Understanding Vests and the Steem Power Illusion

One of my most important pieces of advice about how to be successful on Steem is: learn as much as you can about how the system works. After more than three months here working on Steem-related development projects and reading constantly, I STILL have a lot left to learn!

One thing that I recently realized I didn’t have a full understanding of is how STEEM POWER works under the hood and how it is related to VESTS. I’m guessing that I’m not the only one who doesn’t fully understand this, so I thought it would be a good topic for a post.

So here goes…

The title of this post refers to Steem Power as an illusion. This is because STEEM POWER doesn’t really exist. It’s not a token like STEEM and nowhere in the blockchain is anything recorded in STEEM POWER. It is simply a way of showing VESTS in relation to STEEM.

Confused? Let’s back up a bit…

The Steem blockchain has two units of account - STEEM and VESTS (SBD is out of scope for this post). STEEM is simply a cryptocurrency token just like any other. It can be transferred freely between accounts and the blockchain maintains the ledger of how much STEEM each account holds. Nothing new here.

VESTS on the other hand can be thought of as shares of ownership of the Steem blockchain. VESTS are also a token like STEEM, with balances maintained on the blockchain, but they cannot be transferred between accounts.

Instead they give the holder the power to influence certain things on the Steem blockchain. The more VESTS an account holds the more influence it has over who the witnesses are that create the blocks and over the distribution of the reward fund through upvotes and downvotes.

When you “power up” your STEEM, you are really paying STEEM to buy VESTS and when you “power down” you are selling your VESTS for STEEM. It’s just a simple exchange of one token for another as if you were exchanging BTC for ETH or vice versa.

How much is a VEST worth?

The question then becomes - how much STEEM is each VEST worth? This is where things get a little tricky and this is also where STEEM POWER comes into play.

We all know (hopefully) that Steem has inflation. But what you might not know is that it’s not actually new STEEM that gets created as each block is added, it’s VESTS. As more and more VESTS get created with each new block, everyone’s stake in the platform gets diluted.

As an illustrative example, say you have 1M VESTS, and there are 10M VESTS in existence overall. Then you “own” 10% of the Steem platform. Over time if an additional 10M VESTS are created bringing the total to 20M VESTS, then you now only “own” 5% of the Steem platform. So your VESTS will lose power slowly over time.

But don’t worry! To compensate for this the price of VESTS slowly increases over time. That means that as your VESTS get diluted, they are also slowly becoming worth more and more. That also means that if you “power up” 1 STEEM now (meaning you buy VESTS with STEEM) you will get more VESTS for your STEEM than if you “power up” 1 STEEM in the future, since the price of VESTS is always increasing.

Re-read that last sentence a couple of times to make sure you understand since it’s very important.

Got it? Good - let’s move on.

STEEM POWER - A.K.A the “Blue Pill”

All of the above is basically covered up and hidden from the average user by the concept of STEEM POWER. Rather than show how many VESTS an account has in the SteemIt frontend directly, it instead shows the number of VESTS in terms of a new concept called STEEM POWER.

STEEM POWER is simply the amount of STEEM an account’s VESTS are currently worth. So if an account has 1M VESTS and those are currently worth 500 STEEM, then the account will show that it has 500 STEEM POWER.

If you’re following along, you might realize that since the price of VESTS slowly goes up over time, that means that your STEEM POWER slowly goes up over time too. In the example above if you have 1M VESTS worth 500 STEEM right now, then in a month those 1M VESTS might be worth 505 STEEM, and in a year 550 STEEM.

This is without claiming any rewards or powering up or anything - your STEEM POWER slowly goes up over time as the price of VESTS increases! Don’t believe me? Take a look at someone’s account who has a lot of STEEM POWER (since it will be easier to observe the more SP account has).

Note how much STEEM POWER the account has and then refresh the page after a minute or two. You’ll see that the amount of STEEM POWER went up, without any transactions happening! This is because STEEM POWER isn’t a real thing. The account really just has VESTS, and the amount of VESTS didn’t change at all in between your page refreshes.

What happened is that those VESTS became worth a little bit more so the STEEM POWER - or the value of the VESTS in STEEM - went up.

So how much are VESTS worth right now? You can find that value at https://steemd.com - it’s the first value in the right column entitled “steem_per_mvests”. This shows the value of 1M VESTS (known as an MVEST) and as of the time of writing it is 487.36. By the time you read this and go check yourself it will likely be a little bit higher, since - as you now know - it is always increasing slowly over time.

So there you have it - now you know what’s really going on. What’s the takeaway from all of this? Other than a general increased knowledge of how Steem works, if you believe in the future of the Steem platform you should “power up” as much STEEM as you can as quickly as you can, because you’ll get fewer and fewer VESTS for your STEEM the longer you wait!

Help Support My Projects!

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