I'm relatively new to Steem. I just started with it last week. And it's been a bit of a struggle to wrap my head around how it works. So my intention with this post is to try to explain how Steem and SteemIt works as clearly as possible. Hopefully this is up-to-date (as it changes) and helps a few people like me.
Let's start with a link to the Steem Whitepaper: https://steem.io/steem-whitepaper.pdf
Steem is a cryptocurrency, tradable like Bitcoin or Ethereum. You need Steem to buy into SteemIt, and when you cash out, you'll get Steem back. Steem is meant to be to traded.
SteemIt (where you're reading this!) is modeled off of Reddit, clearly. Reddit is a very successful social network which resolves around sharing of links and posts. People form communities and friendships. So at it's heart, SteemIt is designed around "content curation", liking and commenting.
Where SteemIt mixes it up, is that you can earn money for these actions. As you share more, comment more, and like more, you can earn more. And as you accumulate more of these earnings in your account, you build a reputation that makes you earn more from your actions. The more reputation you have, the more you earn.
Steem is the cryptocurrency, explained about. Steem Backed Dollars (SBD) are what you earn on Steemit. Also like a cryptocurrency, but not designed to be traded. Steem Power (SP) are like a long-term investment. If you have money in Steem or SBD, and want to "hodl" it, you can put it in Steem Power (called powering up) to earn interest from that.
Now with a community where you can potentially make money for sharing, commenting and liking, you would expect the rise of spam and bots to try to cheat the system. And those things are inevitable. But the platform also has the power to counteract some of that. There are rate limits on these actions, and so you can't do 10,000 likes per day to have any effect. Voting reduces your Voting Power (VP) and it takes time to get that back.
Now there are also the good kinds of bots. You can delegate (lend) your Steem Power (and thus your voting power) to a bot and earn a rate of return for that. And you can buy promotion from that same voting bots to leverage the voting power they have from others to get your content seen by more people and potentially earn more.
In this way, it follows the ways of the Internet as a whole. You can post content to your website. You can pay for ads. You can earn money from displaying ads. With the added benefit that this whole system can be controlled (instead of chaos) and you can earn money from being a good member of the community.
Not all is perfect in SteemIt land, again like any real life. There are always little tweaks and improvements being made. And when the "make money fast" people came and went, it had an effect on the site that in some ways are still not over.
There are a couple of downsides that I will point out, from my "newbie" point of view.
- If you have no money, and start from zero, you have almost no power. Your actions don't have much effect, and we're talking about pennies per week (if that) for your efforts. This is the "minnow" problem.
- Conversely, if you've been around for ages, or have money to invest, you can be very powerful. A single vote from a "whale" can add $100 to the earnings of a post. As they say, power corrupts and these whales are anonymous.
- The same problem that almost all cryptocurrencies face. When the price goes up, people at the top have incentive to cash out. So the price goes back down. There's a constant downforce on price because Steem doesn't pay the rent.
- There's a 13-week cooldown period on powering down your Steem Power - converting it to Steem. So if something happens - either in real life or on Steem - that causes you to want to get your money out fast, you cannot.
That last thing can be a good thing - for the platform. It encourages a long-term view. But again, if your car dies and you need a new one, and you have $20K in Steem Power and nothing in US Dollars, you'll be wishing to get access to more of it quicker.
That's my best attempt to explain Steem and SteemIt. What did I miss? Leave a comment to let me know. And of course, please hit like!
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