“Steemitans and Twitterers, after four beautiful years, I have sold Steemit to @justinsuntron. AMA tomorrow at 9am PT.”
Ned Scott, ex-CEO of Steemit, is not the first crypto founder to sell to Justin Sun. He likely won’t be the last. But his now-deleted tweet rivals the most controversial blockchain announcements of recent years.
“I have to say that I feel a bit of guilt in retrospect, because I think that my conversations with Tron ultimately played a role in getting our two organizations to talk to one another,” says Andrew Levine, the former Head of Communications and Advocacy at Steemit.
He worries that his overtures ushered the proverbial wolf into the henhouse. A gruesome ending of sorts seemed inevitable.
When Justin Sun announced the purchase of the Steemit platform, along with 20% of the total supply of STEEM tokens, the Steemit team was stunned — they learned about the details of the acquisition along with the wider community. A centralized takeover of a supposedly decentralized passion project immediately took the shine off the whole project.
“So, we had a tough time,” he reflects.
Levine soon resigned, along with a number of his co-workers.
This is not the story of precisely what happened, when, or according to whom — that has been documented elsewhere. It’s the story of how one man’s passion project became subsumed by another’s ambition… and how that interplay has implications for the wider blockchain industry.
The greatest blockchain you’ve never heard of…
In describing how they deal with a shocking or traumatic event, many choose an inspiring cliche, plucked from the motivational posters that used to adorn office wallspace.
Every cloud has a silver lining. The phoenix rises from ashes. Hang in there!
But Levine subscribes to one in particular: There are no failures; just learning opportunities.
Recounting the tale of the Steem blockchain, Levine makes it clear that learning opportunities are available in abundance.
“I think Steem is going to go down in history as the greatest blockchain you’ve never heard of,” he says.
For those new to the saga, Steem (the blockchain) powers Steemit (the social media platform) which enables contributors to interact socially and receive rewards for their content in the form of STEEM tokens.
Despite Steem’s important role in the lives of many budding blockchain content creators, the pioneer may wind up being a sad footnote in the pages of the technology’s history. Following the acquisition of the Steemit platform by Justin Sun’s Tron Foundation, arguments over the control of the blockchain appear to have left it in a fractured, and possibly irreparable, state.
Sun is a polarizing figure in the blockchain industry. Derided by some as a lightweight showman, “the P.T. Barnum of crypto”, others see him as a marketing genius whose penchant for the limelight has created an army of loyal followers. He embodies the CEO-as-spokesman, actively adopting the post-Trumpian, post-Muskian philosophy of attention at any cost. It’s rumored that Sun cares little about the value of Tron’s TRX token, or indeed the value of any of his multiple investments, and that his personal key performance indicators revolve around Twitter engagement.
It’s this centralized cult-of-personality that turned many in the Steem community off the deal.
Steem’s ecosystem, Levine says, has spawned countless careers, generated enormous value, and has distributed that value all over the world. “We’re talking millions and millions of dollars distributed to ordinary people.”
“It’s crazy how many people I meet who are like, ‘Steem played this big role for me.’”
Now, much of that community has moved on to the Hive blockchain and hive.blog, a forked replica of the original ecosystem, sans Tron. This has left the Tron Foundation with what some now argue is merely a hollow — and expensive — shell. A facade that may no longer have a genuine and active community behind it… which is what created most of the platform’s value in the first place.
A brief recap of the acquisition drama
In an effort to halt the exodus of jaded community members, Justin Sun imposed a series of account freezes and dispatched a so-called “security update” to a number of major cryptocurrency exchanges. Using the massive quantity of STEEM tokens entrusted to these exchanges by token holders, Tron spawned new governance ‘witnesses’, described as “sock puppets” by some in the community, to replace the previous validators of the Delegated Proof of Stake consensus system.
The large concentration of token holdings in the custody of these exchange agents allowed Sun to execute what some saw as a hostile takeover of the vulnerable network. Some exchanges subsequently reversed course, with the notable exception of the Sun-affiliated Poloniex.
Dan Hensley, a STEEM holder, told Cointelegraph in April that “Justin was losing the voting war halfway through and started offering people $2,500 each month to run a witness node for him on Steem. I own a dApp called 3speak that was on Steem, he offered us money, power and users.”
The community fought back, fearing the centralization of a platform that had made its name promoting the opposite thesis. Casualties of the war include the most vocal protesters, some of whom claim to have lost millions of dollars’ worth of STEEM tokens which became inaccessible at times due to the forks and account freezes imposed by Sun’s team.
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Much of what was the Steemit team has also abandoned the mirrored ecosystems, starting entirely new projects on separate blockchains, building on lessons learned from the fiasco. No engineer who worked on Steemit before the Sun acquisition remains with the project.
What’s so great about Steem, anyway?
Steem was well-designed, Levine says, for bootstrapping purposes. It wasn’t perfect. Its design didn’t really scale, but it was great for getting people interested and excited about a whole new way to connect and to form a new kind of community, with no cost of entry. “The value that I got from that experience was insane. I got money and I got a career. I got opportunities, and it cost me nothing.”
