Letters to Jack Dorsey - Beauty of the Steem Wallet

Hello Jack,

I still have not heard from you. I hope my letters find you in good health, peace, and joy. Some say it will take a miracle to hear back from you. It is a holiday season, who knows miracles may happen. Let me tell you more about the brilliance of the Steem blockchain. Today I would like to tell you about the beauty of the Steem Wallet.

Any decentralized standards, in my opinion, should cover the economy of the networks. For that, you need a wallet where users can store their assets, transact with each other, and have full control over it. Bitcoin has introduced the idea of decentralized systems for finance where not a single entity can manipulate and control people’s assets, the possibility of trustless, fast, and secure transactions. With this financial freedom comes financial responsibility. Participants in these decentralized economies now also have a responsibility to keep their private keys secure. Inspired with bitcoin’s vision, Steem takes these standards to the next level in its implementation of decentralized standards and creating an economy that enables peer to peer transactions in a fast, transparent, and secure manner.

One of the obstacles of cryptocurrency adoptions is the learning curve and grasping of technical aspects of them. Best of the technologies must be effortless to use. Steem is a cryptocurrency that makes it is easy for ordinary users to create a wallet that is not only secure but familiar to most. When you create a Steem account, you choose your own username which becomes the address of your wallet. Now you can share this human-readable, easy to remember username to anybody you would like to have a financial transaction with. Steem wallet has several compartments: Steem Power, Steem, SBD, and Savings. I walk you through each of these in a little bit. First, let me tell you about your private keys.

There are four private keys for each Steem account: a posting key, an active key, a memo key, and a master key. This is a well thought out system. As users are the only ones who have access to their wallets, Steem makes it easy for them to keep their private keys secure. The master key allows the user to sign all transactions. However, it is highly recommended not to do so. The purpose of master key is to keep it offline and somewhere secure. So responsible users will not use their master keys at all. Print it out, lock it in a safe. In an unfortunate event of any of the other private keys being compromised, the master key can be used to recover the account and change the other private keys. This is a powerful security feature.

The posting keys are regularly used for social transactions on Steem like signing in, posting blogs & comments, upvoting, downvoting, resteeming, etc. The posting key cannot be used for financial transfers. Beautiful isn’t it? If somebody gets access to your posting key, since you use it most of the time, your funds are still safe. You need an active key for financial transfers. Any fund transfers like sending money to friends, purchasing a product, moving among your wallet compartments need your active key. So posting key for social activities, and the active key is for financial operations. See, how is easy and safe it is?

The memo key is to get access to your private memos. Steem wallet has a feature of sending some memo/message along with the funds you are sending. Some people use it to send receipts, and messages to each other. One cool thing about is you can send private memos/messages by simply adding a ‘#’ symbol in front of your message. Memos that do not start with that symbol are public and everybody can see them. To send encrypted private memo always start your message with the ‘#’ symbol. Cool eh?

So basically all private keys have their functions and only used to sign relevant transactions. This keeps the wallet and the account safe & secure. As you can see while Steem provides a great deal of security for accounts/wallets it keeps it simple and easy for an average user to understand and use. Let me tell you about the wallet compartments.

The main asset on Steem blockchain is Steem, which is a liquid cryptocurrency that you can exchange with anybody on the network. Since Steem is built for social activities on the internet, it has another amazing feature called Steem Power. You can stake your Steem into the network to increase your influence on the network, participate in the political, social and economic aspects of it. The action of staking your Steem is called ‘Power Up’. When you power up your liquid Steem is converted into Steem Power (SP) and your funds are locked up. More SP you have higher is your influence in the network. To convert your SP back to liquid Steem you need to initiate a power down. Power down takes 3 months to fully convert SP to liquid Steem. SP you are powering down is divided into 13 payments and paid out as liquid Steem each week. Some users with large stakes say this is a great security feature for their funds. If somehow their active keys are compromised, malicious actors can’t steal the staked funds right away. This will give enough time for the account owner to stop the power down and change the keys. I will tell you more about the influence SP give in a little bit.

