The Steem blockchain reportedly experienced a troubling episode recently, whereby the blockchain’s entire governance system was disturbed. Tron founder Justin Sun, new owner of the Steemit social network based on the Steem token, appears to have successfully executed a takeover of Steem by leveraging not only tokens directly controlled, but also tokens held on several major exchanges, in order to vote out the previous delegates (Steem uses a delegated proof-of-stake system) and install new ones. This means that customers of these exchanges likely had their funds used without their consent in this blockchain power struggle.
While it was an unfortunate episode and certainly fascinating to watch play out, the Steem takeover may have just outlined a critical vulnerability in all proof-of-stake cryptocurrencies — exchanges.
What this means for proof-of-stake
What does this mean for proof-of-stake consensus models? In short: they may be more vulnerable than advertised. Proof-of-stake distributes power to holders of the currency, with ownership over more tokens equaling more control over the network. This essentially makes a well-distributed coin supply a necessary component of its security model, with fewer parties owning a significant portion of the supply and no single party able to control and attack the network without massive expense.
However, this model assumes holders are using their tokens as they were intended to be used — that is, without trusting third parties with their funds. Unfortunately, this does not always happen, especially with one case in particular: exchanges. Read More...