Steemit Financial Instruments: Steem, Steem Power & Steem Dollar ExplainedsteemCreated with Sketch.

in steemit •  2 years ago

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Part of the Confusion with Steem lies in the different ways that the Cryptocurrency is presented to the End User

Steemit.com is a Social Platform built on top Steem's Blockchain, making headlines around the World for Rewarding it's Users Digital Currency that is not only Tradeable but also has real financial Value. Individuals that are drawn to Steemit's Decentralized Social Media are now actively engaging with Steem's Blockchain. At the Root is the currency Steem, a Cryptocurrency just like Bitcoin/Ethereum when it comes to having it's very own Blockchain or Distributed Ledger, making this Virtual token Transferrable, Fungible & a Freely moveable Asset

Bitcoin is the World's most popular Cryptocurrency because it was the first Decentralized, Permission-less system to store and transfer value. If you want to use Bitcoin as Storage and Value transfer system, then you obviously need to store some of your own value into that system, by buying BTC and you'll drive the price up, knowing Bitcoin's Supply is limited and demand is bound to increase over time due to a growing appetite of Investors

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Steem can be compared to Bitcoin, when comes to being a permissible blockchain ledger where no one has direct control over the Network meaning that tokens are Governed by Code and not some Individual, Corporation, Government or Bank. You have a Decentralized Network which is hosted by Steem Witnesses & supported by it's Users around the World, whose goal is to strengthen the security of its Digital Currency

Steem

Those who are invested in Cryptocurrencies will know by now that they all kinda have one thing in common, they tend to be Financial Instruments featuring their own Digital Token, which are tradeable on popular Exchanges like Poloniex, Bittrex or some sort of Peer to Peer Platform. Steem tokens are part of a permissionless ledger made accessible to the general public, making it a free tradeable Currency with little to no restriction where the end-user or parties decide on the final price and choose the preferred platform to facilitate this trade

For Starter Steem is built using the relatively new Graphene Blockchain used by projects like Bitshares & PeerPlays, which is known to use this cutting edge technology to power its infrastructure, while Bitcoin tends to be Slow when comes to being a Medium of Exchange and charges it's users transaction fees, Steem on the other hand is Free of charge and Executes Blockchain transaction almost Instantly

Steem has No Transaction Fees & almost Instant

All the Value is derived from Steem, a Virtual Digital currency which is minted at a certain Inflation rate governed by it's Code and direct result of a Hardfork. Previously the Inflation rate was planned to be Set at 100%, this was before Hardfork 15 and now it's currently at 9.5% annually since Hardfork 16, now you don't need to be Financial Analyst to know that there has been a huge reduction for Steem Inflation. If you kept up with all Hype around Steemit, just know that decision to reduce Inflation is one the biggest changes to have been implemented by Steemit Developers & Steem Witnesses, now with a lower Inflation rate there are less Steem tokens to be minted & distributed throughout the year. Having High Inflation is not ideal solution, so the decision to lower the number of newly minted Tokens, was intended to reduce the number of Steem to hit markets in the foreseeable future for the purpose of achieving more Organic & Sustainable Growth (No easy Helicopter Money)

Steem Inflation
Hardfork 14 - 100%
Hardfork 15 (Onwards) - 9.5%

Changes to Steem Inflation impact the Supply of Newly Minted Steem, unlike Bitcoin where Miners compete against each other to earn the available Blockrewards from Bitcoin Inflation, Steem uses a special proof-of-stake system to mint new Steem tokens to be specifically distributed to Content Producer, Steem Witnesses and Steem Power Holder as Interests

One Cryptocurrency & Two Smart contracts

Ned Scott explained that Steemit Developer wanted to create a mechanism by which individuals could take a long-term interest in the project, and traders could speculate short-term events within a free market with little to no restriction. The idea behind Steemit was it was meant to be a Decentralized Social Media that rewards users Steem for their Contribution, bootstrapping the idea that Financial Value can be found & derived from Social Interactions since whenever you interact with Steemit.com you're engaging with the Digital Currency Steem

"Steem is the fundamental unit of account on the Steem blockchain. All other tokens derive their value from the value of STEEM"

Steem Blockchain was built to mint future tokens for the sole purpose of distributing it to Content Producers through a unique Reward Pool Mechanism, 75% of the newly created Steem minted annually is paid out to the Reward Pool allocated to reward Users on the daily basis who interact with Steem's Blockchain. Whereas the remaining 15% of Steem Inflation is rewarded to Steem Power Holders as interests and 10% is allocated to Steem Witnesses for their direct contribution

Of the 9.5% Annual Instantaneous Inflation, Steem Power holders will receive 15%, 10% will be allocated to Steem Witnesses and 75% will be given to Content Creators as part of the Reward Pool

