The Hive Power You Earn for Holding Hive Power.

in LeoFinance3 months ago (edited)

Many newbies here don’t realize that you earn Hive Power simply by holding Hive Power. But even most folks here who do know that don’t understand it correctly. They probably think of it as interest, but it’s not (more on that later). And I’m pretty sure that only a tiny percentage of people here understand exactly how much they’re making.

(This is a revised and updated version of similar posts I’d done for the Steem blockchain, most recently here. Although this post contains historical looks back at earlier Steem posts and data, the calculations shown will reflect current conditions on the Hive blockchain. Confusingly, I will sometimes be using “Steem/Hive” when referring to cases where the same statement is true for both blockchains.)

I signed up through Steemit 43 moons ago and was absofreakinglutely clueless about its inner workings. You posted and, after a while, would sometimes earn some Steem Power. A few months later when I had been looking at my wallet, I’d noticed my (then tiny) SP balance, went to my Feed page, and then had gone back to my wallet. To my surprise, my balance had increased by 0.001 SP. What the heck? And so started my long path down the rabbit hole trying to figure out what was going on. I quickly learned that I was earning interest. Much later, I learned that I wasn’t actually earning interest on my holdings (hint: your real holdings are in terms of Vests rather than Steem Power) but prior to learning that I muddled along trying to understand by what percentage my Steem Power was growing “just sitting there”. And the further down the rabbit hole I went, the more I learned that many things I had assumed to be true simply weren’t.

In this post, I’ll show you how much you’re making on your Hive Power today and explain why that percentage is constantly changing.

Since I’ve gone down the rabbit hole, I’ve done several posts on the subject, including one from a while back:
Do You Earn Interest on Your Steem Power? Yes, and No. Implications for Muslim Steemians.

It includes links to earlier posts I’d done on the subject which show some of the ways I’d fine-tuned my understanding of the value of holding Steem as Steem Power and a link to a post by @lukestokes where he discusses why the Steem Power you earn for holding Steem Power is an adjustment for inflation rather than interest per se. While it seems that you’re earning interest, you’re really not. It’s actually an adjustment for Steem’s inflation rate. A perhaps subtle distinction, but one that might be important to observant Muslims and anyone else who has ethical or religious objections to interest. If you want to think of it as interest earned, that’s fine, just realize that it really isn’t.

And the wording of the Steemit FAQ has changed to reflect this difference. When I first started looking into this, it had said “STEEM tokens that are powered up to STEEM Power earn a small amount of interest for holding.

The current hive.blog FAQ is available here.

But now, the FAQ’s have somewhat clarified that, removing any reference to interest and simply says “15% of the new tokens are awarded to holders of Steem/Hive Power.

Straightforward as that might seem, it allows for some fuzzy thinking. In a long comment to Luke’s post, I dug into why it can be a bit confusing even though true to say that 15% of created tokens go to holders of Steem Power. In this post, I’ll show how the interest that’s not interest builds at a higher rate than most people might assume.

In the very early days of Steemit (yes, when dinosaurs walked the earth), Steem had an annual inflation rate of 100%. You read that right. But it didn’t last long. As the FAQ says,

Starting with the network’s 16th hard fork in December 2016, Steem began creating new tokens at a yearly inflation rate of 9.5%. The inflation rate decreases at a rate of 0.01% every 250,000 blocks, or about 0.5% per year. The inflation will continue decreasing at this pace until the overall inflation rate reaches 0.95%. This will take about 20.5 years from the time hard fork 16 went into effect.

So Hive’s inflation rate is constantly falling. We’re now almost four years beyond December 2016 so Hive’s inflation rate has fallen a bit less than 2% since then. (Although the FAQ says the inflation rate drops by about 0.5% per year, the actual decline is closer to 0.42%.)

While it’s easy to think of one’s influence on the Hive blockchain in general as a function of the Hive Power you hold, under the hood it’s really about the Vests that you own. One hint about this is what you need to become a Minnow, Dolphin, etc. Many here mistakenly think along the lines of it takes 500 HP to be a minnow. No, it takes exactly 1,000,000 Vests to be a minnow. The amount of Hive Power needed to be a minnow is constantly rising, but the number of vests needed is unchanging. You can go to hive-db.com to see how much HP equals 1 MVest. As of today, it takes 514.896 Hive, but that number is constantly slowly rising. That rise is a function of Hive’s inflation rate. The Hive Power you earn for holding Hive Power is nothing more than an adjustment for inflation. Metaphorically, Vests are gold (representing immutable, unchanging wealth and power) while Hive Power is the paper currency that is used on a day to day basis in lieu of that underlying asset. At some point in the not distant future, 515 HP will represent 1 MVest. Later still, 516 HP will represent 1 MVest. Think of Vests as a hard asset and HP as a derivative.

