New to Steemit.com and struggling to understand the reward system? This video is for you!

Introduction to the Steem Economy

Once you start using steemit.com it will all become very intuitive and simple, but at first it can be a bit daunting, so in this video I try to break it down as quickly and efficiently as I can so that you all can get to the urgent business of creating content, engaging with other users, and earning rewards. A transcript of the video is included below.

Disclaimer: These are my personal opinions and views. They do not represent the official positions of Steemit Inc. or any employees thereof

If you find the video helpful, please don't hesitate to share it with any new users struggling to grasp the concepts.

Transcript

Hey everybody, my name is @andrarchy and I’m the community liaison for Steemit Inc. New users are currently pouring into Steemit.com and so I would like to provide you all with a brief introduction which explains how Steemit rewards its users for the content they contribute to the platform.

The Steem Blockchain Protocol

The first thing you need to know is that Steemit rewards its users by leveraging a revolutionary cryptocurrency called the Steem Blockchain Protocol. The Steem Blockchain Protocol is similar to Bitcoin except that in addition to being able to store a list of token transactions the Steem Blockchain can also store content and use the tokens it creates to reward people who upload valuable content. So when you post, comment and upvote on Steemit.com you’re really interacting with a blockchain!

STEEM Tokens

Like most blockchain protocols, the Steem Protocol creates money out of thin air, called Steem Tokens. It creates these tokens at a rate of 9.5% a year. 10% of these tokens go to a group of people called witnesses in exchange for maintaining the database where all of the content is stored. But 75% of the new tokens are distributed to users to reward them for uploading valuable content.

Now Steem tokens are super cool. They can be transferred anywhere in the world in 3 seconds without any fees. Like most cryptocurrencies they are basically like shares in the technology. They are the life blood that powers the system, and so if the system’s value goes up over time, so too will the value of Steem Tokens.

There are, however, some problems with Steem Tokens which explain why our rewards take the form of Steem Power and Steem Dollars. The first problem is that Steem Tokens have a volatile price. The price is entirely determined by the market which determines the “real” value of the tokens in real time. That means that the price can change significantly from one day to the next.

Designed for Regular People

The Steem Blockchain, however, was designed to encourage ordinary people to share valuable content. When the Steemit Team was evaluating what motivates people to do work they looked at what traditional businesses do. Traditional businesses typically leverage two types of money to incentivize their employees: cash and shares. They use cash to motivate them in the short term by giving them money that is stable and can be cashed out at any time. They use shares to motivate employees for the long term by giving them money that represents equity in the enterprise and which can’t be cashed out immediately.

These are the functions that the Steem Dollar and Steem Power serve. Both are basically IOUs for Steem Tokens that serve different functions. The Steem Dollar is designed to always be worth at least one US Dollar. That way if you make $100 on a post, you’ll be able to immediately grasp how much value you earned and you can rest easy knowing that it will be worth $100 US Dollars a year from now or 10 years from now.

Steem Dollars

How does this work? Well Steem Dollars are basically IOUs for however many Steem Tokens it takes to give you a US dollar worth of value when you cash out. If Steem Tokens are trading for 50 cents, and you go to cash out one Steem Dollar, the Steem Blockchain Protocol will give you 2 Steem Tokens in exchange for your one Steem Dollar, leaving you with one US Dollar worth of Steem Tokens. You can then use those 2 Steem Tokens to buy a US Dollar worth of Bitcoin, Ether, or any other cryptocurrency.

At least that’s how the system originally worked. Fortunately exchanges like Bittrex will now accept Steem Dollars directly, so if you have $50 Steem Dollars, you can use an exchange to convert that directly into at least 50 dollars worth of Bitcoin, and if you want US Dollars you can use a site like Coinbase.com to convert those 50 dollars in Bitcoin into 50 US Dollars.

Steem Power

Steem Power, on the other hand, MUST be converted to Steem Tokens before you can cash it out. One unit of Steem Power is an IOU for one Steem Token. Because the Steem Blockchain Protocol MUST always give you one Steem Token in exchange for one unit of Steem Power, Steem Power represents equity in the underlying protocol like any cryptocurrency. The more valuable Steem Tokens become, the more valuable your Steem Power becomes. But Steem Power has several additional features which make it superior to rewarding users directly in Steem Tokens.

The first is that the Steem Blockchain Algorithm can leverage a user’s Steem Power to determine how much POWER their vote should have. As I said earlier, 75% of the new tokens created every year are distributed to content creators, but how does the Steem Algorithm determine who gets how much and in a way that people will accept as objectively fair? Not an easy question considering that evaluating the quality of content is entirely subjective.

The Steem Blockchain resolves this issue by crowdsourcing the determination of value. Content is deemed valuable by the blockchain based on how many upvotes it receives and who those upvotes come from. The more Steem Power you have the more rewards are allocated to the content that you upvote. In other words, the people who are most heavily invested in the platform have the most influence over who is rewarded. And yes, upvoting yourself is perfectly fine. In fact, buying Steem Power is one way to accelerate the process of getting your content the attention you feel it deserves.

The other benefit of Steem Power is that it is extremely secure. Like all cryptocurrencies, if someone steals your Steem Tokens, there’s almost nothing anyone can do to get it back to you. Steem Power, on the other hand, can only be converted to Steem Tokens in 13 weekly installments during a process referred to as “powering down.” When you initiate a “power down” your Steem Power isn’t immediately converted into Steem Tokens. Instead, every 7 days 1/13th of your Steem Power is converted into Steem Tokens, which you can then sell on exchanges. The reason the process is called powering down is because as you unload your Steem Power, your influence in the system decreases accordingly since the Steem Blockchain Protocol uses your Steem Power to determine your influence.

Since the process is gradual if your account is hacked and the power down process is initiated by a malicious actor you have plenty of time to regain control over your account by utilizing our industry-first account recovery process and cancelling the power down before much damage has been done.

Now the astute observers among you might have noticed that I only explained where 85% of the newly created Steem Tokens go. The remaining 15% of the new money created goes to paying the holders of Steem Power. It’s basically an interest payment. It’s a small reward for investing in the long term of the platform.

Summary and Conclusion

Alright, my goal with this video was to give you a brief overview of the two point systems that you’ll find on Steemit.com: Steem Dollars and Steem Power. I explained that you can think of these point systems as the equivalent of cash (in the case of Steem Dollars) and shares (in the case of Steem Power). Steem Dollars can be converted into anything immediately and you will receive approximately one US Dollar worth of whatever you’re buying when you do so. Steem Power are shares that you can’t immediately sell, which earn interest, and determine your level of influence in the system. But remember, everything you do on Steemit.com is totally free, so if you really want to understand how everything works, just start posting, engaging with the community, and earning rewards.

I’m certain you’ll quickly discover that it isn’t the fact that you can earn money for your content that makes steemit.com so special, it’s the supportive and engaging interactions the platform promotes that makes our small town on the internet so rewarding.

I hope to do more of these Steemit 101 videos so please use the coments below to let me know what you would like to learn about next!

Thanks!

For those interested in understanding the cashing out process:
Cashing out via Poloniex.com and Coinbase.com
Cashing out via Bittrex, Coinbase, and Shift Debit Card