Steem Power

The most interesting Smart Contract is called Steem Power which is also the backbone of an account's voting-potential. In other words, the more Steem Power an Individual has, the stronger their vote is on Steemit. Essentially Steem Power is Steem locked up in a Smart Contract, this conversion ‘locks’ their STEEM – it’s not burned, just inaccessible while it’s being used as Steem Power for the purpose of providing Utility and Leveraging it's Token to actively partake in Steem's Network

Emphasing on the word Power, Steem Power is symbolizing how much influence you have inside the Steemit platform. If you have a lot of SP your upvotes will count more and you'll have greater say to how the Reward Pool is to allocate a large share of Steem Inflation. So where are Steem Tokens locked up? Steem Power will result in Steem being transferred in what is also known as the VESTED FUND

VESTED STEEM or STEEM POWER have a unique measurement to represent STEEM that is locked up in a Smart Contract which grants you certain a stake in Steemit, a Social Network build to distribute STEEM from it's Reward Pool, where it's Shareholders have decision to allocate Value

Similar to how Individual would stake a Proof-of-Stake Token in order of securing it's Network, accumulating Interests from Inflation or hosting Master Nodes for Democratic Voting. Steem Power rewards it's user for their Contribution, as 15% of Steem Inflation is allocated to Steem's Vested Fund as annual Interests, earning from holding this Smart Contract over long period of time

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In the case of Steem Power should a User want to convert back to the base currency of Steem, it will be converted within 13 weekly conversions, this used to be 104 (2 years to 3 months). The purpose of this Smart Contract is to give you more influence over the Network, Steem will be locked up making the Tokens inaccessible for the moment until the User decides to Power Down, only then will Weekly Payments begin to convert Steem Power to Steem. If you want to Interact within the community and earn Rewards by doing so, then going for STEEM POWER is probably the better choice

Steem Dollar

The Second Smart Contract is called Steem Dollars. This is a Debt-like instrument that promises to distribute $1 worth of Steem to the token holder in the Future

STEEM Dollar is essentially STEEM however it creates a Robust, counter-party free, pegged Currency. Holding SBD pays interest and SBD should be convertible to $1.00 worth of STEEM, however it will take 3.5 Days to complete a Conversion.
Note that Steem Dollar is a Smart Contract which is freely tradeable, hence why 1 Steem Dollar may not actually be worth $1 Dollar because of Free Market Demand & Supply, whenever SDB is traded on popular exchanges the price is directly influenced by Buyers & Sellers who set prices between each other


Video by @craig-grant

At any time, the value of the Steem Dollar is roughly equivalent to the value of the Dollar, the World's most popular fiat currency used as Benchmark & Standard, this Smart Contract is backed by Steemit's own built-in Market Exchange. This stability is remarkable in the Crypto Sphere where prices are never the same the next day, with unstable price fluctuation. In fact, it eliminates some instability associated to Cryptocurrencies, some user agree that unstable prices are largest barriers for adoption for Bitcoin or Altcoin governed by Code. If you purchase 1 Steem Dollar on let's say Poloniex, you could be paying Higher Price like 1.4$ or lower price like 0.9$, however 1SBD will be equivalent to 1 USD worth of Steem when converted via Steemit's Built-in Exchange

Steem Dollar is not an IOU but can be deemed more of a Derivative backed by $20 worth of STEEM per SBD. And it guarantees $1 value but the value can be higher influenced by Free Market Supply & Demand

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Steem Dollar accumulates interest per annum which is set & determined by Steem Witnesses who also update the Average Dollar price to be pegged for Steem Dollar Smart contract token, ''hence why it's called Steem-Dollar''. Steem Witnesses tend to engage with the Community in order the get popular vote, regularly publish post to raise the awareness of the Steem Dollar Peg, with Governance of adjusting the Interests similar to how the Central Bank Raise & Lower the Interest Rates to avoid over-heating the economy, financial debt instruments need to be sustainable for the long run but Incentives people to leave their Steem Dollars in their Account

Those purchasing Steem Dollar are usually hedging their position in the event that Steem Price drops, this way many Steemit users have the option of Powering Down or turning liquid Steem to SDB in the event of short-term price fluctuations, Users won't have to sell Steem to purchase other Altcoins making this Smart Contract Token an attractive investment opportunity. The sustainability of this Smart Contract is yet to be determined however with so much uncertainty associated to the Crypto-scene, Steem dollars is an asset to consider and has gone through several changes, such as developer decision to reduce the time period to complete conversion from 7 Days to 3.5 Days & occasionally adjusting Interest rates over time. SBD is Smart Contract alternative to BitUsd or what used to be USD Tether(Not Anymore) & many of Ethereum Smart Contract Tokens that have been proven to have stable conversation Rate pegged to the US Dollar


