Some of you may know that I’m somehow involved in cryptocurrencies. My focus is not in the speculative part of it, or trading. My interests are mostly in cryptography – and how it can be used to solve real world problems. Also, I’m interested in blockchains which have something in common with writing: blogging or social media platforms.
One of these platforms, Steem (currently forked as Hive) went through some incredible ups and downs in the last few months, some of the turns being so unexpected that it almost felt like watching a movie. What follows is a short recap of these changes, as I think it would make for a very nice read in 5 or 10 years.
The Beginnings And The “Ninja Mined” Stake
The platform that I’m talking about, Steem (that’s the name of the blockchain and also of the underlying token – so I will refer to the entire ecosystem as being “Steem”, although at times I may talk about websites or dApps built on top of it). It is a DPoS blockchain, where DPoS comes from Delegated Proof of Stake.
What does that mean is, put it very shortly, that the amount of tokens you own in this ecosystem influences the decisions taken. All transactions are validated by individual nodes called “witnesses”, which are voted in by community members. Also, all the blockchain changes must be voted by these elected actors. The votes they receive are calculated based on the “stake” (or the number of tokens) of voters, so the “richest” the voter, the more important his vote. There are a few other bits and pieces, but for this story, that will suffice.
When it was launched, back in 2016, the two cofounders, let’s call them Ned and Dan, put aside an important “stake”. It was just like a central bank will create some money from the tip of the pen. This initial stake, called in crypto slang “ninja mined stake”, because it appeared in a matter of seconds, without following the normal inflation rules, was supposed to be used for further developments of the platform. Both founders agreed (verbally) that they will never use that stake to vote in the witnesses. By doing so, they gave the impression they will abide to the decentralization requirement that states a blockchain is ruled by consensus between community elected members, and not arbitrarily, by a single actor.
After about a year, Dan, one of the co-founders, left and started another project, so the only owner of the ninja-mined stake was Ned. He kept on agreeing that he will not use that stake to vote in witnesses, for another 2 years.
The Surprise Take Over
And here’s where it starts to get interesting. A few months ago, Ned sold the company that developed the blockchain, company who also owned an important amount of that ninja-mined stake, to another player, let’s call him Justin. This was a private transactions, nothing wrong with it. As a result, though, the new owner of the stake is now Justin.
But now Justin starts to say that he never knew about that initial promise of refraining from voting and even shares some plans of integrating Steem into another blockchain he owns, somehow like “because I want to, and I can, with the stake that I own”. A few witnesses are colluding together and push a change in the chain (these changes are called “hardforks”) that temporarily froze the ninja-mined stake.
Justin doesn’t like that. He starts some talks with a few exchanges (which had on their wallets user’s tokens awaiting to be exchanged) and starts voting in new witnesses, in a sybil attack. Basically Justin, along with 3 exchanges, are using user’s stake, without their accord, to vote in new witnesses as Justin wants. Even with this newly added stake, he doesn’t have full power, it barely equals the game. There is a bit of a stalemate for a few days, nobody knows for sure if Justin’s witnesses (really, just some accounts receiving its votes) will overtake the initial witnesses.
People are starting to talk to the exchanges, letting them know that what they did wasn’t ok – or even legal, for what matters. Exchanges are backing up after a few days, Justin witnesses are temporarily locked out, but the stalemate continues as, allegedly, Justin buys even more Steem to keep its witnesses on top.
The Hive Fork
At this point, a large part of the Steem witnesses decide to fork the Steem blockchain, literally creating a new ecosystem, with the same rules and governance, but a different name and a different token name. From the “fork” point onwards, the Hive blockchain will be different, but all the previous accounts will work just as well. With one exception.
Because these new witnesses decide to take the “ninja-mined” stake and redistribute it in a larger pool used to be allocated to transparent work proposals. Kinda like what the stake was designed to be used from the very beginning. Putting things in their designated places.
Surprisingly, the Hive blockchain really takes off, and in a matter of weeks the HIVE token almost doubles in size. Keep in mind, that, during this time, all the accounts on Steem are still active and they hold their stake, and so are they mirrored in the Hive blockchain, except Justin’s, which was now allocated to that work pool.
The Public Chronicle Of An Announced Heist
Many initial Steem witnesses, already migrating to Hive, are giving up on Steem, leaving room for newly elected witnesses, literally letting the Steem blockchain became a one-man show business. At this moment, Justin decided to change the Steem governance, by introducing a change of his own (another hardfork, that is).
This hardfork is initially rumored, there is no public announcement of it, but the rumors are saying that some of the accounts will have their stake transferred to another account, with a few lines of code. Remember, in order for any change of the blockchain to be enforced, all witnesses must agree with it, but at this moment Justin owns pretty much all the witnesses. These 64 accounts are having, together, about 23 millions Steem tokens, which, at that time (meaning yesterday), were worth around $5 million. All these funds are to be transferred to this account (allegedly owned by Justing too). So we’re talking real business here.
After the rumors, Justin takes it publicly, makes the source code of the hardfork open source and ready for review (but only for a few hours), and then states “he has nothing to do with it” and the Steem that he’s going to “seize” from those accounts is rightfully his, because those accounts engaged in “criminal activities”. We’re going full Wild West here, Justin is taking justice in his own hands. All these tokens are about to be moved in a single account.
A lot of Steem users, especially those affected by the “seize” are begging exchanges not to validate the hardfork, as this is not a truly decentralized , legal, code change.
The hardfork goes as planned on the Steem blockchain, while exchanges are remaining in expectative.
And then, boom!
Just 10 minutes after the funds are moved to the new account, that new account, in an unbelievable move, sends all those tokens to Bittrex (an exchange), basically changing their custodian. The transfer to Bittrex has this memo: “These are funds stolen by the Steem witnesses using HF23 May 20th 2020 – please return them to their original owners prior to the fork“.
The account keys were changed 10 minutes before the hardfork, exploiting a glitch in the account creation process (technically wasn’t a hack, more of a social engineering move).
So, the very guy who publicly announced he’s going to steal those tokens was, alas, robbed.
And this is where we are now. We still don’t know how Bittrex will react about this, if the funds will be returned to their initial accounts. Even without knowing it, what was until now was pretty epic. It is one of those stories that you want to say about: “well, who in his right mind will invent something so utterly unbelievable”? And yet, this is how it happened.
I don’t know about you, but to me this is better than an Ocean 11 movie. Especially this isn’t scripted, it’s happening in real time, just in front of us.
I will keep an eye on this story, and, as I said, I just wanted to write this down just to look at it in 5 or 10 years from now. I’m sure it will be just as juicy as it is today. If not more.