Welcome to Part 3 of The Beginner's Guide to Steemit, a project seeking to demystify Steemit to brand new users and make joining the platform a seamless experience. If this is your first encounter with the Beginner's Guide, be sure to read previous installments:
In the last installment, we discussed signing up for Steemit and how to keep your account secure.
Today's lesson is about the digital tokens and currencies you'll find in use here on Steemit. They are STEEM, STEEM Power (SP), and STEEM Blockchain Dollars (SBD).
We've already discussed how you can be rewarded for your posts and comments on Steemit, and we've even talked about how you can vote on posts to provide rewards to others. But what are these rewards? How much are they worth? What can you do with them?
This lesson seeks to familiarize you with the various digital currencies and tokens that you'll be encountering on Steemit. They are STEEM, STEEM dollars (SBD), and STEEM Power (SP). We'll learn the basics about each of them and their roles on Steemit.
Image created by @ethandsmith using CC0 resources and Nexa Bold and Alegreya Sans fonts. Released under a CC0 1.0 Universal License.
What You'll Learn
- What a digital currency is
- The differences between STEEM, STEEM Power (SP), and STEEM Blockchain Dollars (SBD)
Digital Currencies and the Blockchain
Image created by TheDigitalArtist. Used under a CC0 1.0 Universal License.
If you follow the news at all, you may have noticed the word "cryptocurrency" or "bitcoin." These terms are related to a new technology called digital currencies (synonymous with cryptocurrencies or tokens). Like other currencies you are familiar with such as dollars or Euros, digital currencies may be exchanged for various goods and services digitally and have value. Where does the value come from? Generally, digital currencies are valuable because of blockchain technology. Most digital currencies are produced as rewards on various blockchains.
It's not immediately important that you understand how the blockchain works. In fact, you don't have to understand it at all to use Steemit and be successful, but I want to provide a very basic explanation since Steemit does rely on the blockchain to work.
In the simplest terms, a blockchain is a record of transactions. The easiest way to picture this is to consider financial transactions. Each time you swipe your credit card or deposit money at the bank, that transaction is recorded. The bank is in charge of keeping a record of all of these things, which means you can consider your financial records "centralized," that is, only one entity or company controls it.
Blockchain transactions are "decentralized," which means they are not controlled by any individual or entity. Users across the world accomplish this for the blockchain. This means that transactions are confirmed by many people and placed into a ledger that anyone can view.
Ultimately, digital currencies are rewards paid out for these users who confirm transactions on a blockchain. That's it. If you want to learn more about how blockchains work, check out the Wikipedia article.
Steemit is based on the STEEM blockchain, but instead of paying out rewards to the people who confirm transactions, the rewards are paid out to content creators and curators! So by publishing content and voting on others' posts, you can receive a share of the rewards!
The Money Analogy
Image created by PublicDomainPictures. Used under a CC0 1.0 Universal License.
We've already mentioned the three main currencies that are present on Steemit. STEEM, SBD, and SP. STEEM and SBD are the main liquid currencies, meaning they can be traded, exchanged, sent, and sold very quickly and easily. Think of them like US dollars. If you have dollars, you can use them as you please very easily. Go to the store and buy a candy bar. Buy a car from your neighbor. Trade them for Euros, yen, yaun, or pesos. You can make all of those things happen quickly and easily with your cash.
The same can be said of STEEM and SBD. We'll talk about how to use them in the next lesson, but remember that they are liquid and can be used for a variety of purposes.
STEEM Power, however, is not liquid. It can't be moved around easily. It's like placing money in a savings bond or an investment account. You possess the value. It's part of your net worth, but it's not easily accessible.
You can earn all three currencies and tokens by using Steemit, but they are used in different ways. Let's talk about why there are three and what purpose each one serves.
STEEM
Image created by Steemit, Inc.. Used under a CC0 1.0 Universal License.
STEEM is the most recognizable digital currency on Steemit. It's right in the name of the website, after all! STEEM exists not only here on Steemit, but also elsewhere around the web. In fact, you can find it on websites where other digital currencies may be purchased called exchanges. You can also consistently find STEEM among the top 30 currencies by market cap, which means there is a large volume of STEEM in circulation around the world. STEEM is a versatile digital currency that does not carry any transaction fees and boasts instantaneous transfers. This means you can send and receive STEEM with little or no cost!
