What is a referral system?
If you don't know what a referral system is, or maybe have forgotten, it's a system designed to reward current members of a company or website for recruiting fresh members. Common examples of places that do this are credit card companies, online casinos, fiat currency banks, and many others. The main idea behind it is to provide small or potentially large rewards for converting non-members into active, contributing members.
How would a referral system work on Steemit?
I am a new member here, and I haven't completely digested the white paper for Steemit yet, which is why all the ideas I post for Steemit are discussions. They are meant to encourage positive and negative feedback so we can get a general consensus on how the community feels about certain things. For this one specifically, I'd like to call on the help of 
Head Count Payments
This one is pretty simple. Let's say you've been on Steemit for a while, and you want to recruit some friends. You give them your referral link, and they sign up to join the fun. In this case you'd be rewarded for each person that used your referral link when they meet specific requirements.
Ratio Payments
In this scenario, you've already recruited some friends, and their posts and blogs are doing quite well. The rewards for this system could be a percentage of the rewards your referrals earn by authoring posts. If they earn $100 Steem Dollars for a post, let's hypothetically say you'd earn 1-5% of that (depending on what's decided if this system gets put into place) and so on and so forth. These would also be subject to restrictions, like Head Count Payments would be, and I'll list those possibilities below.
Possible Restrictions
- Only users with a specific Reputation Level are allowed to use the referral system.
- Only users with a specific amount of Steem Power and/or Steem Dollars can use the referral sytem.
- A limit could be place on the number of referrals you can recruit (5, 20,etc.).
- Referred users can only generate referral income on posts that generate a required amount of Steem Dollars ($20, $50, etc.).
- Feel free to discuss other restrictions below. :)
Benefits of the referral system
The most prominent benefit the referral system provides is an incentive to increase Steemit's user base and exposure. Bitcoin was a prime example of this in terms of exposure, once it was being mentioned on mainstream media, the price exploded. Exposure to new audiences is key to gaining new members, along with several other factors. An increase in exposure -> increase in members -> increase in active, contributing members -> increase in post quantity, quality, and more fun for everyone. Not only does it grant more advertising of the Steemit brand, but the veteran members doing the work also get rewarded for it.