What Is Steemit

We decided that the only way to learn more about Steemit and how it works, would be to sign up and give it a try. So we created an account and started using Steemit as a new member.

Steemit is a blockchain database that combines features of blogging and social media with cryptocurrency. It offers earning potential to content creators and curators alike. Think of something like Reddit or Tumblr, except the rewards are shared with the users. You can earn 'Steem' by writing content, through comments or though voting on existing content.

The amount of Steem you can earn is based on the Steemit algorithm. We read the Steemit Whitepaper and the Steemit Bluepaper, and still feel like we only have a vague understanding of how it works. For a start the wallet is broken into subsections you'd expect it all to be Steem, but it isn't. You can earn:

Steem

Steem is the coin traded on exchanges. All values of Steemit coin are derived in someway from the value of Steem. The price of Steem over the past year is shown in the chart below:

Steem Power

This is a vested interest in the Steem network. The more Steem Power you hold, the more influence you will have in the network. One interesting thing about Steem Power is that you can't trade it. If you want to sell it, you need to first convert it to regular Steem tokens. According to the whitepaper converting from Steem Power to Steem will take 13 weeks.

The main advantage of holding Steem Power, is that it gives you greater influence. When you comment or vote on content, your influence will be proportional to how much Steem Power you are holding. In other words some votes are more equal than others. We can't confirm this but holding more steem power might also improve the odds that blogs you publish will earn some Steem.

Another advantage of holding Steem Power, is that you can earn interest and grow your balance. When new Steem is issued, 15% of it is allocated proportionally to those holding Steem Power. In this regard, holding Steem Power is similar to owning hashrate on a mining based coin. The more Steem Power you hold, the greater your allocation of newly issued Steem.

We like that holding Steem Power gives you more influence and greater potential to earn newly minted coin. We don't like the 13 week time lapsed withdrawal this is something which would put a lot of people off altogether! The incentives alone should be enough to keep people invested in Steem Power. The drip feed withdrawal process might prevent people from investing in the first place.

Steem Power

Steemit considers Steem Dollars (SBD) as their version of debt, or convertible notes. Steem Power on the other hand would be their version of equity, or partial ownership of the network. Steem Dollars (SBD) are designed to give the cryptocurrency stability. The goal is to keep the value of one Steem Dollar at close to the US Dollar as possible.

Steemit will allocate Steem Dollars and pay interest on them in a way that influences the exchange rate to stay within the acceptable range of $0.95 to $1.05 US. We have chosen to overlook the irony of a cryptocurrency pegging to a fiat to add value.

In order to stymie corruption, Steemit bases the exchange rate of SBD to Steem on a 3.5 day moving average price. This mechanism is designed to prevent people from intentionally gaming the market and profiteering off short term price manipulations.

When you earn Steem from blogging, commenting or voting, you will be paid partially in Steem Power, and partially in SBD. The ratio should be close to 50/50, but the algorithm will adjust this in order to keep the SBD exchange as close as possible to US $1.

If you want to convert your SBD to Steem, there will be delays. We had a small balance of SBD, which we wanted to move to Steem Power (hey might as well build the influential power with small balances). It was a little annoying that the process will take 3 days, as shown below:

The whitepaper explains that the delay in converting SBD to Steem, is to prevent market manipulation. However we once again worry that by reducing liquidity, Steem is making themselves less attractive to new investors.