(Note to self: perhaps it’s time to start thinking about writing a post about vests.)

The formula for determining the current rate of inflation for the creation of Hive tokens is

(978 - (head_block_number / 250000)) / 100

Right now the current head_block_number is 44,773,372 so

(978 - (44773372 / 250000)) / 100 =

(978 - 179.093488) /100

= 7.98906512%

is the Hive inflation right now as I’m typing, but by the time you read this, it’ll be a little bit less than that.

If you earn Hive Power for holding Hive Power and the holders of Hive Power get 15% of newly created Hive, it’s tempting to multiply the 7.98906512% inflation rate by 0.15 to come up with a bit more than 1.198% as how much your HP grows “by just sitting there”. Not a huge amount, but probably more than your bank is paying on your fiat. But it’s the holders of Hive Power who get that 15% of new tokens; holders of liquid Hive (or HBD for that matter) get none of it.

How much Hive exists? Surprisingly, there’s more than one answer to that question.

virtual_supply refers to the total supply of liquid Hive + Hive Power + HBD

current_supply refers to the total supply of liquid Hive + Hive Power

total_vesting_fund_steem refers to the total supply of Hive Power (note that it’s not yet called total_vesting_fund_hive and I am guessing that it would take a Hard Fork to change that?)

We can get the numbers from hive-db.com

Right now,
virtual_supply = 383893846
current_supply = 360921335
total_vesting_fund_steem = 137294399

Again, these numbers are as of when I looked but will be different by the time that you look.

Repeating a key point, It’s the holders of Hive Power who get that 15% of new tokens; holders of liquid Hive (or HBD for that matter) get none of it. So we need to adjust our calculation to account for that by introducing a new term:

virtual_supply/total_vesting_fund_steem = fnord

Yeah, I made that one up. Okay, borrowed it from the Illuminatus trilogy.

383893846/137294399

Right now, fnord = 2.79613625025

Removing insignificant digits, 2.796

To get the true percentage rate for the HP you’re earning for holding HP, we need to calculate as
(Hive inflation rate) x 0.15 x (fnord)

Right now, that’s 3.351% APR.

That’s what you’re earning for holding Hive Power.

But that’s just a snapshot. It will trend down over time as the rate of Hive inflation goes down. But notice that I said trend. The virtual_supply/total_vesting_fund_steem “fnord” ratio can fluctuate up or down depending on whether, in the aggregate, people are powering down or powering up. So if a bunch of large accounts are powering down at the same time, the rate at which you earn Hive Power because you hold Hive Power can actually increase briefly even though the Hive inflation rate is continuously dropping. As it happens, the current 3.351% APR is significantly higher than the 2.73% that was calculated exactly three month ago, largely because the “fnord” ratio is higher now than it was then.

Probably three months from now, I’ll rework this and post an updated version showing current numbers. I have been doing them a bit sporadically, but now plan to do them four times a year, on the first day of each calendar quarter.

Pixabay image

Posted Using LeoFinance

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 3 months ago 

I re-read this every time you update; a little more sinks in each time. Appreciate it :)

The Hive 'interest' rate may not be interest, and it may not be pin-downable, but at least it's not going to go negative like bank interest rates could in the not too distance future!

a real selling point for Hive, even if it's not that easy to wrap your head around!

@tipu curate

Upvoted 👌 (Mana: 24/32)

Awesome info. I have a lot of friends who just want to power up and come back later to see stuff, in my opinion best way is to delegate, but this post is making me understand that just by holding, you earn 15% inflation if i got you correctly

A lot to unpack here and thanks for sharing ! Re-steeming this so it won't get lost in the sea of Hive.

Thanks. Can you tell me what exactly the block reward currently.

It’s 0.246 HP as of today.

Thank you.

I feel like I'm back from 30 moons ago and have to re-learn everything. Thanks, I've bookmarked your post and will have to read it a few more times.

Interesting post. Quite simple, but very useful.