It's been quite some time since I last got to write more comprehensive Guides & Tutorials about Steemit, now there are nearly 4x times the amount of Users since I first joined, so I feel the need to educate others especially to those new to this platform. Steemit.com has gone through a lot changes since it's still in ''Beta'' and after numerous Hardforks, it makes sense to keep up with Updates in order to stay Relevant! Some of Friends ask me whether they should invest in Steemit, my answer is that if you like to invest to make some Profit because you think Steemit will be a Hit, then going for liquid STEEM tokens might be a good idea

If you want to interact with the community and earn rewards by doing so, then going for STEEM POWER is probably the better choice. There is risk associated to this Long Term Investment since you cannot quickly withdraw Steem Power and sell it like you can with STEEM token. When it comes to Steem Dollar, use it as a Short-term Debt Instrument so when prices jump, especially in a Bear Market you're able to retain some value however there is great debate over sustainability of pegging it to the USD, a fiat currency with its own risk but it has proven to be a good hedge

When comes to using Steem as a Medium of Exchange, Markets have yet to mature since volatility is still an issue with just about any Cryptocurrency out there, however the fact that Steem does not have Transaction Fee's will make this the preferred choice for many, since Bitcoin Fee's are getting expensive and the convenience of using a Username instead of complicated random address to instantly receive & send Cryptocurrency tokens

"It's a new and groundbreaking way of rewarding people for sharing information with other people. Over time we start to see this as a more stable way for journalists to participate in the content economy. I can also see new types of content being incentivised: Wikileaks for example, or investigative journalists ... But there's other economic layers to add in, like the idea of a peer-to-peer marketplace like Craigslist or eBay; with those layers it becomes less like a social network, and more like a social economy." Ned Scott

Once Steem is widely accepted, it would be the King of Medium of Exchange because it would be the most conveniet way to transact and engage in Trade definitely stable enough to buy and sell within a day, challenging Bitcoin dominance as the preferred payment option. With Application like Busy.org, Esteem or many more projects being develop on Steem's Blockchain, the future of this Digital Currency is Bright as Social driven Community will literally bootstrap this Cryptocurrency for Mass Adoption with Billions of Users yet to discover free Content made available on the World Wide Web

“Everyone who brings Value deserves a Share.” Dan Larimer

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Absolutely, fantastically, informative post! Thank you so much for putting this post together. I am sure that it will help new Steemians!

I strongly urge any new (and old) SteemIt users to follow @steemitguide for more informative posts.

Upvoted, followed, and re-steemed!!

Have a wonderful weekend!
Steem on,
Mike

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Appreciated Much! @etcmike! As Always Steem On

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BUY CRYPTOES SEEL THE US DOLLAR

The dollar will begin its 18 year cycle with a 9 year downturn period to the eurocurrencies as it always has done. This will probably be very bullish for precious metals.

Check out this post for more on the cycles of weakening US dollar and the current state of the dollar.

https://steemit.com/dollar/@sjovmaiin/the-coming-fall-of-the-us-dollar

Awesome work brother. I love your articles. Inspiring to strive for so much content. I often cover plants animals philosophy and music and how to steemit videos, if you wanna check us out as well!
For Best Results: Resteem, Upvote, Follow and Comment!

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Appreciate It! I have seen plenty of your Post so keep up with the Social Mining

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hehe thank you, we are trying out best!

Very nice guide explaining the difference between the 3 currencies in use on Steemit. I must say as a newbie this is the most difficult aspect of the platform to grasp. I really like the idea of getting interest on steem power and of having access to a stable currency like the steem dollar. We get the best of both worlds.

Thank you very much, you have answered some of my question before I got to ask them. Fpollowing for more gois info.

Very helpful!

Thanks for sharing! A link to your post was included in the Steem.center wiki page STEEM Tokens. Thank you and good luck again!

On point w/ the content again! Thanks for posting applicable content. I'm developing my page now and your posts have helped a lot so far.

Great post!
Very interesting, you clean all my dubts, thank you!

Good post but one point to be corrected.
Steem Dollar is not an IOU. It is a derivative backed by $20 worth of STEEM per SBD. And it guarantees $1 value but the value can be higher if there are great demands.

This post has been ranked within the top 25 most undervalued posts in the second half of May 20. We estimate that this post is undervalued by $26.15 as compared to a scenario in which every voter had an equal say.

See the full rankings and details in The Daily Tribune: May 20 - Part II. You can also read about some of our methodology, data analysis and technical details in our initial post.

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