Steem’s implosion highlights dangers of supporting hobby projects

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Steem’s blockchain has undergone a tumultuous time as of late thanks primarily to Tron founder Justin Sun questionable takeover of the network.

As was reported by CoinGeek earlier in this month, Sun started what many called a “hostile takeover” of the Steem blockchain after his Tron Foundation purchased Steemit—the company and website—from the founders. This acquisition is said to include Steemit, Inc’s “ninja-mined stake,” an unused pool of around 74 million STEEM tokens ostensibly created to develop and promote the network.  

What followed was an act of defiance by Steem’s community to try to limit Sun’s influence over the blockchain itself. Members and witnesses of the Steemit community mutinied by initiating an unsuccessful soft fork designed to freeze STEEM tokens from Steemit, Inc.’s holdings and thus prevent their owners from voting. Sun described the attempted soft fork as “actions are against every aspect of the core value of humanity & decentralization & sanctity of private property.”

Steemit, Inc. new owners retaliated with an open letter calling the move “maliciously structured” and potentially “illegal and criminal.” Steemit, Inc. regained the voting power of its large-stake accounts by coordinating with digital currency exchanges to implement a new slate of witnesses “vote” for new leadership. Helping Sun in this takeover were major centralized exchanges Binance, Huobi Global, and Tron-owned Poloniex. 

These digital currency exchanges reportedly delegated voting power over the Steem assets they staked to an account controlled by Justin Sun, giving him consolidated power over the blockchain network, and eliminating Steem’s witnesses, replacing them with Tron-controlled accounts. This act allowed Sun to reverse the community’s actions.

All three exchanges misused the “user deposited and owned” STEEM token funds in the exchange’s wallets to stake and manipulate the voting mechanism on the Steem blockchain. Due to the scandalous manner in which Sun executed his plan, his actions later led to an apology by Binance CEO Changpeng’ CZ’ Zhao for the role his firm played in facilitating this takeover explaining it was a miscommunication.

CZ pleaded ignorance to knowing what was happening while admonishing Sun for causing the situation. The severe backlash from the community caused other exchanges to promptly back away from the power grab. 

The story does not end there. Undeterred by Sun’s return to power, a Steem community group called Hive initiated a hard fork of the troubled blockchain. This action has recently met with trouble from an established industry firm concerned over copyright and brand image. ​HIVE Blockchain Technologies Ltd. has recently issued a cease and desist from using the names Hive or Hive Blockchain for the new hard fork of the Steem blockchain.

The Canada-based digital currency mining company was one of the first publicly listed blockchain company and continue to provide blockchain investment for capital markets. They are right to be concerned about the confusion the hard fork for will cause. The Steem community’s use of the name Hive or Hive Blockchain can come off as confusing. Multiple people connected to HIVE Blockchain Technologies Ltd. had reacted and inquired about this announcement as the new blockchain had confused its shareholders. HIVE leaders had to respond and clarify that they indeed have no association with this new Blockchain project. 

Whether or not intentional, it has confused the community between the new blockchain and the already-established one. The new blockchain’s use of the same name in connection with similar products and services causes its identity to overlap with that of HIVE’s. This overlap could also possibly affect the brand’s reputation and identity, which HIVE has built up and developed over the years through creating blockchain-related goods and services such as processing digital currency transactions. HIVE points out that the new Steem hard fork blockchain is also benefiting from their already-established brand reputation. 

“We [HIVE] are a strong supporter of innovation within blockchain technology, and we have no issue with the proposed blockchain beyond its name, nor do we have any opinion on its reported dispute related to Steem. However, for legal reasons, we have no option but to seek to protect our interests, dispel the ongoing confusion, and avoid any potential damage to our reputation. We are hopeful this can be easily resolved with a name change. Any continued usage by the blockchain will only evidence an intentionally predatory, misleading, and fraudulent strategy.”

The former Steem community members responsible for the fork have yet to respond to this, but it seems that HIVE is willing to take legal measures to resolve this issue and protect their brand. The company claims that they are only trying to protect their reputation. Beyond the proposed blockchain’s name, HIVE claims that they do not have any other problem with this blockchain, so a simple name-change could fix this issue entirely so that both companies can move on. Questions remain who will maintain and support the new blockchain. This type of organizational dysfunction and internal strife displays why hobby projects like Steem will never be able to compete with professionally run enterprises.