Making Money with Steemit (Steem Dollars and Steem Power explained)

A lot of fuss has been going around in the past few months. Steemit is kind of a social news platform that pays users with digital currency called Steem for posting and upvoting good content. Think of , but with a nice add-on of getting paid for your participation.
A bit of history about Steem
Steem (the digital currency, not to be confused with Steemit the website) was first described in a whitepaper in March 2016. Steem and Steemit were in Beta until July 4th 2016. Once the platform (Steemit) became live and payments were made to the contributors, the currency saw a 1800% increase in its price from $0.24 to $4.63. However, since then the hype dulled down and the currency has slowly declined back to $0.28.
This explosive growth and fast demise of the currency made people suspect Steem was perhaps just another Pump and Dump scheme. In such a scheme the founders and early adopters drive up the currency value through media hype and then sell off their coins at a huge profit. The people who get hurt by this are the late joiners who are stuck with a lot of coins that lost their value.