Steem Witnesses Freeze $3.2M in Latest Tit-for-Tat With Hard Fork Insurgents

Witnesses on Steem have frozen eight accounts, putting a total of 17.6 million steem (worth approximately $3.2 million) in limbo. The accounts can be seen listed on GitHub.

Steem recently underwent a contentious split into two blockchains, launching a new version of the software called Hive on March 20. Hive's token has held parity or better with Steem's since launch.

A tit-for-tat between Steem's old and new leadership has been ongoing for almost two months now, creating a case study on the dangers inherent to delegated proof-of-stake (DPoS), the consensus model underlying a number of blockchains, including Steem.

This fight dates back to Feb. 14, when Justin Sun's Tron Foundation announced the acquisition of Steemit, Inc. and its coveted "ninja-mined stake" of roughly 70 million steem tokens.

Read more: Steem Community Plans Hostile Hard Fork to Flee Justin Sun’s Steemit

Steem leaders, wary of how Sun would use those funds, went on to freeze the Steemit Inc. accounts he had then just purchased in a Feb. 23 soft fork. Sun later ascribed the action to "malicious hackers."

Dan Notestein, founder of BlockTrades, an exchange that helps keep Steem liquid, is the holder of the second-largest account frozen by Saturday's soft fork. Notestein told CoinDesk in an email, "Seems like it's par for the course for Justin Sun; I'm not really surprised. This is why we don't hold TRON in the BlockTrades portfolio. I often wonder why anyone invests in it."

Steemit and the Tron Foundation have not replied to a request for comment, but the company did post a statement to the account "steemitblog" claiming neutrality. Sources have expressed skepticism to CoinDesk about this because the witnesses backed by the Tron Foundation stake have signaled for the new soft fork.

'Softfork 22.888'

The Steem soft fork was announced in a Steemit post early Saturday morning. The unsigned post, from a new account ("softfork22888") created to announce the development, dwells largely on the March 20 chain split.

"We are at an extremely difficult time in the history of Steem, and the power of communities are [sic] the key to make Steem great again," the post states.

The post lists three criteria for accounts that have been temporarily frozen, all relating to the March 20 hard fork. It should be noted that when the new Hive blockchain was launched, all steem accounts were carried over to the new chain. All accounts, that is, except for the "ninja-mined" development fund controlled by Sun's Steemit, Inc.

"During this process, the previous witnesses threatened the stability of the Steem Blockchain," softfork22888 writes. "Additionally, they decided to implement a selective distribution of their forked chain, not only excluding the Steemit Inc. stake but also from normal users that proxied or voted on Steemit Inc.'s witnesses."

Read more: Steem Community Mobilizes Popular Vote in Battle With Justin Sun

Hive reaction

Roeland Lanparty ran one of the top Steem witnesses before the Tron Foundation bought Steemit. He recently supported the Hive hard fork and has now had his remaining steem tokens locked up.

"This retaliation is pretty unfortunate to say the least," Lanparty told CoinDesk. "On a personal level, I'm losing my invested funds. On a Steem level, the chain lost its integrity with the blocking of a few Hive witnesses, an exchange and anonymous major stakeholders. On a crypto level, this is just another chapter in the Kindergarten Play book. I can not imagine exchanges not considering delisting Steem."

It's important to note Steem's software does not provide for permissionless participation in consensus. It uses DPoS, which allows a small subset of nodes to govern a blockchain.

Read more: Everyone’s Worst Fears About EOS Are Proving True

These nodes are chosen by users voting their tokens for the nodes they would like to lead the chain. Early in the history of EOS, for example, the governing nodes froze multiple accounts in order to protect their holdings from hackers. The token holders appreciated the protection but the implications were widely noted throughout the blockchain industry.

It only takes a few entities acting in concert to censor a DPoS blockchain – be it for protective or punitive ends.

In fact, a sufficiently well-resourced actor would not even need to collude with others. Due to the pseudonymous nature of blockchains, there is no way to know that multiple nodes acting as different entities (whether they are called witnesses, block producers or super representatives) aren't all actually the same person or organization, a concern that Binance highlighted in a recent report on EOS.

Power outage

Dan Hensley has been a large holder of steem who now supports Hive. "I think Steemit Inc.'s 'community witnesses' ... are panicking because the price is lower than Hive," Hensley told CoinDesk in an email. "So now they are stopping the largest accounts from powering down."

Even if steem holders wanted to get out entirely with the hard fork to Hive, it is not possible to do so quickly on Steem. Users "power up" their steem (that is, they stake it) so they get a better share of inflation and so they can participate in governance. Once staked, it takes 13 weeks to unlock all of a user's steem, with a portion releasing every week until it's all out.

Read more: Splinter Cryptocurrency Hive Outperforms Justin Sun’s Steem After One Week Trading

Hensley told CoinDesk he holds a large quantity of steem and that he still intends to get out of steem as quickly as he can.

Meanwhile, the witnesses announcing Softfork 22.888 are attempting to rally remaining Steemit users to their side. Saturday's blog post asks Steemit community members to take a number of actions to support the present witnesses.

"We don't love fight [sic], but actions have to be taken to protect Steem NOW, before it's too late," its author concludes.