Another cryptocurrency Steem has is SBD. It either stands for Steem Based Dollars or Steem Blockchain Dollars. We just call them SBD. The original idea behind SBD was to have a currency that is pegged to US dollars. But not pegged like stable tokens that are backed with funds off-chain. In fact, SBD is not stable. However, when it is below a dollar it keeps trying to get back to a dollar. When it is above a dollar it tries to get back down to a dollar. Some think SBD is a failed attempt in making a pegged currency. Some say it has great potential and working on different approaches to making it work.

SBD is backed by Steem. You can convert your SBD to Steem on the chain and suppose to get $1 worth of Steem for each SBD. This conversion process is not immediate. I think it takes a week and uses a 3-day average Steem price rate at the time of conversion. There are more technicalities to SBD. I don’t completely understand it. But it goes something like this. SBD is considered a debt. Blockchain stops printing once this debt goes over a certain percentage, I believe 10%. Then starts printing SBD again when it falls below 10%. I can get you in touch with some tech wizards who can explain the magic behind the SBD algorithm. We actually have some wizards on the platform. For example, Gandalf the Great (@gtg) is here.

So what SBDs are used for? Steem rewards content creators. When authors create content they get rewarded based on the upvotes they receive. Rewards are paid out after seven days the content is posted on the chain. They receive 50% of the rewards as SP, and another 50% as SBD. This is one of the main use cases. SBDs are liquid assets and can be used for various other financial transactions. Since SBDs are worth close to $1 most of the time, ordinary people can easily relate to the value. Both Steem and SBD are liquid assets and used like checking accounts.

There is also the Savings compartment of the Steem wallet. Liquid assets can be transferred to Savings to keep them more secure. Assets in the Savings cannot be transferred right away. They need to be moved to the Steem or SBD compartments first, which takes 3 days. Again, if your active key is compromised and your liquid funds are in savings, culprits can’t steal your funds quickly. 3 days transfer time from Savings to liquid will give the user plenty of time to recover the account and change the private keys.

We have many front ends built on top of Steem. Some of them are busy.org, esteem app, partiko app, steempeak.com, steemit.com, etc. I mainly use Steemit.com that is built and managed by Steemit Inc. They have a separate website for the wallet, steemitwallet.com. Most users will find Steemitwallet.com UI/UX familiar and easy to use. New users can have a quick and smooth start using Steem as a financial asset for all the reasons I have explained so far.

Very soon we will have a hard fork that will integrate Smart Media Tokens (SMTs) on Steem blockchain. This will allow businesses, apps, websites, communities, anybody to create their own tokens and easily implement in their use case, experiment new use cases. SMTs will have similar wallet features like Steem/SBD and users will be able to exchange their SMT assets to/from Steem. This is going to be very interesting. So much going on here. Currently, SMTs are in a testing phase and planned to be released early next year. It is going to be an amazing year for Steem.

Before I end my letter let me tell you more about SP. Powering up SP gives users an influence on the platform. SP is used in voting for witnesses (block producers), voting for community proposal fundings, creating new accounts, upvoting and downvoting content. You will hear some say that Steem has the best crypto asset distribution system. In order for any economy to grow, you need users, and assets in the economy should have a certain system of distribution. Ordinary people from all walks of life around the world join Steem every day and start getting rewarded for the content they create, for their engagement and comments. These rewards are distributed by upvotes. Higher SP the user has the higher their upvotes are worth. On Steem we have a system of establishing and evaluating content’s social value and distributing rewards to content creators. We call it Proof-of-Brain.

Hope to hear from you soon,

GG

Read the previous letters:

1. Letter to Jack Dorsey - Decentralized
2. Letters to Jack Dorsey - Six degrees of separation
3. Letters to Jack Dorsey - Steem Torch