This is possible because the Steemit platform is built on top of a new kind of digital currency called Steem. (Think Bitcoin, which is another kind of digital currency that has been around for a while.)
Every day, new units of the currency are created by the network and distributed to its users, who can exchange these digital currency units for actual real money. And it’s completely free to get started.
How does Steemit work?
In some ways, Steemit is similar to other digital currencies. For example, Steemit currency units can be traded, bought, and sold on the open market just like all of the other digital currencies.
With other cryptocurrencies like Bitcoin, the actual currency units that are created each day are distributed to the people who run a special bitcoin software program on their computers that perform a process called Bitcoin Mining. The amount of computing power you have dictates how much money you get.
Steemit allows for currency mining as well, but it’s not the primary way to earn money. Every day, new Steemit currency units that are created by the network and distributed to the people who engage with the site. The more you engage, the more you get.
People who create content are rewarded for their content. People who upvote content are rewarded for helping to curate the best content available on the site. Commenters who add to the discussions are paid too.
The 3 Steemit Currency Units:
One big difference between Steem and other digital currencies is that there are three different kinds of Steemit currency units.
There is Steem, Steem Power, and Steem Dollars.
Steem:
Steem are the units that are bought and sold for actual money on the open markets. You can trade them as you would bitcoins or a company’s stock.
But you don’t want to hold on to these for too long because more Steem Units are created every single day. If you hold onto Steem Units for a long time, they will become diluted and lose value.
Steem Power:
Owning Steem Power Units is essentially like making a long term investment in the currency because you can’t sell Steem Power Units for 2 years. But there are a lot of good reasons to have Steem Power.
By keeping your currency as Steem Power Units, you will be able to make considerably more money in the long run because you essentially have ownership in the network. As the network grows, so will your piece of the pie.
And you’ll be heavily rewarded along the way. The way things are set up now, 90% of the new Steem Currency that is generated every single day is distributed to the people who already hold Steem Power Units in the form of additional Steem Power Units. (The other 10% goes to content creators and curators).
Half of the pay you receive for your content will be in Steem Power Units.
Also, the more Steem Power Units you have, the more your curation vote will count. You will have more influence on the site and you will also get paid more for upvoting other people’s work. (When you upvote someone’s work, they will get paid more as well.)
Steem Power Units also play one final and very important role. They prevent massive price swings and volatility on the open markets. Because everyone is locked in for 2 years, we can’t all sell our currency all at once if the market starts to dip, which would crash the price were it to happen.
Steem Dollars:
Steem Dollars are the third and final form of the currency and never get diluted or lose their value. They are designed to be a stable currency that you can sell at any time. When you create popular content, 50% of your pay will be in Steem Dollars.
And you’ll be rewarded for holding Steem dollars too. It’s not nearly as much as the rewards for holding Steem Power. But because it still keeps the currency in the network, holding Steem Dollars pays 10% interest.
When you earn Steem Dollars for creating content, you have three choices:
You can convert the Steem Dollars to Steem and sell it immediately on the open market for real money, essentially cashing out.
You can hold the Steem Dollars, which keeps the money in the network and pays you 10% interest. You can sell them at any time. If you think the value will go up and want to sell at some point in the near future, this is your best option.
You can exchange your Steem Dollars for Steem Power. If you want to invest in the future of the currency and reap the biggest rewards, this is the way to do it.
How are the newly created Steem distributed each day?
Every day 90% of the new Steem units are rewarded to the people who hold Steem Power Units.
10% of the new Steem units are paid to content creators, curators, and commenters.
When you create content that actually earns money, 50% is paid to you in Steem Dollar Units that can be exchanged for actual money right away (or converted into Steem Power). The other 50% is paid in Steem Power. The Steem Power Units are locked up for 2 years.