewards of 65% are split among authors and curators 50/50. Correct me if I am wrong with my numbers.

Being a Delegated Proof Of Stake (DPOS) protocol, the Hive blockchain heavily relies on the stakes and stakeholders in distributing rewards to authors by means of upvotes and downvotes, setting the course of governance, approving/disapproving DAO proposals, and making changes to the protocol. In essence, stakeholders can decide to change the proportions of the rewards distribution mentioned above, or even remove them completely. In this post, I would like to focus on the rewards to the authors and curators.

Consider, there is a group of 10 people who own a company that has 1000 shares and evenly distributed among members. This group decides to bring a 11th member and issue 100 more shares for this member for free, which is 10% of the total. In its surface it would be a bad idea for members to do so, because it will decrease the percentage of their holdings in the company from 10% to about 9%. But if the addition of this member increases the value of the company, that would be a brilliant decision by the initial 10 members. Even with less shares in the company their net worth would be much higher.

Similarly, stakeholders would lose shares in the Hive ecosystem due to the inflation they agreed to have. This inflation creates rewards to authors for the content they produce and participation in the economy. The idea is that creative authors will bring more value to the platform and increase the value of the network with their contributions. Hence, it is worth creating an inflation and sharing the platform with these content creators.

Because the inflation has a direct impact to the financial state of the stakeholders, it makes perfect sense that they are the one who decide what is good or bad for the platform and distribute rewards accordingly. Being a stakeholder/investor is a risky business. While there is a potential of high gains, there is also great risk of loss. Everybody who participates in the Hive economy is an investor regardless of how they obtained their Hive coins of Hive Power. If you have one Hive in the account, it has value in the market. And any holder of Hive can either convert Hive to fiat or bitcoin or invest in the platform and use it as Hive Power.

Investors/stakeholders are important in two ways: one - by affecting the monetary value of Hive coins, two - inflation is based on their holdings. The behavior of investors in the market by selling and buying Hive decided the market value and its value in Fiat. Higher the price of Hive, higher are the rewards for authors/curators. Since rewards are calculated in HBD, which is equivalent of USD, higher Hive prices mean higher rewards for authors. Just like in any other market the price of Hive is decided based on supply and demand. Since new prints of Hive relies on the inflation based on current supply of Hive, every single Hive holder make it possible for rewards to happen.

In the real world, for fiat money to hold its value we require interest on our deposit. Alternatively if we take out a business or personal loan we need to pay interest. Even futures and options contracts have interest in the equation for future pricing. Interest on fiat is what somewhat tries to retain its value. $1000 of today many not have the same buying power next year. And that is mainly due to the inflation, and printing of more fiat. Similarly, inflation in Hive if price was stagnant would decrease its value for the investors. That is why it makes sense that investors are the ones who decides how rewards are distributed as they are the ones who are taking the most risk.

However, Hive is not an ordinary blockchain. It is a social blockchain, and participants are actively involved in the social engagement. This makes it possible for any participant to have influence on the platform even without significant stakes. Human interactions, sharing of knowledge, and networking is powerful. We influence each other everyday. So, Hive being a DPOS based protocol, doesn't mean that stakeholders are the sole decision makers. Quite often we find large stakeholders consulting everybody in the community in making their decisions. After all every participant is financially and socially invested in the success of the platform.

Entitlement is a human nature. Every single human being demonstrates their ego one way or the other. Especially, in the online space it is easy to judge others and be critical of things. As one of the motivational speakers and teachers of psychology, Dale Carnegie said - "We love those who love us". This is true in online space and real life.

Upvotes and downvotes are only the mechanisms to determine the rewards that should be assigned to certain posts/comments. For the reasons described above, stakeholder have the rights to take actions of upvotes and downvotes as they deem fit. Often times, we authors forget or do not know that reward amounts that show up under our posts are only tentative rewards. They become our rewards once they are paid out. Hive blockchain gives 7 days to stakeholders to vote either with up or down. This should not be taken as a personal favor or attack, but rather for what it is - a time for stakeholders to take action as they fit best.

Downvotes are usually the topic of drama. Of course we humans, don't like downvotes for several reasons.

One, downvotes mean disapproval of what we did. And usually we think we are doing something awesome. Which probably is true, but doesn't mean it is awesome for others.

Second, we take it as a personal attack. We were earning this much, and this mean user comes in and makes us earn less. They must not like us. It can be true or false. But it shouldn't matter. It is ok to seek an explanation as nobody likes confrontations and negativity.

Third, downvotes are something new. They something we haven't seen elsewhere before. For those who haven't encountered that, it is easy to jump into conclusions of one and two. For this reason it would be ideal those who know to be aware of those who don't fully understand the protocol and mindful of their actions.

At the end of the day people disagree on various topics everyday everywhere. That is a human nature. It is also a decentralization. Best approach, in my opinion, would be to expect nothing from anybody and accept rewards as pleasant surprises.

Overall, rewards distribution system is a great idea. It allows funding participation and growing of the economy, and also by distributing coins increase the decentralization furthers. If done right with collaboration and cooperation it will be a huge step forward in bring Web3 to ordinary users of the web and at the same time increasing the value of stakeholders' assets.

Hive is da Best!

Update: Total Hive inflation rate currently is ~8%. You can read a more detailed post on the inflation rate here.

Posted Using LeoFinance