Levine began at Steemit as a content creator in the early days of the platform’s existence. His background was in law, but early on he learned about open-source development and was excited about the idea of public code.
The problem with open-source software, he says, is economic in nature. The key problem? It’s not profitable. “That framed a lot of my experience with the software world and specifically the blockchain world, in that I viewed Bitcoin as the first piece of open-source software to solve the economic problem.” This was the beginning of sustainable open-source software with digital money baked in, he says.
Bitcoin is great as a form of monetized open-source software, but it can’t really be used for anything beyond that, Levine says. Ethereum made some progress in this regard, adding programmability, with a greater variety of open-source software and monetary integration. With the advent of ERC20 tokens developers could create their own software and produce their own custom money to monetize it.
Levine explains that he has always loved art and writing. Before Steemit came to be, he wanted to get into video production as a means of content creation, with technology as his paintbrush. “As a fan of technology, crowd-sourcing, and thinking about the future of content creation and delivery, YouTube seemed like a powerful platform for me, so I wanted to get into video creation for YouTube, but ultimately… it felt like a lot of work for very little reward.”
Levine found himself spending time debating economics and politics on social media sites. He was devoting hours of his life to the discussions, and realized “Who’s profiting off of this? Not me. Facebook is. Once you start thinking about that, you realize Facebook is intentionally getting you mad and getting you to hate your friends.”
After experimenting and ultimately failing with his own cryptocurrency-integrated social network website, Levine eventually stumbled upon Steemit.com. “It popped right up on my radar. I adopted it in the first month that it launched. And I was immediately, like, ‘this ticks all my boxes. I want to create content, I want to have meaningful discussions, I want to protect my identity, I want to participate in the blockchain world — and it’s free!’”
Adopting the handle “andrarchy”, Levine soon became one of the platform’s more popular content creators, with a large following in the burgeoning community. In what he describes as a typical start-up experience, he started his employment with Steemit as the community liaison. “I begged Ned Scott to hire me and said I would do whatever needed to be done.” He was keen to take on the role of community manager and spent months “auditioning for the job,” working closely with the team and traveling to the Virginia headquarters. “It was super fun. I was super-grateful for that opportunity.”
Ultimately, CEO Scott chose another candidate who had more experience in crypto marketing for the job. But Mitchell Loureiro, the new VP of Marketing, recognized Levine’s passion and involvement in the community, reaching out to him for ideas.
Levine shared a strategy document that “was like a novel” and which ended up “being the marketing playbook.” For about two years, Levine suggests that he performed the lion’s share of communications and community engagement work for the platform.
His job title never sufficiently described what he did, he says, but he loved it and dedicated his time to business development, stakeholder and investor management, Steem integration, and platform advocacy.
“I loved Steem. We all wanted to see Steem succeed. Steemit didn’t have any alternate revenue source other than STEEM tokens, so I felt like, you know what? If they ask me to do something, I’m going to do it, but otherwise I’m just going to do what I think is the right thing.”
Tron makes a move
The story of Tron’s acquisition of Steem is not a simple one. “It’s so complicated. It’s crazy.” It traces way back, to oversights in the early stages of blockchain development. “This is a story that is not six months. It’s not a year. Arguably, it traces back to the Bitcoin whitepaper, you know? It traces back to Dan Larimer’s arguments with Satoshi.”
Steem faced a crucial turning point during the market craze of 2017, when Initial Coin Offerings (ICOs) kicked off a new investment trend on the Ethereum network. ICOs enabled businesses to tokenize their products and acquire massive capital injections from crowd-sourced fundraising. Ethereum enjoyed the majority of investment interest during this explosive crypto market craze.
But Steem was missing out on the action. “If Steem had smart media tokens — our token-launching protocol, originally — if Dan [Larimer] had foreseen that, which no one can blame somebody for not seeing that, I think Steem and Ethereum would have been neck and neck.”
When Levine explained to developers why they should build on Steem, they were excited about the range of features available to them. But the ease of acquiring investment through token ICOs on Ethereum was simply too much of a gravity well to convert them to Steem’s platform. “They would say, “Great, I’m in! How do I release my own token?”
“That’s why I pushed very hard internally for smart media tokens…” The fast and fee-less tokens, which are not possible on Ethereum, would have given Steem a distinctive advantage.
But it just wasn’t possible for Steem to adapt quickly enough against the competition. Easy upgradability was not a priority in the technology’s initial design, Levine says, so protocol updates required inefficient and difficult hard forks. If smart media tokens (SMTs) had been added earlier in development, things might have turned out differently, but the architecture was never built for rapid upgradability.
“Dan Larimer thought Steem would require zero hard forks. He thought it would just launch and it would be perfect.”
As the team began developing SMTs, the crypto market was already rolling along in the early stages of a boom. The team had plenty of capital to work with when Levine joined senior management. Scott focused on growing the team and pushing out more products rather than improving efficiency. They soon learned an ironic lesson: a lot of money can be a very bad thing.
