Rewards for writing and curating
There are two methods of earning Steem on Steemit.
The first is by writing a blog post. As that blog post accrues votes, the amount of Steem that will be distributed to the writer increase.
However, every vote on the site is not worth a flat amount of money. Instead, the amount earned is based on both the number of votes an individual receives and the amount of Steem Power a voter has.
For example, if one user had 1,000 Steem Power and another had 10,000 Steem Power, it's clear that the latter has a more powerful account than the former. The effect of each of those two people voting on a piece of content is not equal; specifically, the user with 10,000 Steem Power's vote is worth more.
This has resulted in the development of a sort of whale chasing culture, whereby writers hope to convince the large Steem Power holders to give them upvotes. A vote by Scott or Larimer has been seen to increase the value of a post by hundreds of dollars, resulting in a pile-on effect where others chase the post.
To incentivize this sort of voting, there is also the curation reward paid out in the form of Steem Power. If a post does well, you earn more Steem Power than if a post doesn’t do well, thus incentivizing you to only vote for content that you believe is high quality.
Further, not every vote from the same account is equal in value. Voting on multiple pieces of content reduces the strength of each of your votes depending on how much time passes between each vote. Scott explained voting power by comparing it to certain video games.
He said:
"It’s a lot like Diablo or something where you have mana. What happens is, if you're casting a lot of spells, your mana decreases and then it generates over time. The same is true of voting power. You have to put some thought into votes because you don’t want to waste your voting power."
There are two reward pool distributions.
The first is approximately 12 hours after the post has been submitted. The reward, denominated in US dollars, is released to the writer divided evenly between Steem Power and Steem Dollars. Voters receive the reward entirely in Steem Power. The second reward pool distribution occurs one month later.
Delegated proof-of-stake
A blockchain without security is not one anyone would have faith in.
Steemit gains its security from a delegated proof-of-stake algorithm, first developed for Larimer's BitShares project, which is a variation of proof-of-stake. A true proof-of-stake algorithm, such as peercoin, relies on those who hold the currency to verify transactions.
The more currency held by a wider variety of people, the more secure the network is.
In a delegated proof-of-stake system, the community votes for individuals, called witnesses, to be responsible for verifying transactions.
The easiest way to think about it is proof-of-stake is true democracy similar to ancient Athens. Delegated proof-of-stake is more of a democratic republic, such as the US. By that logic, witnesses are like Congressmen, elected by the community to be responsible for securing the network.
However, the analogy ends there, because witnesses can be kicked out of their job for not doing it, something the US Congress has been immune to for some time.
Scott said:
"It’s a paid position. We're not talking about four-year terms. We're talking about people with very specific jobs, which are to produce and verify blocks."
In total, there are 21 witnesses responsible for creating and signing blocks of transactions each time a block is made. The first 19 are voted for, as described above. Then there is a 20th witness, which is a random witness who might not have been in the top 19. The 21st witness is a miner doing typical proof-of-work.
In the Steemit white paper, the authors write:
"This process is designed to provide the best reliability while ensuring that everyone has the potential to participate in block production regardless of whether they are popular enough to get voted to the top."
New, but growing
Since catapulting in value to over $400m, Steem has cooled to an approximate market-cap of $157m, but this still makes it one of the six largest cryptocurrencies on the space.
While there are certainly naysayers, the reality is that Steemit continues to see more people signing up and participating.
However, it’s not simply Steemit the social media site, but also the blockchain that has experienced tremendous growth. Scott said that entrepreneurs and developers have already created 50 different tools, such as Catch a Whale (which tracks where whales have recently voted) and SteemMarket (which lets users buy, sell and rent goods with Steem).