Understanding STEEM, Steem Power, & Steem Dollars

I’m new to Steemit, but I’ve spent some time on the blockchain in the exchanges, and I’ve been studying cryptocurrency for a little while now. I’ve also spent some time reading the STEEM white papers. I have a few notes that may clear up confusion about Steemit for some who came to this platform as a first experience with digital currency and are less familiar with blockchains in general.

The blockchain is essentially “the new internet” and I believe will become as widely used as dial up once was in the future. This technology was originally designed for the first cryptocurrency, Bitcoin, and has spawned innovators to create from and improve upon the design - as all new technological innovations do. The original purpose of creating a cryptocurrency was related to an international need for bringing currency back into the hands of citizens. It was an attempt to decentralize monetary systems and bypass big banks which had manipulated paper currencies through fraudulent methods like keeping AAA ratings on subprime mortgages which led to the housing market crash. (I’ll write more on that in a separate blog.)

The point was - just like the handful of of analysts who figured out the mortgages were hollow and bet against the housing market, cryptocurrency was born of tech-savy computer geniuses who figured out a way make currency more trustworthy, more accessible, and better. It’s taken a few years to get the system up and running smoothly, but I believe we’re entering the era where we’re about to see it become mainstream. And just like the few who were ahead of the game and bought up during the 90’s dot com boom, I believe those of us who have seized the opportunity to get involved early are going to be thankful.

I’m no computer genius, so I’l share this link as a technological explanation of how the blockchain works:

https://blockgeeks.com/guides/what-is-blockchain-technology/

So what are these three currencies in Steemit?

I’ll start for comparison by sharing what the system is like in Coinbase. Coinbase is an exchange that serves as an entry point for a lot of people into the cryptocurrency market. It allows users to purchase a handful of larger currencies directly from their bank accounts, which they can then transfer into the trading platforms to exchange for other currencies. Currently, coins that can be purchased at Coinbase include Bitcoin, Etherium, Litecoin, and since December 2017 Bitcoin Cash. The site is said to be planning releases of other currencies throughout the year, and if you’re holding those currencies, you may see your investment climb dramatically when they hit this platform. (Let's cheer on STEEM!)

So once you buy into the currencies on Coinbase, you then have several options. For a fee, you can transfer your currency into the exchanges and begin trading it for other currencies. You can HODL (hold on for dear life) your currencies as long-term investments. Or, if you’ve already made growth and you want to end your risk and keep your earnings (For example, if you bought Litecoin a month ago for $100 and decided to pause its liquidity two weeks later when it reached $250), you can move your money into the USD wallet, where it’s converted into USD. With that option, you no longer hold the cryptocurrency, but the monetary value that you own from it is now stable.

The system presents great opportunities, as well as some challenges. For example, Bitcoin and Etherium are especially vulnerable to liquid fluctuations because they are often bought and sold as entry and exit to other coins. Those fluctuations can be both beneficial and difficult, depending on the holder’s goals and how the market is played.

Steemit has developed a design to address some of those challenges.

• STEEM is a liquid asset that operates much the way Bitcoin and Etherium do. The Steemit platform gives users a way to purchase STEEM directly rather than purchasing a coin through Coinbase, moving it to the exchange, and trading it for STEEM, all of which require transaction fees. Having STEEM is similar to having stocks. The value of each STEEM will go up and down depending on the current market price in the exchanges. But however many STEEM you purchase, you will own that number of STEEM unless you choose to sell it or transfer it into Steem Power by powering up. 100 STEEM today may be worth more or less next week in USD value, but it will still be 100 STEEM. Owners have the option of day trading liquid currencies just like they can stocks.

• Steem Power was designed to help stabilize the company. It’s hard for a company like Bitcoin to maintain its value when its entire product is liquid and is simultaneously being used as an entry point to other coins, causing frequent sells. Steem Power is a long-term shareholding of the company and cannot be easily withdrawn. This helps give backbone to the company, and I would argue that it’s paying off. In the past few weeks as we saw large drops in the cryptocurrency market in general, I took notice of the fact that STEEM was one of the most stable coins surviving that drop. That’s what caused me to take a deeper look at the company, and right after I joined Steemit, I received an alert from a crypto advisor, stating he had made the same observations. He was very complimentary of STEEM and mentioned that this currency has a real world live usage, unlike many of the currencies whose usage are still in development on the white paper. Duly noted, I invested in more STEEM. So is there liquidity in Steem Power? Yes, to some degree. Steem Power is like the IRA of the company. SP owners are paid dividends of the company’s earnings. So the more you buy Steem Power, the more successful the company is, and the more the Steem Power is worth. If one Steem Piwer always equals one Steem, then I believe this is the most stable investment and also yields the highest return. You get the growth of value of Steem plus dividends.

• Steem Dollars, if I understand correctly, are tokens that are worth $1 of STEEM. Let’s think about what that means within this cryptocurrency. Had you owned STEEM a year ago, the value of each coin was worth about 16 cents. Steem Dollars would have been a huge advantage! One Steem Dollar would have been worth 6.25 STEEMs. Today, it’s the opposite. This week, STEEM is trading for over $6. So keeping your currency in Steem Dollars gives you 1/6 of a STEEM. But that’s just today. In order to know whether Steem Dollars is a good investment for you, it’s good to keep up with the market value of STEEM. That can be done in the exchanges or in apps such as CoinMarketApp and CoinMarketCap. One strategy that may turn out beneficial would be to hold your earnings in Steem Dollars until the market value of STEEM drops and then buy more STEEM at a lower price.

• Steem Savings seems to operate much like the USD wallet in Coinbase. This is a comfortable place for those who don’t like risk and just want their currency to stay still. It’s a personal choice, but I believe in the company and therefore believe the money will grow more in the investments.

Please let me know any corrections you have to my interpretations. I will continue reading white papers on other currencies and sharing my discoveries. I am not a financial or crypto advisor and the notes I've made are just my opinions based on my experience with cryptocurrency. Some of my interpretations could be in error. So if anything I've said counters your thoughts, I'd love to hear from you so that we can learn from each other.

(photo from Google, licensed free to use or share)