A Brief Explanation on How Steemit Works and Where the Money Really Comes From

This post is intended for newcomers to the site that are still wondering how it all works.

Before we begin let us first discuss the basic Jargons used in STEEM.

a) STEEM - Cryptocurrency on which STEEMIT runs on. Can be converted to STEEM Power a process called "power up"

b) STEEM POWER (SP) - By default, 50% of your earnings are in SP. SP determines how much equivalent STEEM BACKED DOLLARS your upvote has.

c) STEEM BACKED DOLLAR (SBD) - By default, 50% of your earnings are in SBD. This is the version of STEEM that is readily available for withdrawal.

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Let us now discuss how it all works. Here is a very simple illustration of how fiat enters the platform:

Investors buy STEEM from cryptocurrency exchanges. They then transfer it to the STEEMIT platform where it could be powered up to SP. They earn a return on their STEEM investment through the value they get when they upvote a post, this is known as Curation Rewards.

I will try to explain SP in more detail:

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STEEM POWER

a) Increases the amount of SBD you earn each time you upvote a post.

b) Not readily available for withdrawable. It can be converted to SBD in a process called "power down." SP takes 13 weeks to vest. Vest means a period of time until ownership is completely transferred.

When creating a post a user has the option to receive rewards in 3 different options:

a) 50% SP and 50% SBD - This is the default setting.

b) 100% SP - The advantage of doing this is that it increases your SP faster and thus increasing the equivalent amount of SBD your upvote has.

c) Decline payout - Usually for public service announcements or those that don't want to receive payment for their post.

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WHERE DOES THE MONEY COME FROM???

I've asked this question several times myself. And this is probably the number 1 question everyone has regarding STEEMIT. For those that don't fully understand it, STEEMIT might seem like a Ponzi Scheme, but it's not.

The best explanation I ever received was that you DON'T receive money. You receive a variation of the cryptocurrency STEEM which is SBD. The reason you get to convert it to FIAT is that there is an existing marketplace where investors place a speculative price on it. In other words, you sell SBD for FIAT, the platform does not give you FIAT.

You don't need to pay anything to join STEEMIT. However, buying STEEM preserves the value of the blogging platform. If the price of STEEM falls to zero then your 1,0000 SBD is basically worth..... well... zero. That is why it is important for us content creators to learn about STEEM as well and invest in it as much as possible. We all have different financial status and not all of us can afford to buy it in large amounts. But even buying just 1 STEEM will help this blogging platform we all love.