DEFINITION of Steem

Steem is a cryptocurrency that was launched in March 2016 and is used to power the Steemit platform. The cryptocurrency and the associated platform ran in beta testing mode through July 4, 2016, at which point they were made live to the public.

Through Steemit – a blockchain platform making use of social media structures – users create, vote on, and curate content as they would on other social news services. Those users are then rewarded in Steem tokens for their work based on the voting process.

Steem Power and Steem Dollars

Steem is also related to Steem Power and Steem Dollars. These three terms are distinguished from one another as follows: Steem is the token which is available for purchase on various cryptocurrency exchanges and is used to buy into the Steem organization and website. Unlike some cryptocurrencies which have fixed maximum supplies or which rely on mining, the total number of Steem tokens double each year.

Steem can be converted to Steem Power. In doing so, the holder of Steem Power tokens receives additional Steem tokens as they are created. Steem Dollars, on the other hand, are a stable store of value which is closely tied to the value of the U.S. dollar.

BREAKING DOWN Steem

One of the most unique features of Steem is the Steemit platform, which is linked to the Steem blockchain database. Steemit was founded by Ned Scott and Dan Larimer and launched on July 4, 2016.

Steemit is based on a concept similar to social news websites like Reddit. One distinguishing element of Steemit, though, is the fact that the text content generated on the site is saved in the underlying blockchain database, allowing it to be linked to reward tokens. Users on the platform have the capacity to upvote and curate content. Users who receive sufficient upvotes will receive a monetary reward in the form of the Steem token or as Steem Dollars.

The amount of influence any particular voter has is tied to the amount of Steem Power tokens held by that voter. Similarly, Steemit users have distinct reputation figures. A default account begins with a reputation of 25 points, and external votes help to shift that figure up or down. This process helps incentivize users to act with proper etiquette among the larger Steem community.

When a user converts Steem into Steem Power, the new tokens are then locked in place for two years. In most cases, though, Steem users convert their Steem tokens to Steem Power willingly. 90% of new Steem generated throughout the year is distributed among Steem Power holders, while the remaining 10% of new Steem will go to those users voting on posts and contributing to the Steemit platform.

3-Token System

As an example of how the monetary reward system works in relation to the various actors, a post with an estimate of $1,000 may see $500 distributed to the curators, $250 to the author, and the final $250 paid to the post of a related parent post or back to the author.

While the three-token system (Steem, Steem Dollars, and Steem Power) may be confusing, each token has its own purpose. Steem is a basic token which helps to facilitate the Steemit site and platform. Steem Power encourages users to make a commitment of their stored value to the Steem community for at least two years.

Steem Dollars remain linked with the Steem network (as opposed to being exchangeable on a digital currency exchange), although they also retain liquidity. Users can withdraw Steem Dollars to exchange for fiat currency or other virtual currencies if they wish.

Because Steem doubles in quantity each year, it necessarily loses value over time. Steem Power and Steem Dollars, on the other hand, are designed so as to not lose value. Because Steem is primarily used as a means of conversion between Steem Power and Steem Dollars, this is typically not a significant concern for Steem users. (See also: Steemit: The Disruptive Blockchain-Based Media Community.)

Every 3.32 years, the Steem network undergoes a 10:1 reverse split, meaning each 10 Steem tokens become 1 Steem. This effectively limits the window of quantities of Steem which are available. At the same time, the value within the broader network gets redistributed over time, so that users who are more committed to holding Steem tokens of various kinds end up with a greater portion of existing tokens.

Part of the reason why Steem is designed in the way that it is helps to ensure that users will not panic and remove all of their holdings at once. By committing to Steem Power, users effectively commit to the broader network for two years. Because users can still buy and trade Steem tokens as easily as they would any other cryptocurrency, and because they are also rewarded for contributions and commitment to the network over the long term, there are major incentives in place to help keep Steem stable.