Steemit takes control as exchanges reject a hostile takeover - OhNo "WTF" Crypto

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Steemit takes control as exchanges reject a hostile takeover

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Casting aside principles of decentralization, Sun enlisted the help of exchanges and their reserves of Steem tokens to try and tame an uncooperative community—sparking a battle to maintain control over the dApp.

But in a victory for Steemit, exchanges have withdrawn support for Sun, and the community has reelected enough of its representatives to regain a majority. This could put an end to the latest disastrous saga for Justin Sun and the popular decentralized social media platform.


The trouble can be traced back to the terms of the deal. In the contract, Steemit founder Ned Scott signs over the private keys to a pre-mine. This represents approximately 20% of all Steem tokens, and is set aside to fund development. Critically, the tokens were never to be used for voting in Steemit's Delegated Proof of Stake consensus algorithm

As anonymous Steem witness thecryptodrive told Brave New Coin, Founder Ned Scott's "howey handshake" deal with Sun represents a betrayal of this earlier "social contract."

"Steemit Inc has always had a social contract with the community where the ninja-mined stake was earmarked for the growth and development of Steem," said thecryptodrive. "Furthermore, the stake was never used for voting witnesses or posts as per agreement with the community."

When news emerged that Sun was planning to migrate Steemit tokens from the Steem blockchain to Tron, this was seen as a threat to the dApps, tools, and libraries developed by community members.

To counter the move, the Steemit community voted to freeze the pre-mine funds Sun would use to vote the proposal through—prompting Justin Sun to escalate.

Developer exodus

Shortly afterwards, Sun enlisted some of the biggest exchanges—Huobi, Binance, and Poloniex—to perform a maneuver he claimed was saving the Steem network from 'malicious hackers.'

Using exchange customers’ Steem tokens, Sun formed a puppet government to oust the 'hackers' —aka the community-elected representatives—and gain a majority vote. But overturning community-driven consensus proved to be a bad move, spawning social media outrage and prompting high-profile Steem executives to leave in disgust.

As the hashtag #SteemHostileTakeover took hold on Twitter, Sun and the exchanges he recruited came under fire for using customer deposits for political purposes. Amidst the mayhem, at least 4 of the Steemit leadership team resigned: Head of Communications** **Andrew Levine stepped back from the project in protest, and Lead Communities Developer Steve Berbino resigned, along with two primary engineers.

'Trying to collect water with a sieve'

Then, as tensions ramped up on social media, the exchanges that facilitated the coup on Sun's behalf backtracked and withdrew their support.

Binance CEO Changpeng Zhao announced that Binance had removed its votes on March 3rd, claiming he thought the vote was to support an ordinary upgrade. "I did approve the vote from Binance, thinking (wrongly) it was a regular upgrade/fork," tweeted CZ. For that, I apologize."

Huobi soon followed, reversing the vote and putting the power firmly back in the hands of community representatives. Meanwhile, Sun doubled down, maintaining that his intentions were simply to "protect the sanctity of private property & the interests of all from malicious hackers.”

For Steemitans, the battle is a victory against centralization, and as John McAfee said, a parable for those thinking of buying a blockchain-based community. "I believe Justin Sun forgot one thing about Steem: It is a community," tweeted McAfee. "Communities cannot be purchased. It's like trying to collect water with a sieve."

But in the bigger tug of war between centralization and decentralization, the incident could be a sign of things to come.

As Ethereum creator Vitalik Buterin commented, the event seems to be "the first big instance of a "de facto bribe attack," and one that could potentially become more common as Ethereum switches to Proof of Stake and other blockchains emerge on similar consensus algorithms.

Cornell crypto professor Emin Gun Sirer made a similar forecast, suggesting more blockchain battles are to come as the theoretical centralization problems of different altcoins manifest in reality. "We will see a series of failures of various altcoins in the next year. We decentralize protocols to avoid these kinds of failures."



Kieran Smith, Khareem Sudlow