I'm having a hard time explaining my relatives how Steemit works. They can't understand Steemit's business model. People question me so much about whether Steemit is sustainable that sometimes I doubt myself.
Steemit's business model is in a way very simple: The content is produced and money is earned in return.
Steemit's business model is somewhat difficult to understand: It's financial system is very complex.
In this article, I would like to explain how Steemit can pay to content creators. Although I have done a lot of research on this subject, I can not claim to be the expert of the subject, but I think I understand the system to a large extent.
Steem is a money with inflation, unlike other crypto currencies. There's about 9% annual inflation. This inflation rate will drop gradually over time to 0.95% after 20 years.
Because of inflation, Steem is created in every new block on the Steemit blockchain. (About 1,66 Steems is created every 3 seconds) 75% of these Steems are transferred to the reward pool, 10% to witnesses operating the Steemit system, and 15% to Steem power owners.
75% of the money generated in the reward pool is distributed as author reward to content producers and 25% as a curation reward to Steem power owners.
You may not be satisfied with the answer that Steem is a crypto currency with inflation. Because this argument does not explain where and for what reason the money enters the system.
Money enters the system through exchanges by people buying Steem or SBP. The money get out from the system again through the sales of Steem or SBD through the exchanges. The price of Steemit currencies rises when the money entering is higher than the money exiting.
So why are people buying Steem? Is the system a Ponzi scheme? Steemit is not a Ponzi scheme because it creates a tangible value. We can understand this by comparing Steemit with Facebook.
Facebook makes money from ads on it's site or application. Payments for these ads are made on Facebook in the currency of the country. Steemit also makes money from promotion. Those who want to promote themselves or their product at Steemit invest in Steem and turn it into Steem power and get the opportunity to stand out on the system. Steem owners can promote themselves and their content through upvote bots or by using the "promote" feature.
It's like placing ads on Facebook or Google on a platform that has more than 1 million members, and the difference is that one payment is made with traditional money, and the other with crypto currency.
The more the Steemit platform and Steem currency is used, the more community members benefit from it. The higher the number of users, the more attractive the Steemit is.
Thanks for reading.
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