It’s fair to say that the Steemit economy can be confusing for newcomers, especially if you are not so familiar with cryptocurrencies. In fact, Steemit acts as one of the most popular gateways to the cryptocurrency world for most people. It’s one of the few properly working crypto projects that have seen a huge adoption rate, even from outside the crypto space. Throughout the following article, we will help you understand the different cryptocurrencies that form up the Steemit economy.

According to Steemit user Ilyastarar, these are some of the most commonly asked questions about the economics of Steemit.

• How does Steemit reward its users?
• Where does the money for the rewards come from?
• What are steem, steem dollar, and steem power?

Steemit Currencies

Steemit consists of three currencies that make up the Steemit economy; steem, steem power, and steem dollars. Let’s explore those currencies.

Steem

Steemit has its own blockchain that issues the steem (STEEM) token. The steem token is the fundamental unit of accounts on the Steem blockchain. The token can be used inside the Steemit economy to boost accounts' steem power, or it can be traded for steem dollars (SBD). The steem token can be traded on public exchanges like Bittrex or Binance. So, steem is the highly liquid component of the asset system. Steem power and steem dollars derive their value from the value of steem.

Steem Power

Steem power is basically locked steem and is meant to be a fixed, long-term asset. Because of this vesting action, your steem is converted to steem power. This process is called ‘Power Up’.

The reversed action of ‘Power Down’ is as well possible. The strength of the whole Steemit ecosystem depends on this. It’s is only possible to Power Down 1/104th of your steem power weekly. In fact, after two years you have converted a full steem power back to steem.

A lot of people hold Steem Power. The more Steem Power a user holds, the more influence they have in the Steem network. This means that their upvotes and comments are more worth than people who have locked up less Steem Power. It’s as well beneficial for the users themselves as they receive higher curation rewards for upvoting posts.

In addition, the amount of Steem doubles every year (100% annual inflation). 90% of this new Steem is distributed over all Steem Power holders.

Steem Dollar

The steem dollar (SBD) was designed as an attempt to bring stability to the world of cryptocurrency and to the individuals who use the Steem network. The steem dollar is meant to be worth roughly $1 USD. A steem dollar is transferable/convertible debt that you can transfer to an exchange or sell to someone else. It’s basically a promise to pay one dollar’s worth of steem when you decide to redeem it. For a business, it’s more comfortably to accept a steem dollar that will have nearly the same value each day.

Steem dollars are earned by publishing content on the Steemit platform. An author will receive both steem power and steem dollars for adding content to the platform. An author can define the percentage of each, with 50% as a minimum for Steem Power.

A steem dollar can be redeemed at any time when its price goes lower than $1 USD. You will receive steem coins that are worth $1 USD. The steem dollar you give back to the Steemit economy will be destroyed. As there are less steem dollars circulating, the price of steem dollar will increase back to $1 USD. It’s a very clever way to maintain a stable token price using your Steemit community. This whole process takes 3.5 days.

Steem Dollar is not perfect. In December 2017, the price reached $12 USD.

How does Steemit reward its users?

Steem is earned through Proof of Brain. It’s all about writing down quality content that people like. Bots are not yet able to produce great articles by themselves. Writing quality content proves you are human. There are two ways of earning your steem.

• Author Rewards: When you publish content on Steemit like a blog post or a comment and you receive upvotes for it, you will receive author rewards.
• Curation Rewards: In case you upvote a great post or comment, you get rewarded a share of the value of your upvote as curation reward.

Watch out, all content you publish is stored forever on the Steemit blockchain and cannot be altered. For Steemit, this immutability means total freedom from censorship. The decentralized voting system makes sure people can upvote quality post so others can find this valuable information as well.

So, users are incentivized to create great content by rewarding them with steem tokens.

Conclusion - Key Points

• Steem Dollars are created to help bridge the gap between more traditional fiat money systems and the crypto space as it holds a stable price mostly.
• Remove censorship.
• All content is stored on the Steem blockchain making it easier to prove intellectual property.
• Steem Power is locked up to get more influence in the Steemit network.
• Steemit makes use of Proof of Brain so users can earn steem through author and curation rewards.

More information about Steemit, its various currencies, and other similar currencies can be found in our cryptocurrency list.