STEEM, Steem Power and Steem Dollars
One of the most difficult aspects of Steemit to grasp for newcomers can be the difference between Steem, Steem Power and Steem Dollars.
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Choice
When you get STEEM you have a choice of how to store it. As new STEEM is created the money supply increases and the value of existing STEEM will be reduced proportionally.
Creating new currency out of thin air may seem like some sort of charlatan trick but it is actually a fairly standard mechanism in modern economies, where it would be controlled by the central bank. It does result in general inflation caused by increasing the money supply.
Steemit
The Steemit Economy gives you 3 ways of storing your STEEM cash. There are 3 Asset types but here I will simplify it and describe, instead of assets, types of accounts. You need to make a choice of which of these accounts to store your STEEM cash in.
Please note this is not investment advice and the percentages quoted are subject to change and are merely a guide to help you understand the mechanics of the different forms of STEEM.
STEEM
This account keeps your STEEM in its liquid form. Its value is eroded over time at a rate of 9.5% per annum (currently) as new STEEM is created. But you are free to spend your currency as you wish and you also benefit as the value of STEEM rises compared to other currencies.
Steem Dollars
This is an account that holds your STEEM pegged to the US dollar. You get paid interest for holding your STEEM in this account. This form of STEEM is also liquid and you are free to spend you currency as you wish but you do not benefit as STEEM rises in value compared to other currencies. Importantly you also don't lose out to inflation as the money supply of Steem is increased. Remember the value of STEEM stored in this account is pegged to the US dollar.
Steem Power
This represents a longer term investment in the platform. There are a few benefits to storing STEEM in this account.
- As new STEEM is created you get a portion of the new STEEM (15% of it)
- Your votes carry more weight when you vote on posts
Your value will reduce over time as the money supply of STEEM is increased but at a slower rate than if you stored it as liquid STEEM because you get 15% of the new money created. In this form you also benefit as STEEM rises compared to other currencies.
Holding STEEM as Steem Power has similarities to keeping your STEEM in a notice deposit account. You earn interest but to get your money out you have to give notice in a process called powering down which takes 3 months to get access to all your STEEM locked up in this account.
There is one last choice you get to make when storing your STEEM...
Savings Accounts
Steem and Steem Dollars are both liquid currencies. They can be transferred to anyone at any time. This means that if someone got access to your Steemit account (your Active Key) they could steal your Steem or Steem Dollars.
To provide an added layer of Security for Steemians you can choose to store your Steem Dollars and Steem in a savings account that has a 3 day waiting period before you get access to your funds. Its like a vault for locking up your liquid currency.
Thank you for reading this. I write on Steemit about Blockchain, Cryptocurrency, Travel and lots of random topics.
Special thanks to @timcliff for his help on some of the more subtle points of the different states of STEEM, and review of an early draft of this article