Many a minnow swims into the Steemit stream confused and confounded by the basic economy. What are these dollars? What is this Steem power, I now wield? How does this relate to Steem? Why is only some of it liquid? I just came on here to blog! Please just let me blog! Below, I've tried to list out a fitting metaphor for how this all works and how to make the best of each value type.
So, the metaphor I'm going to use is a rather familiar one - the current banking system. Below, I'm going to describe how SBD, Steem, and Steempower are analogous to the dollar in your wallet, the money in your bank account, and finally investment accounts. Ideally, you will then easily see how the Steemit economy works together.
Steem Backed Dollars
Steem Dollars are like the cash in your wallet. They are relatively price stable, which means your dollar will spend the same pretty much everywhere. Within the Steem ecosystem, it is always assumed to have a rough value of $1 USD. Like the money in your wallet, you can not contribute this money to earn interest or provide power each in value.
Steem is like your checking account at your bank. From your bank, you can easily write checks, transfer it, withdraw it from an ATM, or wiring it to an investment firm (i.e. Powering Up). Steem acts as a flexible and central location for you to withdraw dollars, invest elsewhere, or give your money to someone else. It maximizes flexibility at the trade off that the value could fluctuate a bit more than the dollars in your wallet.
And lastly, Steem Power (SP) is like you placing your money in an investment bank. You are literally investing in the future of Steemit. You increase your SP to improve how much your vote pays to the author and how much you get back in curation rewards. Think of this as dividends from the Steem Economy. You are investing in the platform itself with SP. The primary cost of this is liquidity. You cannot easily draw your money out of Steem Power in the same way that is it trickier to draw money from your investment account than your wallet. This is one reason there is a draw-down period when you decide to 'Power down' and return your SP to Steem, you are removing your investment from the system and putting it back in your bank.
I hope this metaphor has been helpful in better understanding some of the nuance between the currencies. Steem Dollars are an easily accessible, system-defined USD in your wallet. Steem is a dollar in a bank account, which gives you a lot more flexibility on where and how you invest it next. And, Steem Power is an investment account that allows you to earn dividends and rewards with your money in ways that your wallet just can't compete with. With these combined, you get to choose how you want to interact with Steem either by being paid in 50/50 split of cash and investment dollars or completely in investment power.
New To Steemit? Check out the Minnow Support Project
The Minnow Support Project is a 2000+ strong community of Minnows. It was created by @aggroed and is sponsored by people like @ausbitbank, @canadian-coconut, @teamsteem, @neoxian, @someguy123 and @theprophet0 to be a community of Steemians that wish to help each other grow. We advocate the sharing of great content to help increase your audience as a minnow. We also help with basic questions, guidance and general Steemit camaraderie. I recommend checking out the topic or the step-by-step starter guide created by @discordiant