What is STEEM and how does it work?

Buck Buchanan, International Executive Technology Sales Management

The one-sentence answer is that it’s a distributed block-chain database that supports community building and social interaction with cryptocurrency rewards. It’s also the fundamental unit of account for Steemit, an online Reddit-like (but again, incentivized) information-sharing community that is based on the STEEM database platform. It’s like Reddit with an in-line crypto currency payment system that rewards content providers and curators with digital currency. The underlying asset is ownership of (or debt secured by) the platform itself.

To build a startup, or more specifically a platform like this you either offer debt or ownership. Buying ownership assumes those risks and rewards of ownership, while those who buy debt are guaranteed a specified interest rate but don’t participate in profits (or losses) through the platforms growth (or shrinkage). Additionally, ownership could either be liquid, and able to be sold at any time, or it could require that it be held for a vesting period before it could be sold, offering even more value to a startup community.

The currencies representing those three asset classes come in three forms: STEEM, the proof of stake fundamental crypto currency unit of account, is what the other tokens derive value on the blockchain, and is a liquid currency that can be bought and sold on exchanges just like Ether, for example, or it can be transferred to other users in the STEEM community.

The vesting version of STEEM, where the buyer commits to hold the investment (vesting) for a specific period of time (13 weeks), is called STEEM Power (SP), and when you commit to that vesting schedule and convert (“Power Up”) to SP you get paid a greater piece of the platforms growth in value as ‘interest’ AND get a greater influence (directly proportionate to amount of SP they own) in the voting on ranking of content, and thus the distribution of rewards in the community as well.

The remaining asset class is debt, pegged to the USD, called STEEM Dollars (SBD, which stands for STEEM Blockchain Dollars), and it is created by a mechanism similar to convertible notes. This is common in the startup world, and it allows the holder of SBD to covert to STEEM with a minimum of notice in the future at the fair market value of STEEM (in USD) at that time.

Through the use of tactics like rate limited voting, consensus algorithms, dynamic fractional reserves, and blockchain-based attribution and content rewards, they hope to provide an incentivized online public information platform that cannot be easily be gamed by bad actors, and one that offers fair value rewards to those who provide valuable work for the community, including those providing valuable content (as judged and ranked by the community’s volunteer curators of that content) as well as those who curate that content fairly — and they are controlled through rate-limited voting (the more often you vote, the less it counts).