A Concise Explanation of Steem, Steem Power, and Steem Dollars – How to Obtain & Uses
A Concise Explanation of Steem, Steem Power, and Steem Dollars – How to Obtain & Uses
Welcome to Steemit! If you are like me and created an account your wallet screen probably looks a lot like the image that accompanies this post which is my wallet shortly after registering. This overview is designed to help explain what you are seeing and how you can reap the rewards #Steemit has to offer.
While there are some of these already I have not found a good one that has all this in one place, and some are virtually incomprehensible so I find myself explaining this in chats over and over again. I hope you find it helpful, especially if you are new as I avoid using the abbreviations to help keep things straight. I have given some page references to the Steem White Paper (hereafter, SWP) if you want to do any further reading.
Three Money Units. Steemit uses three tokens, two of which are pretty easy to understand. Working our way down from the top of your wallet.
Steem (STEEM) – These tokens can be traded on sites like bitfinex and poloniex. This allows you to cash out your Steem Power (called powering down) or buy some Steem tokens to increase your Steem Power (called powering up).
Steem tokens are generated automatically. The amount of Steem doubles each year (SWP, p. 8), so they are not a very good way to store value, use them (by converting to Steem Power) or trade them for something else, Steem Dollars or Bitcoin or whatever.
You get them by trading or by holding Steem Power (see below, NOT Steem). 90% goes to Steem Power holders, the other 10% that is generated goes to reward posts or up voters and repliers (called curation rewards).
Steem Power (SP) – This represents your power on the site. If you want posts you upvote to get larger rewards (including your own) then more Steem Power is what you want. Half of your rewards for posting will be in Steem Power.
You can convert Steem (above) to Steem Power. If you go from Steem to Steem Power the transfer is instant, you’ll see a 1:1 conversion of your Steem tokens to Steem Power. However, if you go the other way, from Steem Power to Steem, then it takes two years (SWP, p.9). (YES, two years, you read that correctly.) You get paid 1/104th of the Steem Power you power down in Steem after seven days, and another 1/104th every seven days later.
Therefore, it is important to understand that your amount of money shown in dollars at the bottom of your wallet is a very uncertain (and probably optimistic) appraisal of how much you have. I could not cash in my 5.011 Steem for $3.23. Rather I would have gotten 1/104th of it each week for two years. Maybe Steem would be worth a lot more then, but given that the amount of it increases 100% each year….
You get Steem Power by making posts that get upvoted or by getting curation rewards, which are from upvoting posts that get a lot of other upvotes after yours. You can also comment.
You will note that many posts have large dollar amounts under them. This is the total value of that “thread”, the original post author gets 25%, 50% is allocated as rewards to those who have voted or commented on it, and 25% goes to the parent post, or if no parent post, then to the author. This reward is paid 50% in Steem Power and 50% in Steem Dollars.
For extra fun there is also mining which rewards Steem Power but that is beyond this overview.
Now the hardest one for me to grasp was….
Steem Dollars (SMD) – The basic idea is to have a currency that is always worth about 1 USD. So no matter what happens to the price of the Steem tokens, Steem Dollars are worth enough Steem to be worth 1 USD.
However, if you convert from Steem Dollars to Steem there is a one week wait. You get the future moving median rate so you may not get exactly 1 USD worth (but it should be “very close” could be higher or lower). However, you can also TRADE them on the internal market, if you do so, you wont have to wait and should get even more close to 1 USD. By providing liquidity to this internal market, you can also earn more Steem (SWP, p. 12).
You get Steem Dollars as a portion of your reward for posting. Also it generates interest, which varies, but was initially about 10% per year (SWP, p. 13).
I hope you’ve found this helpful! Good Luck!
Excellent! I really needed this!
Here's my post on where the money comes from.
Very good sumary, Wry...
Steem dollars seem to be available on Poloniex as well now :D
I was waiting for Polo as they do really good research on coins/projects and always feel a lot safer if they add something I think has as much potential as steemit does.
Thanks for the great run down, indeed it might be the best one yet
Good overview Wry. Two points of clarification I've been curious about: I think the general inflation that occurs and is distributed to holders of SP occurs in SP, not in STEEM. I know the whitepaper says that the supply of STEEM doubles, but I think they mean the combined supply of STEEM, SP, and SMD (as valued in STEEM, because STEEM is the unit of account). Hence, the STEEM balance of my wallet doesn't increase but the SP balance does. I think that's how it works - do you?
Also, when people power down, is their entire SP taken out of circulation while it's being paid out in installments or just powered down in installments? So if I have 104 SP and power down all of it, I get 1 SP per week. But am I also earning SP as a SP-holder on my remaining SP balance, even though it's been committed to STEEM over the course of two years?
Thanks! I agree, I haven't found any great explanations of the rather complex mechanics. This is great! If I had more SP, my vote would be worth more!
Thanks @mchwierut ! Yes one the issues writing posts for new users is they don't have a lot of power, but it's cool, I really appreciate your upvote and your thoughtful reply! As to your questions....
You are correct, the STEEM "doubling" is paid out in steem power. This is one of the more interesting aspects of the system, nobody can dump all at once and the inflation is spread out by the need to power down over two years.
On your second question I am not sure. However, my best guess is that you do NOT get more SP for being a SP holder for the amount that is powering down.
I forgot to add that I think the 100% increase in the money supply will be needed for how many STEEM tokens people will lock up into STEEM POWER... as you said they will be secured and trickled onto the market throughout years. it will be an interesting journey indeed but I don't know how anyone would ever contribute to reddit for points when you could actually earn money and what works out to equivalent to shares in the site.
Thank you !