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Muscle contractions are powered by ATP losing a phosphate and becoming ADP. Creatine can give away one phosphate to convert ADP back to ATP. With more ATP, muscles are more powerful.

How is any of this related to the purported claim that creatine can not only increase power, but also increase muscle size? To my understanding power is not the same as size, although they overlap at some region. Just look at the huge difference in size of Olympic powerlifters versus Mr. Olympia bodybuilders.

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It will increase it indirectly. Creatine draws more water and nutrients to muscle, so if your nutrition is good, more protein will come to muscle and build into it. Also creatine gives more power and improves recovery time, so again, it indirectly helps our muscle grow by helping us with our gym training without witch there is no muscle growth.

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Can you explain the biological process of how creatine draws more nutrients into the muscles? How is this process different from steroids? –  JoJo Nov 6 '11 at 21:48
    
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Creatine increases the high energy phosphate diffusion between the mitochondria and myosine heads. Furthermore it works as a buffer for pH changes, which can improve cellulair homeostasis. And a decreased PCr level stimulates phosphofructokinase, an enzyme which limits glycolysis, and thus replenishment of this will lead to an improved glycolysis which also leads to a faster ATP reproduction. The following reviews explore this in more detail:

Sports Med. 1999 Jul;28(1):49-60. Review.

Sports Med. 2002;32(14):903-44. Review.

Physiol Rev. 2000 Jul;80(3):1107-213. Review.

Edit: As a reaction on Ivo I'll try to provide a more basic explanation of how creatine works.

With the execution of a physical effort, your body uses energy. This energy comes from ATP (Adenosine Tri-Phosphate). ATP is the primary energy source. When ATP is used, ADP (Adenosine Di-Phosphate) arises and a phosphate ion. The energy which comes free with this reaction, is used by your body to execute the effort. Unfortunately the muscle cells only contain a small pool of ATP. This pool is only enough to supply energy for a few seconds of intense physical effort (1). But fortunately your body does everything it can to regenerate the ATP. Your body uses another pool (creatine phosphate, PCr), to regenerate the ATP. And this is where creatine supplementation gets interesting. After intake of creatine it gets absorbed by the intestine-wall and the Creatine Transporter (CT) pulls creatine into the muscle cell. When there is enough ATP (during rest), the enzym Creatine Kinase (CK) extracts the phosphate ion from the ATP, and binds it to the creatine, forming PCr. When you exercise after, and you utilise your ATP, ADP arises and this reaction works the other way around, CK binds PCr to ADP and generates ATP. The main goal of creatine supplementation is to raise PCr and Cr levels within the muscle cell, so ATP regenerates faster. And this is exactly what happens when you supplement creatine. (I don't think I need to provide any sources for this, there are numerous of publications reporting an increase of PCr and Cr levels during creatine supplementation).

References

  1. Biochem J. 1992 Jan 1;281 ( Pt 1):21-40.
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Welcome to the site @GetXXL, while I believe you're answer is correct, perhaps you could give a slightly more detailed explanation, because your answer is very specific and requires quite some knowledge about physiology to understand. –  Ivo Flipse Dec 10 '11 at 16:17
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@IvoFlipse it does indeed require some kind of background in human physiology. But if you want to know more than the basic ATP story through how creatine provides ergogenic effects, it's pretty inevitable. I'll try to provide a basic explanation of how creatine works in an edit and leave out the more 'in-depth' issues. –  GetXXL Dec 10 '11 at 16:27
    
Great edit, perhaps we should ask a question that helps explain this stuff to the uninitiated in more detail. Either way that's a very nice description –  Ivo Flipse Dec 10 '11 at 17:23
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This explains energy increase but does not explain muscle size increase, which was my original question. Caffeine also increases energy but does not increase muscle size. Your average cup-of-joe drinker is not muscular. How is creatine different, making it a top supplement for bodybuilders? –  JoJo Dec 10 '11 at 19:20
    
@JoJo I think you're misinterpreting what creatine does, its not that eating creatine without exercise would ever make you more muscular. Though it might be good if the answer pointed that out as well –  Ivo Flipse Dec 10 '11 at 20:07
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