Three Steem Currencies

Before you can earn Steem currency, you need to know how Steem’s three cryptocurrencies work: STEEM, Steem Power and Steam Dollars.

STEEM
STEEM is the fundamental currency of the system. It’s volatile, subject to inflationary losses (its supply increases 100% per year) but also easily exchangeable for Bitcoin and other cryptocurrencies at BlockTrades, Bittrex and OpenLedger.

STEEM is an ownership token but is only votable when vested as the second currency — Steem Power — in a process called powering up (see below).

STEEM can also be converted (see the section on converting currencies below) into Steem Dollars (see below).

Steem Power
Steem Power (SP) is STEEM that has been invested into the network as equity (a process called powering up). It can be converted back to STEEM (a process called powering down) in 104 equal installments disbursed once per week.

This rate-limiting of SP withdrawals incentivizes you to develop a long-term perspective for your participation in the Steem network. It also serves as protection against hackers.

One-STEEM (vested as SP) is essentially one-vote. Those who contribute the most get to decide which content is to be valued more highly.

The upvotes (and flags) (see content curation below) of users with a lot of SP are worth more than those of users with relatively little SP, so this is not a democratic system but a meritocratic one. In fact, those with zero SP can not vote at all.

This creates an incentive to use your upvote in a way that “maximizes the long term value of” your STEEM, according to the Steem white paper (PDF).

Ninety percent of new STEEM created (via inflation) is distributed on a constant basis pro-rata to holders of SP. This is a powerful incentive to convert your Steem Dollar earnings to STEEM and power them up to Steem Power — if you believe in the long-term viability of the Steem network.

Thus, users with a long-term vision are rewarded more than those with a short-term perspective.

The other roughly 10% of STEEM that is created via inflation is distributed as rewards and thus changes the ownership distribution of the network — albeit very slowly.

SP holdings are thus not subject to inflation, for the most part, because SP is constantly earning interest in the form of that 90% of newly created STEEM.

Steem Dollars
Steem Dollars (abbreviated as SMD, SD or SBD) are conceived of as short-term debt instruments that are pegged 1:1 with the US Dollar.

By holding SMD you are “effectively lending the community the value of a dollar,” which enhances growth, according to the white paper. So SMD pays 10% annual interest when the value of 1 SMD is under $1 USD. Check the current market price at SteemDollar.com.

For every SMD created, $19 USD worth of STEEM is created as Steem Power, so the maximum debt-to-ownership ratio of the Steem network is about 5%. This could increase if the value of STEEM falls in the marketplace but should not be a major concern.