What does a Steem witness earns, Steem or Steem Power? How is the stake distributed, on what criteria?

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Steem blockchain witness are rewarded with Steem Power. The rewards are generated as part of the continual creation of new tokens, also known as inflation, which funds the reward pool, the interest on Steem Power, and the witness rewards. In total witnesses receive 10% of the amount of annual inflation (75% goes to the reward pool and 15% in interest to SP holders).

Steem operates on a delegated proof of stake system. Each holder of Steem Power can vote for up to 30 witnesses with the weight of the vote equal to the amount of Steem Power held by the user (expressed in vests). This gives an ordering of the witnesses by voted stake.

The rewards are distributed to the top witnesses based on the number of blocks they validate. Block validation is carried out in rounds of 21 blocks. For each round the top 20 witnesses validate one block each, with the final block reserved for a random selection from all the remaining witnesses, with the random chance weighted by the amount of their voted stake.

The rewards for each block validated are different between the top 20 witnesses and the 21st block. Currently top 20 witnesses receive 0.204SP per block. The random witness receives 1.020SP per block (i.e. 5x as much).

Blocks are produced every 3 seconds. Over a week a top 20 witness should validate 9,600 blocks (60 x 60 x 24 x 7 / 3 = 9,600) with around 1950SP (9,600 x 0.204) in rewards.  The rewards for the remaining witnesses are much lower with a maximum of around 350SP and tailing off towards zero by witness 100.