To the Coup and Back: Story Behind Steemit Community’s Failed Revolt

Occupy the Internet

Tron Foundation led by the industry celebrity Justin Sun has recently acquired Steemit, one of the oldest and most popular blockchain-based social media platforms.

Steemit runs on its own Steem blockchain, but after the purchase, Steem tokens are expected to be transferred to the Tron blockchain. Steemit’s media infrastructure and formidable user base are to become another building block in Justin Sun’s blockchain empire.

Yet this sudden move has spawned unexpected contention between the Steemit team and the platform’s community. Steemit was supposed to be a decentralized platform, and some users apparently believed it to be a DAO of sorts. But in reality, it never was one, and the community was taught a harsh lesson today.

In this piece, will briefly tell the story of one failed coup and explain the reasons behind its origination and eventual failure.

Steemit’s Ninja-Mined Stake

We need to start our story with a brief explanation of Steemit’s inner workings. Steemit is a DPoS platform run by witnesses (validators) who are elected by the broader community using Steem Power. Steem Power is obtained when a user locks their Steem tokens (Steem’s native currency).

Thus any user who has a huge amount of Steem tokens can potentially have an overwhelming influence on the political structure of the platform.

Steem happens to own a large sum in Steem tokens obtained through what can be best described as pre-mine, aptly named within the community as a Ninja-mined stake. This stake grants the platform’s team a potentially decisive voting power.

This ninja-mined stake has long been a point of contention between the team and the community. Pre-mined tokens were seen as made with an “unfair” advantage and potentially dangerous as a tool for making Steemit heavily centralized.

But the team has specifically stated that these assets were stashed solely for the development of the Steem ecosystem and would not be used for voting in governance issues. This pool of tokens has never been used for voting before. But the recent developments have put this entire pile of tokens into the hands of the controversial entrepreneur Justin Sun and Steemit witnesses got very nervous.

Soft (Fork) Revolution

In an open statement, the super-majority of Steemit witnesses claimed that as communication on the Steemit acquisition was scattered and conflicting at the time, they decided to be proactive, rather than “risk a possible security threat to the Steem blockchain” and announced a soft fork that would specifically prevent transactions from several addresses where Ninja-mined stake was stored. This was done to prevent the new owners of Steemit to quickly seize power and make unilateral decisions about the platform’s future.

“In these early stages, the most important task for witnesses is to ensure the security of the Steem blockchain. To this end, we have updated to a temporary protective protocol to maintain the status quo currently established in regards to Steemit Inc’s stake and it’s intended usage. This update is reversible, and is simply to be used to ensure that the security and decentralization of the Steem blockchain remain intact,” the statement said.

The soft fork went live immediately and did not require any node updates. The witness junta proclaimed in the statement that while they are excited by the new opportunities which the changes of company ownership imply, they would like “to transition the good-faith agreement into a truly trustless one, utilizing blockchain code, and taking further steps to help Steemit Inc support even better decentralization.” Basically, this was a call for creating a Steemit DAO.

Despite the super-majority being instantly formed and supported by a large part of the community, there were also opposing voices, calling such drastic measures irresponsible.

“While the hearts may have been in the right place, the precedent set by this (Top 20 Witnesses ability to take anyone’s stake away from them) will probably keep anyone from investing in Steem ever again. Why should they?

“The ninja-mined stake was a problem, but taking it away after someone just paid $10m for it is not the solution, plus I am sure there are legal issues with what was done.

“If this was truly about helping Steem and not just preserving the current witnesses (which is what it looks like), All THE TOP 20 WITNESSES SHOULD STEP DOWN INDEFINITELY.”

Justin Sun’s Response

Sun responded immediately but vaguely. Briefly mentioning his surprise, he nevertheless was resolute to stay positive and open for communication.

“It is my plan now to make sure we begin communicating with the Steem community and make sure we are a positive force in making Steem and Steemit 2.0 great,” Sun said, “I would like to invite a group of our top 50 Witnesses to our first STEEMit 2.0 Town Hall, which we will hold tentatively on March 6th, 2020. At this meeting, I am hoping to hear from many Steemian Witness voices to learn and understand how they think we can grow Steem together, and how Steemit Inc can communicate with the witnesses on a regular basis.”

The community reacted in a mixed way. Some members praised Sun’s open-mindedness.

“This is a great step. I often host witness forums in a discord group called the Peace, Abundance, and Liberty network. I’d be happy to assist,” said a user named aggroed.

Others criticized the community vocally for ceding ground to a centralized entity.

“This pathetic support and immediate change in tone go to show you these witnesses are only here for the money, not the chain. People don’t change overnight. You all should be ashamed at rolling over so easy when you know damn well he’s going to try to kill this chain and all support for it while we move to China chain,” retorted berniesanders.

The Empire Strikes Back

On March 2, the Steemit team published their own statement as witnesses reeled after a successful blitz counter-coup. They stated that it was in fact witness junta who were threatening the platform’s decentralization.

“Soft Fork 22.2 was maliciously structured, intending to freeze a handful of very targeted accounts and taking away their rights and possession to their owned asset, and may be deemed illegal and criminal. The group behind this could essentially do this kind of attack to any Steem community member, on any terms they want. They even threatened to hard-fork, and nullify all existing STEEM token, putting every good STEEM holder, developer and community interest at danger. This is very much against every aspect of the original purpose of decentralization and the core value of the Steem blockchain and community. We can’t let it happen.”

Apparently, the witnesses regarded themselves invincible like major miners in PoW blockchains. But in DPoS blockchains, whoever has the most money controls the vote. The junta failed to take into account the huge piles of Steem tokens stored elsewhere.

According to a community-led investigation, the counter-coup was enabled by several centralized exchanges, including Binance and Huobi, who turned Steem tokens stored on their wallets into Steem Power. This power boost allowed them to elect new witnesses and reverse the soft fork, giving Steem once again access to their Ninja-mined stake.

As Steemit regained access to its staked accounts and full control over the platform, it also announced a 4-6 weeks long “martial law” under which Steemit would be using its Ninja-mined stake for voting. After that, the “Steemit team will give the governance back to the community when it’s back in order and mutual agreement.”

The overthrown witnesses got an opportunity to say that it was exactly what they expected would happen if the unfairly begotten Ninja-mined stake was used.

Main Takeaways

Steemit is not decentralized and it has never been decentralized. Moreover, it’s pretty unlikely that it will ever be decentralized. It may actually be fine for Steemit in the long run, though, depending on what Mr. Sun has in store for his new purchase.

But much more importantly, this precedent is a major wake-up call for users of other DPoS ecosystems that fashion themselves as truly decentralized. Given how powerful and easy collusion of centralized exchanges may be, no one is safe.

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