Binance CEO Apologizes, Weighs-In on TRON/Justin Sun Versus STEEM & 65 Million Frozen Coins

Binance CEO

TL;DR: “I believe this issue,” leading cryptocurrency exchange Binance CEO Changpeng Zhao (CZ) warned about an ongoing Delegated Proof of Stake (DPoS) consensus battle between Justin Sun of TRON and blogging platform Steemit, “if not resolved quickly or properly, will significantly damage the credibility of STEEM, as well as its price. The price of STEEM is only holding up now because both sides are trying to buy more coins to vote.”

Binance CEO Apologizes, Weighs-In on TRON/Justin Sun, STEEM DPoS Consensus Battle

It’s an awful lot of fuss over a cryptocurrency ranked 72 by market capitalization as of publication, barely scratching $77 million in value, returning high negative double digits on investment. STEEM is the cryptocurrency powering a real-world online product, Steemit, a blogging platform.

Binance CEO

STEEM is used mostly to reward and tip users of Steemit in upvotes, curation, and content creation. It was one of the first to demonstrate the concept with relative success back in 2016, but soon lost some of its luster during a hack not too long after. Steemit has stayed afloat and STEEM has had fits and starts with various pumps.

Enter Justin Sun, crypto personality and co-founder of TRON, and friendly collaborator CZ of the giant exchange, Binance. In late February, Sun apparently gamed the DPoS system of Steemit and STEEM to gain control of the consensus mechanism, labeled by critics as a hostile takeover. “Waking up to find that @justinsuntron has taken over the #Steem Blockchain in a hostile manner,” an alarmed community member posted. “By using 84M steem from @binance and huobi as well as his own exchange to vote in their own BPs and fork the chain.”

De Facto Bribe Attack

The Binance CEO seemed taken aback by the outrage, asking, “Re: STEEM. I was told by TRON team that this code is an attempt to freeze the exchange hot wallets for STEEM? Is this true?” and pointed to a STEEM developers’ GitHub. The question appeared to be aimed directly at Sun and TRON, and Sun answered almost immediately with a charge of his own.

What the back-and-forth appeared to show at least was some level of coordination between a blockchain project and a powerful exchange to overpower a smaller network, and the smaller network’s attempt to defend itself.

On “Feb. 22nd,” Sun responded, “some of the witnesses froze the 65 million STEEM legally owned by Steemit,” he shock back, linking to an apparent pull request to soft fork the network away from Sun and TRON by STEEM developers. What the back-and-forth appeared to show at least was some level of coordination between a blockchain project and a powerful exchange to overpower a smaller network, and the smaller network’s attempt to defend itself.

Even Ethereum’s co-founder Vitalik Buterin became intrigued. “Apparently Steem DPOS got taken over by big exchanges voting with depositors’ funds. Can anyone confirm and/or provide details?” he asked. “Seems like the first big instance of a ‘de facto bribe attack’ on coin voting (the bribe being exchs giving hodlers convenience and taking their votes).” Buterin is on record as supporting Proof-of-Stake (PoS) consensus mechanisms over that of the traditional Proof-of-Work (PoW) iteration so dominant among most coins.

DPoS in Theory and Practice

One of PoW’s major criticisms is the theory of centralization. Be it in hardware manufacturing, data centers, access to electricity, these elements tend to favor certain geographies, tech businesses, giving them inordinate amounts of sway over a cryptocurrency project relying on PoW as a consensus mechanism.

A partial retort to PoW has been experiments in PoS versions such as DPoS. It was supposed to effectively decentralize a blockchain further by giving holders a stake through the amount of coins they possessed: skin in the game, a real incentive to see the project succeed. What DPoS has appeared to have done in the case of STEEM is to actually make it ironically more susceptible to cryptocurrency exchanges and their favored clients.

“I was hoping not to be involved,” the Binance CEO chimed back-in, “but alas, doesn’t seem to be possible. I did approve the vote from Binance, thinking (wrongly) it was a regular upgrade/fork. For that, I apologize. Guess it is only fair that I get involved until the issue is resolved.” He went on to acknowledge knowing little about STEEM, as the exchanges deals “with hundreds of projects/blockchains, each have their own consensus/ vote/ delegate/ witness/ staking/… mechanisms.”

Blocks Will Severely Damage the Value of the Blockchain

He then asked a series of questions, mostly going the heart of whether 65 million STEEM were frozen, if Sun’s acquisition of Steemit entitles him to those coins, and had STEEM devs acted maliciously to destroy the coins in defiance of Sun, insisting, “I do think these types of blocks will severely damage the value of the blockchain. My opinion should not matter much in this case. But if this is a new listing application, we would reject for those reasons.” Ironically again, if STEEM devs can block a takeover, that too is a form of centralization … no matter the rationalization.

The Binance CEO also noted how such a STEEM freeze, if true, would basically “freeze Binance (and other exchange) user funds as well, or at a minimum block them from voting,” stressing such a move “has a material impact on our users. It’s not clear that all of our users want to give up their ability to vote, just because they also want to trade. We may implement a vote feature on Binance to allow people to vote in the future. This way, we protect users ability to vote.”

Game Theory means if Binance were to trigger such a voting feature for STEEM, the heft of its users alone would wield immense control over the entire project, a fact nearly everyone recognizes. “We don’t want to do this,” CZ insisted, because, “1 we don’t want to get involved in voting, 2 it is more work, still busy with staking. But if other witnesses are inclined to remove our users’ ability to vote in the future, we may be forced to implement it now,” and urged STEEM and Sun “work it out ASAP. Blockchains should NOT have freeze features.”

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