In a move that stunned and outraged the Steem community, some of the largest exchanges used the voting power of the Steem tokens they held to restructure the consensus algorithm of the Steemit platform and empower Justin Sun
Steem community disagrees
A few weeks ago, the TRON Foundation, headed by Justin Sun, acquired the social media and blogging platform Steemit, a decentralized Reddit that works on the Steem blockchain and that uses the token of the same name to reward users sharing content.
With this purchase, Justin Sun also had access to a large quantity of pre-mined Steem tokens.
However, the community quickly voted in favor of a soft-fork that would prevent Sun from accessing these tokens until it provided more details on its plans for Steemit.
In a letter to the community , the Steemit team said:
“ The Soft Fork 22.2 was maliciously structured, with the intention of freezing a handful of highly targeted accounts and taking away their rights and the possession of their property, and can be considered illegal and criminal. The group behind this could essentially make this kind of attack to any member of the Steem community, on whatever terms they wish.”
Justin Sun takes control by force
For its governance, Steem uses the consensus of delegated issue proof (DPoS). Steem token holders can then elect representatives who will validate the transactions on their behalf and decide what new things to bring to the blockchain in question.
The Delegated Proof of Stake can be particularly problematic when the total number of representatives is small, as it implies that some individuals can take control of the consensus by colluding with each other.
In fact, the exchanges have therefore put into play the Steem tokens they control, using the tokens held by their users, to vote for new governance.
Since a majority of Steemit users store large quantities of Steem tokens on exchanges, these companies are actually the ones with the largest number of tokens on the network. Therefore, this means that Steem accounts belonging to exchanges have immense voting power.
On March 2, accounts believed to be held by Binance , Huobi and Poloniex used their voting power to give Justin Sun control of the entire Steem blockchain.
In particular, they voted to delegate their power to a user named @ dev365 , who is the property of Justin Sun. After acquiring this power, Justin Sun then used it to oust 20 of the 21 representatives of the blockchain Steem.
Steemit.com and Steemd, a major block explorer, experienced interruptions throughout the day after this takeover.
Binance CEO Changoeng Zhao retracts vote
Binance CEO Changpeng Zhao and the only exchange representative involved in the case who confirmed his role in the process. However, he would have had Binance’s vote withdrawn following community dissatisfaction:
Steemit is falling apart
Following this reversal orchestrated by Justin Sun, many members of the Steemit team made the decision to withdraw entirely from the project.
This is particularly the case of @vandeberg, a blockchain developer, @andrarchy, responsible for communication and advocacy for Steemit and Steve Gerbino, a blockchain engineer. All three posted posts on Steemit claiming they were leaving the project.
As the architecture of DPoS gives token holders a certain voting power, centralized exchanges generally have a considerable influence on platforms and blockchains using this consensus. In reality, this aspect opens the door to the possibility of collusion and centralization, which seems to be the case with Steem.
The solution to this unfortunate incident is simple. Token holders using this consensus must keep their tokens in personal wallets rather than on exchanges. However, a majority of token holders do not.
Steem’s current situation should serve as an example for the entire community. Now let’s hope that it will encourage some people to be more vigilant and no longer delegate the custody of their tokens to exchanges.