Users have trouble understanding how steemit pays them to create content on its network. Steemit has no visible advertising, does not charge fees, yet manages to pay users for creating and curating content. So, where does all this money come from?
Consider a gold backed economy, where paper money is printed as a receipt for gold held in a reserve. This currency is backed by gold, and the number of ‘gold receipts’ is proportional to the quantity of gold held in the reserve.
As the country mines more gold and stores it into its reserves, it also increases the number of Gold Receipts in circulation. It must print more gold receipts to keep the currency stable (1 Gold Receipt = 1 GOLD).
Steemit works in a similar way. Steemit issues STEEM backed dollars (SBD) to users for creating or up-voting content. To convert your SBD into actual USD, you buy STEEM with your SBD on the website, then sell that STEEM on an exchange for Uncle Sam Dollars (USD).
In the same way our gold backed country will mine gold, and create gold receipts, STEEM is continuously created on the blockchain, and SBD is also created continuously and rewarded to users. As long as gold remains valuable, the gold receipts will be valuable too. As long as STEEM is valuable, SBD will also be valuable.
As long as STEEM is valuable, you can create or curate content, be rewarded in SBD, convert that to STEEM and finally into USD.
Gold is valuable for many reasons - industrial, cosmetic, speculative, etc. So what makes STEEM valuable?
The STEEM economy is more complicated and versatile than described here. However, this short post should help understand how Steemit and other attention based sites are able to give away ‘free money’ — backed by the STEEM blockchain.
