Transactions on Steem vs Bitcoin. Part 2. Currency reserves and Steem accounts

Creators of the Steem network believe that transaction fees are acceptable on the financial blockchain networks such as Bitcoin because the value of transaction is financial. However, blockchain technology has more applications than just financial transactions and with transactions such as positive or negative voting for posts on Steem network, fees simply won’t work.

Introducing fees to a platform would be similar to designing a competitor to Google that charges users a small fee for every search. No matter how good the competitor, the idea is not going to work because one of the main benefits of Google is that people can use it whenever they want to look up whatever they want without paying any search fees.

Fees are a part of the reason why so many blockchain-based platforms are not gaining mainstream adoption. People are looking at the volatility of the cryptocurrency rates vs USD and other fiat currencies, and are not willing to tolerate the risk. Then, people realize that transactions come with fees and fees also have extreme volatility to them. This creates a huge barrier of entry for new users.


Dynamic fractional reserves on the Steem Platform

When people encounter something new, they like to try it risk-free. This is virtually impossible with cryptocurrencies such as Bitcoin and Ether. Before people can experiment with Bitcoins, they need to buy some Bitcoins. Many people don’t even realize that they can buy less than 1 Bitcoin. They look at the price of Bitcoins and think that Bitcoin is too expensive because they don’t know that the smallest part of Bitcoin is one Satoshi, which is 0.00000001 Bitcoin. On the Ethereum network, creators of decentralized apps must pass the costs of running the apps to the consumers. This is the only way that a business model built using Ethereum technology would work in the long term. In any case, to play with a network and figure out how it works people need to spend at least around USD$10. For many people, this amount represents a significant barrier between them and an unknown that they aren’t even sure they want or need.

For these reasons, Steem has introduced a system of dynamic fractional reserves. Using this model, the Steem network automatically adjusts the reserves during the peak times. At the same time, the blockchain has a target utilization ratio, which has room for short-term surges. Any time a surge lasts for a long period of time, the network decreases the ratio of bandwidth per share. Steem has a system of accounts in which balances of accounts are publicly known.


Opening a Steem Account

There are four main ways to open a Steem account. The first way is an official registration on website. When users open an account on the website, they get 7 STEEM in the account. The funds are in Steem Power, the vested version of STEEM currency, meaning that it is impossible to open an account and withdraw the balance right away. Accounts that users open on are not anonymous. To open an account, a user needs to provide the website with an email address and a phone number.

The second method is to open an account by downloading STEEM source code and registering with the wallet command line. The benefit of this method of getting an account with the Steem network is that this way is very secure and you will be the only person with access to your account keys. Just like with opening an account using the website, you will get 7 STEEM in your account and will have full content posting, voting and commenting rights.

You can also hire a third party to register an account for you. There are quite a few service providers that allow users to buy Steem accounts. When you buy an account, you will need to pay a registration fee to the third party and will have 7 STEEM in your account. From the security standpoint, this method has its drawbacks because the party that registers your account will get access to your keys first. While the party may transfer the keys to you later on, you can never be absolutely sure about what happened to the keys while they were in the possession of the third party. Finally, you can get a Steem account by becoming a miner on the network. While you will remain completely anonymous when using this method, you will only get 1 STEEM in your account, which is the minimum required to participate in transactions on the network.

When you get a Steem Vallet, the wallet will show how much money you have in STEEM and Steem Dollars. The account will also show the amount of Steem Power associated with the account.

Any account with a balance smaller than the minimum required amount of 1 STEEM will not be able to transact.