Before you start making or earning money on Steem, you must know how 3 cryptocurrencies on Steem Work.
There are 3 types of cryptocurrencies that work on Steem;
- STEEM POWER
- STEEM DOLLAR
STEEM is fundamental currency which is volatile and subjected to inflation, and its supply is increased up to 100 percent per year, however it also easily be exchanged by Bitcoin, Ether and other digital currencies at OpenLedger, Bittrex and BlockTrades.
STEEM is just like an ownership token, however it is just votable when it is vested as second currency i.e. Steem Power. In process of powering up, STEEM can also be changed into STEEM Dollars.
It is invested in your network like equity. Steem Power can be converted to STEEM by a process called powering down.
Rate limited of Steem Power withdrawals incentivizes when you develop long term perspective by participating in community. It also can serve like protection from hackers.
1 Steem is 1 vote by those
individuals who contribute most get for deciding which post is valued more.
Flags or upvotes by user is lots of STEEM POWER and they are worth more than those who have relatively small amount of Steem Power, therefore this isn’t a democratic type of thing, rather it’s more meritocratic. Indeed, those with zero STEEM POWER can’t vote at all.
This can create inventive to use upvote by maximizing long term STEEM value. 90 % of new STEEM created by inflation is distributed on continuous basis pro-rate to STEEM POWER holders. This is such a powerful incentive to convert your STEEM Dollars to STEEM and then power them to STEEM POWER.
Steem Dollars also known as SD, SMD or SBD are considered to be as a short term debt investment instrument which is pegged as 1:1 with your US Dollars. If you can hold SMD you are efficiently lending to the community same value of dollars that increases your growth, as mentioned in the white paper. Therefore SMD can pay you 10 percent interest yearly when value of one SMD is below $1 dollar.
For each SMD, $19 worth of STEEM is made as STEEM POWER, Therefore the max debt-to-ownership ration of STEEM network is just about 5 percent, which could increase when value of STEEM falls in marketplace however shouldn’t be a major problem, so don’t worry and continue to Steemit.