Over the past few days, the ex-Steem blockchain community has gained an upper hand over Justin Sun and his recently acquired Steemit startup. After blaming Sun for attempting to centralize their network, a substantial part of the original Steem community successfully launched a hard fork called Hive.

Steem stakeholders are now actively migrating to the new chain. Its in-house token HIVE, which has been distributed among STEEM holders via an airdrop, is trading for a 20% premium over STEEM on some exchanges. Nonetheless, the network split hasn’t been without incident, as some complaints regarding the airdrop distribution were reported.

What is the conflict all about?

The dispute can be traced back to February 2020. At the time, Justin Sun, an eminent Chinese tech entrepreneur with an estimated net worth of $200 million, purchased Steemit, Inc. — a startup founded by Ned Scott and Dan Larimer, the same people who launched the Steem blockchain. The company is known primarily for releasing Steem-based alternatives for key social media outlets like Reddit, YouTube and Instagram.

It is still not clear whether Sun purchased all shares of Steemit, since Scott’s original tweet announcing that he had sold Steemit to Sun has been deleted. Official press kits refer to the merger as a “strategic partnership” between Steemit and Tron, a major cryptocurrency firm launched by the Chinese entrepreneur.

As Steemit managing director Elizabeth Powell told Cointelegraph soon after the acquisition, the Tron partnership was vital for her company’s financial health. According to reports from November 2018, Steemit had to lay off more than 70% of its staff due to market conditions.

The community appeared less optimistic about the merger. On Feb. 24, a group of Steem stakeholders performed a soft fork and deactivated the so-called “ninja-mined stake,” a stash of approximately 74 million STEEM tokens historically owned by Steemit. As a Steem Witness previously explained to Cointelegraph, the stake has been a long-standing concern for the Steem community, and stakeholders became even more worried about its future once Justin Sun became Steemit’s CEO.

In response, Tron arranged what has since been described as a “hostile takeover.” On March 2, three major cryptocurrency exchanges that have STEEM tokens listed on their platforms, namely Binance, Huobi and Poloniex, unwittingly used customer deposits to stake large amounts of STEEM tokens to vote in support of removing the original witnesses.

As a result, all of the top-20 witnesses were eventually replaced with accounts powered by Steemit, Binance, Huobi and Poloniex. Sun then described the takeover as a successful attempt at defeating the “hackers” who froze assets legally owned by Steemit.

Soon after Sun’s announcement, both Binance and Huobi declared that they were removing their votes in order to undo the takeover, as they were initially not fully aware of the situation to which they contributed. Additionally, Binance CEO Changpeng Zhao appeared to distance himself from Sun in an interview with Cointelegraph.

Meanwhile, the Steem community was actively trying to reclaim its space back by mobilizing tokens. As of March 6, 10 out of 20 top witnesses were “approved,” while the remaining 10 witnesses appeared to be Steemit-affiliated players. A discussion between a group of Steem community members and Justin Sun was also held around the same time. According to a recording of the conversation, Sun mentioned that they wanted to “withdraw our votes also ASAP to give rights back to the community.”

Some investors claim to be mistakenly excluded from the airdrop

Despite the ostensible promises to “give rights back to the community,” the Tron Foundation CEO reportedly continued to use “sock-puppet witnesses” to consolidate power on the Steem blockchain, as previously told to Cointelegraph by a number of ex-Steem stakeholders. In light of this, the stakeholders decided to proceed with a hard fork called Hive, initially an exact code fork of the Steem blockchain that has been altered based on community feedback.

The hard fork successfully took place on March 20 at around 9:30 a.m. UTC. The network split was accompanied by a 1:1 airdrop, which notably blacklisted the purported owners of Steemit’s “ninja-mined” stake, currently worth around $9.25 million, and the alleged “Tron puppets” who proxied their vote to Steemit-affiliated witnesses during the infamous takeover.

Not all Steem stakeholders are happy with the exclusion algorithm, as some have allegedly been left out. Scott Cunningham, one of the STEEM holders, told Cointelegraph that he “and a few others” were mistakenly added to the banlist via an algorithm meant to pick up on specific behavior:

“The main behaviour was whether or not you voted for TRON witnesses which I did not. I proxied my vote to the creator of 3Speak @TheyCallMeDan who was actively supporting and helping the original Steem witnesses that now make up Hive.”

Cunningham then contacted the Hive team, which reportedly delegated him with his original power. Additionally, they promised him that over the next week, they “will fix the mistakes made by the algorithmic airdrop blacklist.” Cunningham went on to add that although he does not entirely agree with the way the algorithm works, he still believes that Hive will prove to be a more decentralized platform than Steem:

“I think it’s fair to withhold Steemit’s airdrop to prevent them from having the ninja-mined stake, but I don’t think it’s fair to penalize people based on their voting. It’s not fully decentralized if you're penalized for the way you vote even if you vote for centralization or naively. That being said, I still understand the precautions they have taken and given there are no other ways implemented to penalize people, I think their network will prove to be a much more decentralized one.”

