Explaining the Steem-Blockchain's three different cryptocurrencies
Credits: source
After writing about Steem and Blockchains in the earlier blogs, I thought this would be right time to discuss the Cryptocurrencies involved in the Steem-Blockchain. Although there is material on the Internet to learn about the Steem-Blockchain and all the cryptocurrencies on it. But this version comes with a simple analogy for those who don't want to go down into the technical and mathematical structure of it.
A quick intro for the new people.
What is Steemit?
The Steem is an open-source Blockchain. The most familiar platform on top of Steem-Blockchain is Steemit. Steemit is a blogging platform built on top of it. On Steemit, people earn rewards in form of cryptocurrency when their blogs get upvoted by other users of the Steemit.
You may think of Steem-Blockchain as a power-plant and steemit as a machine run by its power. The same power-plant can be used to build any kind of content rewarding platform, that is why we call it open-source.
I'll use steemit's example in this blog to talk about the Steem, Steem Power (SP), and Steem Dollars (SBD).
Now the question is -
Why three different Cryptocurrencies?
There are three asset class on Steem: Steem, Steem-power (SP), and Steem-dollars (SBD).
Different assets for different purpose gives more control over the functioning of platform. It also provide clear ways to contribute, earn from, and hold power in - the system.
In the technical terms, Steem is the base currency, traded on the exchanges. All other currencies derive their value from Steem. Steem Power is native currency to the platform which cannot be traded directly on exchanges. Steem Dollars (Steem Blockchain Dollars) is another currency for rewards, traded on the exchanges.
The authors (people publishing blogs on steemit) and curators (people upvoting valuable content on steemit) are rewarded with SBD and SP. Users may choose to earn 100% SP or 50–50 SP and SBD both when publishing post.
The witnesses - people who contribute their computing power to the Steem Blockchain) are rewarded with SP.
This sums up a lot of Steem Blockchain. But there is more to it.
A simple example to understand the STEEM, Steem Power (SP) and Steem Blockchain Dollars (SBD)
Think of Steem-Blockchain as a gold mine. Steemit as a tool to mine this gold. And users use this tool for mining.
The mine produces fixed amount of gold every day. In the world of Steemit, we call this gold 'STEEM'. The Steem (gold) is traded by the people in the market (online cryptocurrency exchanges). They buy it on a speculative price and keep it (hold) with them to sell later when the prices go up. Why the prices will ever go up? Because the Steem has many use cases; it is useful and scarce.
The value of Steem is exactly the amount at which people are trading it in the market. The trust of the buyers and holders (the one who own Steem) gives it a price on the exchange.
SP and SBD
The Blockchain algorithm (program) produces SP and SBD in correlation with the Steem generated everyday.
The SP and SBD are derivatives of the Steem (Gold). Just like ornaments and gold coins are two different derivatives of the gold with different purpose. The role of SP and SBD in the Steem Blockchain makes the whole system functional.
Remember: The Steem comes first out of the Steem-Blockchain which is traded in the market. Then Steem-Blockchain produces SP and SBD which has some use cases on the Steemit (same use case of SP & SBD on other Steem Blockchain based platforms).
How to earn SP and SBD?
To earn SP and SBD we need to mine them. Mining is equal to contributing to the platform.
On Steem-Blockchain, there are two ways to contribute -
By writing blogs, commenting, and up-voting on steemit. This is called proof-of-brain mining. The idea is that the people who write useful blogs will attract more up-votes. The users will not up-vote the content which is not useful. The bloggers will earn SP and SBD (50–50%) when they receive upvotes. They may choose to get 100% SP or decline to receive any payout. The amount of SP and SBD they receive depends upon how much Steem Power (SP) does the up-voter hold (explained in the later part).
By giving computing power to the network (It is a decentralized application, there is no central server. People run a software on their own computer to keep the network up). In this kind of mining the miners earn based on the efforts they put in to keep steemit fair by reporting spam, up-voting good content, and increasing the computer power to support the users and keep it all functional. They are called 'Witness' (miners)on the Steem Blockchain. The witnesses earn 'Steem Power' in proportion of the work they do to keep the Steem Blockchain up and running.
Next obvious question is?
How to gain Steem Power (SP)?
Apart from becoming a witness (miner), there is a way to earn steem power.
By contributing useful content and up-voting (curating) valuable content on Steemit.com, user can earn SP. The SP is directly proportional to how much value does your up-vote has on the platform i.e. how much the author will earn out of your up-vote.
Depending on the SP a user holds on Steem, their influence is calculated. Higher SP means more influence on the platform.
Powering up and powering down
Credits: source [Thank you @ninzacode for creating this]
All the three assets (Steem, SP, and SBD) can be converted to one another. Some conversions are direct and some are indirect. The picture above explains it simply.
Powering up: Converting Steem to SP called powering up. It can be easily done on Steemit and any other Steem Blockchain platforms.
Powering down: Converting Steem Power to Steem is called powering down. The user gets the Steem in vesting period of 13 weeks, in 13 equal installments.
The Definitions -
Steem
STEEM is the base liquid currency token in the platform. STEEM can be powered up into Steem Power, traded for Steem Dollars, or transferred to other accounts. It is a cryptocurrency token, similar to bitcoin.
- Tradeable tokens that may be transferred anywhere at anytime.
Steem Power
Steem Power (abbreviated SP) is a measurement of how much influence a user has in the Steem network. The more Steem Power a user holds, the more they can influence the value of posts and comments. Steem Power is less liquid. If a user wishes to "Power Down" SP, they will receive equal distributions of the STEEM weekly, over a 13 week period.
- Influence tokens which give you more control over post payouts and allow you to earn on curation rewards.
- Steem Power can also be delegated. Delegation means donated SP to new users to help them perform actions on steemit.
Steem Dollars
Steem Dollars (commonly abbreviated SBD) are liquid stable-value currency tokens designed to be pegged to $1 USD. Steem Dollars can be traded with STEEM, and transferred to other accounts for commerce or exchange. Steem Dollars may also be converted into STEEM via a process that takes 3.5 days.
- It is similar to Bitcoin. Steem Dollars will be used on Steem based platforms in future to access various services on the platform.
I hope this piece explains the key differentiation between all three Steem Blockchain currencies and their purpose.
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For in depth study, please refer to Steem Whitepaper.