There are many things you can do with STEEM. STEEM is a liquid currency, which means it may be exchanged instantly for other currencies using exchanges or services like Blocktrades.. It may also be powered up into STEEM Power to increase your influence on Steemit, or converted to STEEM-backed dollars via the Steemit internal market (we'll talk about all of these operations later).
STEEM also has value in various fiat currencies. Let's consider its value in US dollars. You can check to see what STEEM's value is by using websites like CoinMarketCap or CoinRanking. This means that the STEEM you earn on Steemit may be converted to US dollars! STEEM may be exchanged for other digital currencies like bitcoin, ethereum, and litecoin, and all of these have value in US dollars, therefore, by extension, STEEM has value in US dollars. It takes a few steps to be able to cash out your STEEM for USD. This process will be covered in detail in a later lesson.
It's also worth noting that STEEM may be freely exchanged and sent among users on Steemit. These transactions may be completed in your Wallet, so we'll explain them in the next lesson.
STEEM Power (SP)
Image created by blickpixel. Used under a CC0 1.0 Universal License.
Your STEEM Power (SP) is the measure of influence that your account has on Steemit. This means that as your SP increases, your account's value increases. SP are equivalent to STEEM in value, however they are not liquid, as they cannot be directly traded or exchanged for other digital currencies. The amount of SP your account possesses directly determines how much your account's vote is worth. Therefore, when we talk about voting in a later installment of this series, you'll notice quickly that the users who have more SP are able to give higher value votes dollar-wise as it appears in the payout section of each Steemit blog.
Here's what the STEEM Whitepaper has to say about STEEM Power:
When users vote on content, their influence over the distribution of the rewards pool is directly proportional to the amount of SP that they have. Users with more SP have more influence on the distribution of rewards. This means that SP is an access token that grants its holders exclusive powers within the Steem platform.
Increasing your STEEM Power should be one of your foremost goals as a new member. Higher SP means that your votes will be worth more on the posts you choose to reward. Higher valued votes also help your account gain what are called curation rewards, which we'll discuss in a later lesson. So you should always try to increase your STEEM Power!
How does SP relate to STEEM?
Again, remember that SP are equivalent in value to STEEM. The difference is that STEEM Power is not "liquid," meaning it cannot be immediately exchanged for other currencies like STEEM can.
STEEM may be converted to STEEM Power via a process called "Powering Up." Likewise, STEEM Power may be converted to STEEM via a process called "Powering Down." We'll discuss each of these functions when we talk about your account's wallet. For now, make note that powering up STEEM into SP is instantaneous and immediately increases your account's stake, meaning your votes will be worth a bit more. Powering down, however, is a much slower process. It takes 13 weeks to power down a given amount of SP into STEEM. This is to encourage users to leave their SP in place and continue using it as influence on Steemit.
Increasing Your SP
There are two main ways to increase the amount of SP in your account. One is to buy STEEM via digital currency exchanges and power it up. We'll discuss this at length in later lessons, but it does involve spending money to "buy in" to the platform.
The second way is described in the STEEM Whitepaper as "working in," which allows users to create content and earn a share of rewards based on the response to their posts. If you don't have money to spend on buying in, this option makes more sense to most users, since many of us have free time to dedicate to sharing content.
Once you begin blogging, you'll notice that after a few posts pay out, your SP value will increase. This is because post rewards are paid out in STEEM power. When you receive rewards from a blog post, which we'll discuss in more detail later, at least 50% of the rewards will be directly added to your SP balance depending on what reward option you select when authoring a post (we touched on this briefly in the quick-start guide if you want to refresh your memory) This means as other users reward your posts, your own influence on the platform will increase no matter what. It may be a small amount at first, but growing your SP balance is one of the most important ways you can help contribute to Steemit. If you do choose 50%/50% for rewards, you'll receive 50% SP, so what's the other 50%?
