Steemit ELI5

Have you ever seen a Steemit post that earned thousands of dollars and you weren’t exactly sure why but immediately wanted to post something too? Where is this money coming from? How can I benefit? The Steemit architecture seems to be an extremely complicated. It's hard to understand and even harder to analyse properly. Fortunately, there are some basic rules that can be applied no matter how complicated the system is. Walk with me.

The money is coming to Steemit from people buying Steem and SBD. Then, it’s going out to founders and content creators. That’s all you need to know. Simple, right? The exact underlying mechanism is not necessary to understand that if the money is constantly going out in the form of payouts, there must be a constant stream of funds coming in. The more money is going out, the more money must go in first.

The price of Steem went down recently but authors and founders are still getting paid. Where is the money coming from? It’s coming from funds gathered by Steem investors. If the price will go up – they will be paid back but if it will continue going down, finally there will be no funds to pay anybody.

In the long run, is it possible that the price of Steem will go only up? It can because it’s like Bitcoin, right? Not really. By design, Bitcoin is deflationary. The supply of Bitcoin is limited and it’s decreasing. Even if the network growth will stabilise, the price may still go up because the total number of Bitcoins in use will be falling down. Every day, some Bitcoins get lost and every four years the supply of new coins is cut by half.

Steem is inflationary. Creation of new coins will never stop. Ever. How does it work then? It works because the growth is faster than inflation.

I’m really open for discussion but from a logic point of view, this simply cannot work forever. The payouts for posts are enormous and I don’t believe in free launches. To pay for it, the price of Steem had to grow enormously forever. It doesn’t seem real.

Let me know in the comments if I missed something important.