Dan Notestein, the CEO and founder of BlockTrades, a top-three Hive validator who has been working on the hard fork, confirmed to Cointelegraph the airdrop exclusion list is based on one principle: “The Hive community would not airdrop on Steemians that actively supported the centralization of the blockchain by Justin Sun by voting for the sockpuppet witnesses run by Justin Sun.”

The list was created by running a script that analyzed the blockchain data for witness voting, Notestein added, elaborating on how the mechanism was designed: “To avoid as many false positives as possible, we required at least votes for two sockpuppets, and we also excluded accounts of a small size, as they were considered more likely to be users that might not be aware of what they were doing by voting for the sockpuppet witnesses.”

Notestein also admitted that the Hive team was “extremely rushed” and is aware that there might be errors in the script, which is why it plans to reevaluate the distribution scheme in the near future:

“We decided that we would have stake-based votes after the Hive chain was launched to determine if some accounts were unreasonably excluded from the airdrop of Hive tokens. Such accounts will receive an airdrop in the next planned hardfork. I know of at least one actual coding mistake in the initial script that I believe will probably result in some accounts receiving tokens in the second airdrop.”

Hive has more post-hard fork plans

In its post-fork announcement, Hive reported that an unspecified number of exchanges are working to list HIVE tokens, in addition to six trading platforms who are still working on distributing airdropped assets.

Since then, Binance has announced that it completed the distribution of HIVE tokens to STEEM holders. In addition, the exchange clarified that to get listed on the platform, HIVE “will go through the same strict listing review process as Binance does for any other coin/token.” A representative for the exchange told Cointelegraph:

“Binance won’t be taking a position on the dispute itself, but we’ll continue to keep tabs on the situation and keep users informed of any changes that might affect them,” a Binance spokesperson told Cointelegraph.

Meanwhile, Steem stakeholders seem to be actively migrating to the Hive network. For instance, PeakD — the Hive-based version of Steempeaked and the second-largest front-end interface on the Steem platform — has already been launched. Additionally, long-time Steem witnesses are reorganizing their operation in favor of Hive by disabling their accounts on the former chain.

“I don’t plan to post more content on Steem,” Luke Stokes, one of original Steem Witnesses, told Cointelegraph, noting that he might update his content there to point to PeakD instead. He also stressed that many Witnesses have kept their nodes running but are purposely not signing blocks, which is why the participation level sometimes drops below 100%.

“There is a general consensus among the former top Steem block producers and DApps to move to Hive,” Notestein argued in a conversation with Cointelegraph:

“Many have already shutdown their nodes on Steem, and I expect most if not all to shut them down soon, as they find time to do so. [...] For myself, I’ve stopped interacting on Steem and only interact on Hive now, and this includes disabling my Steem witness node.”

Additionally, the post-fork statement mentioned that Hive.blog wallets will be launched soon, directing people to consider using the PeakD.com wallet in the meantime. Hive team also mentioned that there will be a second hard fork in the near future to upgrade the blockchain and bring additional functionality online, although little detail is available in that regard.

Hive fallout

The hard fork has not gone unnoticed by third-party actors: Canada-based mining firm Hive Blockchain recently announced a cease and desist request to the Hive community. The firm argues that the new use of the term “Hive” is “intentionally or otherwise, confusing with the Company’s brand”, citing “multiple shareholder inquiries understandably confused by this Blockchain’s announcement.”

David Jefferys, an ex-director of business development at Steemit who has been involved with the Hive hard fork, previously told Cointelegraph that Hive “isn’t even a company or official organization yet,” since apparently “there’s been no time” to deal with the registration process. According to Jefferys, currently Hive is “a pure, community-driven, truly decentralized social blockchain project.” As for the most recent developments, he said:

“Steem and Hive may turn into revieraliers born of the same blood which will be a fun movie for the crypto industry to watch play out and will likely lift both chains higher together”.

Meanwhile, the market has been reacting positively to the new network, since HIVE has even been traded for a 20–40% premium over STEEM on select platforms. For instance, on Bittrex, HIVE is currently trading for $0.26, while STEEM is being sold for just around $0.17 there. However, the premium does not seem to extend to other platforms — another exchange which has both assets listed, the South Korea-based Probit, trades HIVE and STEEM for $0.23 and $0.17 respectively.

Cointelegraph has reached out to Steemit and Tron Foundation for a comment and will update this story if more details surface.