Steemit — Where does the money come from?

in steemit •  2 years ago  (edited)

Users have trouble understanding how steemit pays them to create content on its network. Steemit has no visible advertising, does not charge fees, yet manages to pay users for creating and curating content. So, where does all this money come from? 

Consider a gold backed economy, where paper money is printed as a receipt for gold held in a reserve. This currency is backed by gold, and the number of ‘gold receipts’ is proportional to the quantity of gold held in the reserve.

As the country mines more gold and stores it into its reserves, it also increases the number of Gold Receipts in circulation. It must print more gold receipts to keep the currency stable (1 Gold Receipt = 1 GOLD).

Steemit works in a similar way. Steemit issues STEEM backed dollars (SBD) to users for creating or up-voting content. To convert your SBD into actual USD, you buy STEEM with your SBD on the website, then sell that STEEM on an exchange for Uncle Sam Dollars (USD).

In the same way our gold backed country will mine gold, and create gold receipts, STEEM is continuously created on the blockchain, and SBD is also created continuously and rewarded to users. As long as gold remains valuable, the gold receipts will be valuable too. As long as STEEM is valuable, SBD will also be valuable.

As long as STEEM is valuable, you can create or curate content, be rewarded in SBD, convert that to STEEM and finally into USD.

Gold is valuable for many reasons - industrial, cosmetic, speculative, etc. So what makes STEEM valuable?

Why STEEM is valuable

  1. STEEM is designed for the attention economy. This billion dollar industry values your attention, and will spend on sites like YouTube, Facebook, Google, Twitter, Reddit, etc. to get it. To get your attention on Steemit, these companies must buy and use STEEM for their posts to rank highly.
  2. Power users on Steemit must buy STEEM to promote their posts, and also pay for bandwidth use on the Steemit network.
  3. As Steemit grows, more STEEM is needed by power users and advertisers to maintain their ‘edge’ on the network. The power they wield in the network is proportional to how much STEEM they hold, and the size of the network. As the network gets bigger, they must buy more STEEM to maintain their slice of the pie.
  4. This model is replicated for other attention based sites, such as dtube and dsound.
  5. Smart Media Tokens will replicate the above model for many more sites, increasing demand for STEEM. (Imagine Reddit, SoundCloud or Facebook adopting SMTs)
  6. Smart Media Tokens will enable ICOs to be held, with STEEM being the main currency. 
  7. STEEM that is bought for use on attention based sites must be ‘locked’ as Steem Power in order to be effective. Locking STEEM effectively takes it out of circulation, and makes it a rare commodity.

The STEEM economy is more complicated and versatile than described here. However, this short post should help understand how Steemit and other attention based sites are able to give away ‘free money’ — backed by the STEEM blockchain. 

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Wow that makes a lot more sense now thanks!

It's a beautiful system. EOS works in a similar way, but for dapps that run on the blockchain. My next post might be on EOS

what's EOS?

EOS is a high performance block-chain designed on similar principles to STEEM. I should make a post for it soon

It really does! so well simplified!

nice! and that's why people should consider it to post valuable and quality contents :(

Thanks! Let me know what other interesting crypto topics you would like to hear about.

but i really wonder as there's hundreds of nonsense post each day, will steemit survive for another year or decade ?

I think it will. It's all about adjusting the game theory of the rewards. Quality posters still have to make there way to the platform.

The beauty is, when it's more mature, the good content (upvoted and rewarded) should show up under trending and hot. The newly posted content will definitely be low quality - but the rewards will be huge here for curators, who go through the nonsense posts, and upvote the good ones that they find.

Wow... So much insight

great ;) it's just annoying sometimes that others just took videos from youtube and repost it here without even just small contents or details about it based on their own perspective .. but maybe someday they'll realize that. thank you so much for patiently responding :)

I love that you really know whats going on, on steemit your knowledge on this place is very impressive! Now we await an EOS post.

Super glad you posted about this! I found myself wondering this exact thing a few days ago. I was thinking along the lines of "how does a social media platform afford make payouts to content creators every single day?". I knew SBD was tied to Steem, but you definitely have cleared some things up. It really is a great model.

Thanks! Let me know what other type of posts you are interested in!

This is a great article. Cleared lot of doubts. Following! Resteeming! Upvoted!

Nice to meet you @dexterdev from me @suararakyat .
Upvote and follback please:-)

Very Informative context, i had to bookmark. I believe that steemit on hitting mass adoption might close the cup below. It mig
ht take long but one time it will , so keep on steeming, upvote, follow back and never forget to check my academy blog for crypto related information.

wow! that clears the air a bit. thanks for clarification and posting about EOS as you promised :) keeping eye on your next posts.

Excellent short form description of value creation in Steemit! Will bookmark & share this post when I get asked by sceptical people about Steemit. Cheers!

good explanation

get that postingan... (SQ)

Great post!

Whatever you said, Akdam is right ....... steemit is one site that is currently creating alarans ,,,,,,,,,,,,,,,,,,, Posted in Posts I like

Saleum dari aceh lhokseumawe
Vote and follback please :-)

Wowwwwww... Really???? I've really been looking for a post like this. I remember when my coisin introduced me to Steemit, my mum was there and she asked 'Who are those paying?'...'Where is the money coming from?'... Nd my cousin said... 'Even if its from the wind, so far money is coming in'.... Hahahahahahha.. Wow. Thanks so much for this @hitwill Now I knw better

Sent you a memo please have a look at when you get a chance.

Saleum askari,
I would be very happy to be friends with you Askari, in Steemet all becomes possible ..
Warm regards.
by @ kani77

Another great post hitwill. Very valuable info.

There are very few thing like gold in the world, but everyone can create other steem-like blockchains and steem-like coins. How can steam been the only or the major cryptocurrency for attention economy?

I have been thinking about this myself, makes a lot more sense now.

You sir are probably the best person,I have met in this site. You have the answers to all my questions :-)

Thank you! I am brand new and this definitely helps with understanding the basic financial concept.

Awesome, love all your posts you really stick to the core, learning a lot on your posts so far.