Tokens gets created out of nothing, and you can sell these tokens to people who invest in Steem or to people who want those tokens to lock them and gain Steem power to create more tokens for people to buy. When you lock tokens you get Steem power which raises the rewards you give by voting and influence on the platform overall.
The key for the platform to function is in the fact that for the Steem coins you locked to be unlocked you have to wait 104 weeks to get it all back, and each week you get 1/104 of the Steem you powered up with. This system works similarly to a ponzi but a very drawn out one.
The coin is DPOS, Delegated-Proof-of-Stake, meaning the block producers or witnesses get elected by users where their stake weights the vote. The top 19 elected nodes get to produce blocks every round, and a backup witness bellow the top 19 can produce one block in a round where the probability to do so is based on the amount of votes it received.
Steemit uses the DPOS governance system so it can have high transactions per second of up to 100,000, however this sacrifices a lot on the decentralization of the network as the top witnesses gain more and more power to vote for themselves and due to the pareto principle a small percentage of people holding a huge share of the supply dictate governance decisions.
The annual inflation is immense, I’ve read reports of 20% inflation yearly, and this is to be expected as the price drops more the more expensive it becomes to maintain stable curation rewards.
There’s many reports of steem “whales” abusing their power to censor and cut out honest users of the platform, and this can only become worse since those same whales are the ones who get most of the inflation from curation.
Unfortunately, this is currently the best blockchain can do to make a decentralized social media platform and while the platform is essentially a hidden ponzi, in some aspects it has really interesting benefits and features.
Using the platform I found that there are fewer trolls than other social platforms and many polite comments in posts, this is due to the incentive to gain favor with other users so they’re tempted to vote on your comment and thus create some Steem coin for your account.
You’re also more likely to be rewarded with Steem if you write good posts a majority of people will support and agree with, so it incentivizes you to make good content for the platform.
Following the human psychology of what belongs to you becomes more precious, when you’re rewarded with Steem the coin seems to appear more precious and it makes you want to get more of it, naturally raising the price of the coin.
While I don’t really see a future for this platform I can imagine a scenario where the platform would quickly become famous, via for example a celebrity, which would see a quick rise in user count making the Steem coin’s price boom. This would however be temporary, as explained previously it would eventually end in a bubble bursting.