STEEM Blockchain Dollars (SBD) or STEEM Dollars
Image created by geralt. Used under a CC0 1.0 Universal License.
Generally, the other 50% of rewards from blog posts and comments are paid out as STEEM Blockchain dollars (SBD). These show up in your wallet as STEEM Dollars, so don't let the terms be confusing. SBDs and STEEM Dollars are the same thing. SBDs are liquid tokens, like STEEM, which are listed on a few exchanges and may be converted directly to STEEM or other digital currencies using Blocktrades or another service. The goal of SBDs is to offer a more stable digital currency that is not subject to fluctuations like STEEM and Bitcoin. Each SBD is intended to have a value of 1 US dollar (This may not be the case as you read this post for various reasons, so don't worry). If you are curious as to the value of STEEM-backed dollars right now, you may check the current price on CoinMarketCap just like STEEM.
There are many economic considerations regarding the value of STEEM Blockchain dollars since they are not directly generated by the STEEM blockchain like STEEM tokens are. Here's the official explanation of SBDs from the STEEM Bluepaper:
Many users who are introduced to cryptocurrency struggle to comprehend how “magic internet tokens” awarded by the platform can actually have real world value. In order to help bridge the gap between more traditional fiat money systems which mainstream users are used to, and the cryptocurrency tokens which they are awarded through the platform, a new currency called Steem Blockchain Dollars (SBD) was created.
SBD tokens are designed to be pegged closely to one USD, so that users who receive them can know approximately how much they are worth in “real dollar” terms. SBD tokens also offer a relatively stable currency for users to hold if they are looking to preserve their account value relative to USD.
Ultimately, this means that SBDs are a way to make the value of your Steemit account more perceptible in relation to fiat currencies such as the United States dollar.
SBDs may be used in many of the ways you can use STEEM. They may be easily sent between users on Steemit or sent to an exchange and traded for other digital currencies. SBDs may also be converted to STEEM easily right on Steemit. This may be done by using Steemit's internal market to exchange SBDs for STEEM right away. We will discuss step-by-step instructions for this process in the next lesson.
If you choose to convert your SBD to STEEM, you may then power up the STEEM you obtained to increase your STEEM Power. This is advisable at the beginning of your Steemit journey in order to improve the value of your votes. However, you are free to do with the liquid SBD as you please, and that may involve sending them to another wallet to exchange them into USD or another fiat currency. The choice is yours, and it can all happen right in your wallet!
Recap
Image created by 472301. Used under a CC0 1.0 Universal License.
There are so many more things to learn about these three currencies. However, let's review the basics of each:
- STEEM is the primary digital currency of Steemit.
- May be exchanged for SBDs directly
- May be "powered up" to convert to SP
- May be sent to other users
- May be sent to external exchanges
- STEEM Power (SP)
- The measure of a user's influence on Steemit.
- Received as post payout always
- Have the same value as STEEM
- May be "powered down" to convert to STEEM
- STEEM Dollars (SBDs)
- Received as post payout when 50%/50% is selected
- May be exchanged for STEEM directly
- May be sent to other users
- May be sent to external exchanges
Advice for New Steemians
Remember that you probably won't need to put this knowledge into practice until one of your first blog posts pays out. You won't receive a payout in SBD or SP until 7 days after you share your first post on Steemit. That goes for all posts and comments. The rewards pay out to your Wallet 7 days after a post has been shared. You will be able to claim these rewards as they come in. Later in the series, we'll look at some tools you can use to track these rewards.
Throughout this process, I recommend using your knowledge of STEEM, SP, and SBDs to increase the value of your account.
What You Should Know Now
- The basics of digital currencies
- The difference between STEEM, SP, and SBDs and how they relate to each other.
For more information, check out the Steem.Center Wiki article about the STEEM currencies.
The Next Lesson: Your Wallet
Image created by Goumbik. Used under a CC0 1.0 Universal License.
We've talked a lot about the currencies you'll find on Steemit, but now we need to focus on what you can do with the currencies and where they go once you receive them. The next lesson is all about your Steemit wallet, which includes everything you need to know about basic wallet operations.
