A simmering issue in the Steemit blockchain community is highlighting some of the problems with proof-of-stake networks and fluid protocols. At its heart is the ambitious Chinese entrepreneur Justin Sun, who has initiated what many are calling a “hostile takeover” of the Steemit project.
Steemit is a blogging and commenting social network similar to Medium.com and Reddit that was founded in 2016 by Ned Scott and Dan Larimer. It’s managed by a private U.S. company called Steemit, Inc., using the Steem blockchain and STEEM cryptocurrency.
The controversy began when Sun’s TRON Foundation “acquired” Steemit by gaining control of a large pool of STEEM tokens, its native cryptocurrency. This is believed to include Steemit, Inc’s “ninja stake”, a largely-unused pool of STEEM tokens ostensibly created to develop and promote the network—though this condition appears to be mainly based on trust.
The Steem protocol operates as a delegated proof-of-stake (DPoS) protocol similar to EOS. This means it isn’t mined by proof-of-work (PoW) like Bitcoin, but new coins are distributed (and important decisions made) based on who holds the largest number of STEEM tokens. STEEM holders who are willing to put aside (stake) a large number of tokens may apply to become “Witnesses” on the network, giving them voting power—however, this power would be limited if the ninja stake came into play.
Members and witnesses of the Steemit community mutinied upon hearing the news, initiating a soft fork designed to freeze STEEM tokens from Steemit, Inc’s holdings and thus prevent their owners from voting. Steemit, Inc. retaliated with an open letter calling the move “maliciously structured” and potentially “illegal and criminal”, since it targeted specific STEEM accounts. If they were able to make such a play successfully, it could be applied to any stake in the future, putting the entire project at risk.
Steemit, Inc. said it has regained the voting power of its large-stake accounts, and intends to “resume the order of the community”. It has offered reassurance that Steemit will remain distinct, and won’t be merged into the TRON network.
The brouhaha reflects other famous instances in cryptocurrency history where users and communities have rebelled against protocol developers when they believed the spirit and reputation of their project was at risk. Other examples include the ETH/ETC split of 2016 over ETH’s blockchain “rollback”, the BTC/BCH split of 2017 over block sizes and Segwit, and the more recent attempts to introduce a development fee (aka “coinbase tax”) for BCH miners.
About Justin Sun and TRON
For the uninitiated, 29-year-old Sun is best known for founding the TRON blockchain network in July 2017 and the TRON Foundation that oversees its protocol. TRON’s token, called TRX, has been a regular in the CoinMarketCap top 20 assets and currently has a market cap just over $1 billion USD. TRON began life as an ERC-20 token on Ethereum that raised US$70 million in an ICO before switching to its own blockchain.
The TRON network markets itself as a decentralized operating system that performs a number of content and media-related functions, such as file storage and distributed apps.
As well as heading TRON, Sun has inserted his fingers into a number of other well-known blockchain and technology pies. From 2014 to 2016, he held the position of Chief Representative and Advisor for the “Greater China” region at Ripple Labs. In June 2018, he acquired BitTorrent, Inc, the company behind the popular file-sharing protocol. He now serves as its CEO.
Sun is also the founder, chairman and CEO of Callme (aka Peiwo), a live voice-streaming app that claims to have millions of mostly teenage users in China.
Steemit and BitTorrent, which are both in the content distribution business, appear to be a fit with TRON. Sun is also pursuing a path that’s been common among Asia’s newer generation of tech giants like Alibaba and Rakuten—that is, building an empire by acquiring several similar and often better-known entities.
However, Sun’s acquisition targets haven’t always gone along willingly with his plans. He bought his stake in BitTorrent only after filing a restraining order against the firm to prevent it from talking to other potential buyers. BitTorrent staff were advised at the time not to talk to the media about the deal.
So what’s the big problem with Justin Sun? Though undoubtedly talented and driven, he’s a controversial figure in the blockchain space. Both he and TRON have faced multiple accusations that the project is all hype and little substance, full of big announcements and promised deals while producing very little real value or proof of utility.
Whether these accusations are justified or not, Sun has certainly been a master at creating marketing buzz for both TRON and his own image as a tech entrepreneur. He regularly name-checks his association with other well-known figures, never hesitating to mention that he’s a “protégé” of Alibaba founder Jack Ma and that he’s appeared in Forbes’ “30 under 30” list multiple times.
There’s also a historic tendency in the technology industry for independent/community-driven projects to resist acquisitions by large corporations or famous figures. These communities fear corporate ownership would change the nature of their platform, or even work ultimately to their detriment.
Proof-of-stake and changing protocols are the real problem
At the end of the day, in blockchain, the motivations of owners and user groups aren’t the main problem—it’s more the platform structure that enables ideological differences to turn into wars of mutual destruction.
Dr. Craig Wright has highlighted the problems with proof-of-stake protocols in the past, pointing out that they favor the interests of large stakeholders over ordinary users, and are vulnerable to sudden takeovers by outside groups. This is precisely what happened with Justin Sun and Steemit.
Additionally, if a protocol can permit changes that benefit certain groups (like blockchain rollbacks, deliberately-limited capacity, or asset freezing) then no serious large enterprise will consider building on that platform. This is the main reason Bitcoin BSV has set its protocol “in stone” with Genesis. This prevents fundamental changes to the protocol forever and presents a reliable foundation on which large entities can build, knowing it will still work exactly the same way years into the future.
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