I was reading a thread, which will be mentioned below this and saw the confusion and over complication of how gains are calculated in the comments and wanted to provide a much simpler way of thinking about how to calculate your SP and estimated steem.
https://steemit.com/interest/@bacchist/steem-power-interest-is-not-compound-interest
In this post the author describes what is wrong with another authors claim seen here:
https://steemit.com/steemit/@anonymint/it-s-so-easy-to-become-a-millionaire-with-steem
Alright, I'm going to create a scenario that shows how to calculate this.
(Note these are not the exact numbers Steemit uses, although if those can be provided I will edit and show that calculation properly)
5,000 SP at 3.45% annual interest rate, or a monthly compounding interest of 0.002875.
That would look like the following:
? = 5000 SP (1+0.0345%/12 months)²years12
? = 5000 (1+0.0345/12)²12
Now additional breakdown
? = our full value when all is said and done
Your % is calculated by taking the interest rate and dividing it by 100, you will then divide this number by how many times it accumulates yearly.
5000(1+0.002875)²*12
Now you will want to calculate the exponent portion and the parenthesis formula separately.
5000(1.002875)^24
5000(1.069)
thus providing a total of 5,345 SP at the end of your 2 years. Sounds great right? At the current steam price that's almost 1,000 dollars for absolutely free, let alone what you make for diligently curating and posting!
Well its not quite that simple, that only works if the current value of steem stays stable.
Where will Steem's value go in 2 years?
A common speculative question, well given that Steem is created out of nothing and given naturally to those who hold Steem its safe to say there will be an inflated amount of Steem in several years. If there is even 1 billion Steem at this moment by the end of those 2 years given the formula I provided above there would be a total of 1,069,000,000 that is a total gain of 69 million Steem and unless price increases and Steem's market cap goes up, this could cause a decrease in Steem's value creating either of the following effects.
A) 100% ROI because you still hold the same share of Steem as you originally had
B) Steem becomes slightly devalued and you lose some of your investment or all of your investment.
Now on the other hand given that Steem is a social media platform that rewards users it could gain popularity and become a giant, and the price of Steem could double within 2 years which would not be uncommon in the cryptoworld. Considering crypto is notorious for doubling its value overnight and being extremely volatile.
This gives us option
C) Doubling or even going to the moon and beyond!
Well in this case enjoy your brand new lambo and mansion you early adopters you.
Although this seems like all we would have to worry about there is one other pesky fear, due to the recent ethereum/dao scandal I feel it must be mentioned. An outside factor crushing steemit, or a fatal flaw in the programming yet to be realized that causes the death of Steemit.
However I don't believe this would be the case, the developers here seem very competent and know what they're doing and are very transparent with the community. We also seem to have a large amount of
here to keep things in like and make sure problems get fixed quickly and safely for the users.
Thanks for reading guys and I hope this explains how to calculate compounding interest rates and provides a better understanding of what the possible outcomes are for all investors, and Steemit participants.