Steem Hard Fork Confiscates $6.3M, Community Immediately Takes It Back

The Steem hard fork nabbed the tokens of dissenting community members. Soon after, the tokens were said to have been diverted.

AccessTimeIconMay 20, 2020 at 2:44 p.m. UTC
Updated Sep 14, 2021 at 8:43 a.m. UTC

The Steem blockchain has just split, or hard forked, controversially seizing the tokens of key community members who opposed TRON's recent acquisition of the ecosystem's biggest dapp, Steemit.

At 14:00 UTC on Tuesday, Steem implemented hard fork 0.23, significantly codenamed "New Steem," shunting some of the former Steem "witnesses" – blockchain validators – and stakeholders who created a splinter group called HIVE out of the ecosystem, it seems for good.

New Steem, which was only announced on Monday, will "seize some user accounts that participated in criminal activities by actively contributing to the threat against the Steem blockchain and/or to the theft of STEEM holders' assets," said a Steemit blog post, announcing the fork.

The hard fork's GitHub page lists all of the users who will have their tokens seized: 64 in total. A letter sent on Tuesday by a legal firm representing affected members – calling on exchanges to not support the hard fork – says a total of 23.6 million steem tokens will be seized – worth roughly $6.3 million at press time, according to CoinGecko.

One affected community member, Dan Hensley, told CoinDesk in an email he's losing around $1 million worth of steem as a result of the fork.

The hard fork is the latest episode in an ongoing struggle for control of the Steem blockchain. It began soon after Justin Sun's TRON Foundation acquired Steemit – Steem's most prominent dapp – for an undisclosed sum back in February.

Concerned Sun would use Steemit's sizeable token allocation to run roughshod over the rest of the community, the Steemit ecosystem quickly executed a soft fork that effectively nullified its voting power. A few weeks later, it implemented a splinter blockchain, HIVE, that duplicated over all tokens from Steem.

However, the allocations owned by Sun and some incumbent witnesses, around 83.2 million STEEM tokens in total, were immediately confiscated and stored in a separate wallet. The Steemit post says the exclusion of selected Steem players from HIVE was illegal and a "clear violation of the property rights of STEEM holders."

While Sun himself has denied any involvement in the hard fork, on Monday he claimed he was working with law enforcement to recover his confiscated HIVE tokens.

It's hard not to see the New Steem hard fork as an example of a tit-for-tat move. But that's not how it was phrased. One current Steem witness known only as "Triple A" told a Korean news site the HIVE dissenters' tokens were seized, not because its own assets had been seized, but because these select accounts had "continued to attack the Steem blockchain ecosystem."

These include allegations that HIVE members have damaged network stability, spread fake news about the blockchain – picked up by the "misleading media," according to Sun – and generally tried to discredit and besmirch the Steem community's name. Triple A also claimed some HIVE members were guilty of verbally abusing community users and even "threatening murder."

Emotions are fraught. Echoing Triple A's comments, the Steemit blog post states: "The Steem blockchain has been under constant attack from malicious accounts and this has heavily influenced user experience, dapps usability, and the stability of the chain itself."

Its post goes onto say that Steem witnesses who helped implement HIVE's "hostile split action" had effectively "betrayed STEEM holders."

That's not how affected Steem users see it, though. The legal letter calls the fork a "planned theft" and threatens legal action against any exchanges that voted in favor of it. "[Y]ou may become an accessory to criminal offences including grand larceny and securities fraud as well as expose yourself to civil liability for damages," the letter warns.

It's probably unlikely exchanges such as Binance and Huobi, some of Steem's largest stakeholders, will want to involve themselves in this dispute. Binance CEO Changpeng "CZ" Zhao, who was initially supportive of the takeover, recently washed his hands of it. "We didn't know it was, like, a contentious fork," he said in an interview with Laura Shin at Ethereal Summit.

"Every Steem witness that is human has quit. Justin denies involvement with the heist yet replaces the witnesses that quit with a sock puppet minutes later to do his bidding. Exchanges are the last line of defense," Hensley said.

There remain unanswered questions: chief among them is what happens to the seized steem tokens. The letter says these will be transferred to a new wallet account, "@community321." Set up just under two weeks ago, what entity actually runs or owns the account has yet to be revealed.

Soon after the fork, it was claimed the tokens had been moved en masse to the Bittrex exchange in an attempt to return them to their original owners. The Steem Witness Twitter account seemed to confirm the news, but pledged the "assets will be recovered."

CoinDesk reached out to the TRON Foundation for comment, in its capacity as the owner of Steemit, but hadn't received a response by press time.


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