The size and cost of maintaining the blockchain was growing at unsustainable rates, but it didn’t seem to matter in the skyrocketing market. “Every existing blockchain only grows in size. This is a huge scaling issue that no existing blockchain has yet solved. And nobody really talks about it.” Larimer had designed Steem to grow in RAM usage, which will always be expensive, Levine says.
“Our infrastructure ballooned out of control. The cost was very large. We’re talking hundreds of thousands of dollars a month.” Teammates made suggestions to decrease infrastructure costs, but Levine says many were not implemented, at least not in a timely manner.
Then, it was too late. The crypto market crashed.
“Now, we were stuck with bloated infrastructure, insanely costly infrastructure, and our revenues were slashed. We thought we had a ton of runway. We were told that we had a lot of runway. But ultimately, it turned out that we didn’t have enough, so we had to lay off 70% of the company.”
This all took place about a year before the platform was sold to Tron, Levine says. In the wake of mass layoffs, the team scrambled to integrate ads into the platform as a revenue stream. Levine was wary of the idea initially, but it seemed necessary to maintain the survival of the platform.
Levine began speaking to Tron about selling ads on the platform in order to generate income. He reached out to some connections he had with them in an effort to sustain Steemit. “I saw a lot of opportunity for collaboration between our two projects.” Developers recognized a demand for smart contracts in the Steem ecosystem, but adding that capability required a total re-architecting process. The Tron protocol, on the other hand, already supported smart contracts. “If Steem could partner with a smart contracting platform, that could be a way… for both projects to work together synergistically.”
Levine reflects on the growth and authenticity of the Steem community: “Steem is a real decentralized community and I don’t know if there are actually any other decentralized communities out there. If you look at Ethereum, EOS, you have developer communities, but these people are oriented around a common belief that a piece of software will help them build powerful applications.”
“It’s not a community in the sense that it’s people interacting with one another for reasons that are totally unrelated to the adoption of any technological protocol. People are friends. Maybe I’m being unfair to other communities, but it’s the way I see it.”
When Levine found out about the acquisition, it was a gut punch. Tron announced a technical impossibility: Steem was “moving to Tron,” implying the Steem cryptocurrency, in essence, would have to be destroyed. As a long-time Steem stakeholder and believer, he says, “that was very jarring.”
Levine says he strongly believed in the potential of the Steem blockchain. He imagined it would transform the global economy. “I immediately saw it could be about way more than posts and comments and things like that.” But the “blue collar work” of producing blocks, he says, shouldn’t get mixed in with other functions.
“You need these layers. The problem with Steem is that everything is connected. A hugely popular content creator can have massive influence on who gets to produce blocks. That’s weird.” It’s debatable as to whether it’s the right way to design things, he suggests.
“Had we made it differently, it could have been massively disruptive.”
“It’s hard to point the finger at anybody on this, and that’s not my intention,” continues Levine. “It goes back to those architectural decisions.” Upgradability was a huge component that was overlooked in the early foundational stages. The grand goal was to “tokenize the web,” but the technology just wasn’t up to the task.
“When that stopped being a possibility, it was — and still is — extremely traumatic.”
Moving to OpenOrchard
Levine is now looking at the bright side of his experience. He says he is working at his newly formed company, OpenOrchard, with people who are brilliant, solving problems nobody else has solved. “I wouldn’t be where I am today if I hadn’t started blogging on Steemit.com.”
“The experience that I got from Steemit is priceless. I’m extremely grateful to Ned Scott and Dan Larimer for starting that company, for hiring me.”
“Because of my experience of Steemit… I believe I am now working on a two-layer solution that has the highest probability of transforming the global economy.”
Levine insists that despite Steem’s perceived weaknesses, it attracted an “insanely valuable community and an amazing team of developers,” a number of whom now work with Levine at OpenOrchard.
“I saw the value in that community and in that team. So I was going to do everything that I could to make myself part of those groups.” Levine explains the greatest lesson he took from this experience and now applies to his work: “It’s not about the features that you offer now. It’s about where you’re going. It’s about what you’re building together.”
“Trauma plays a part in your rebirth,” Levine says, “and we’re taking that trauma and turning it into Koinos”, a new blockchain under development at OpenOrchard.
“If not for Justin Sun, I would not have been able to start the next great blockchain company with six amazing co-founders who are incredibly valuable — the most undervalued blockchain team in the world.” People do not understand, Levine says, how under-appreciated the crew that moved over from Steem to join OpenOrchard is. Collectively, the team has decades of experience in developing blockchains.
As Levine and his team learn from past mistakes, Koinos is being built with upgradability as a priority. The team is “making sure we don’t base our blockchain on the assumption that it’s perfect, but instead that it will be imperfect.”
This approach requires second layer solutions that are ready to use Koinos immediately at launch. Odesi — open database of encrypted social information — will offer a suite of microservices that can integrate with the Koinos blockchain from the start.
The goal with Koinos is to build powerful second-layer tools that work with the blockchain without bogging it down. The team is developing the toolbox in tandem, providing features to developers that can offload the work from the blockchain itself. This makes it more scalable, cheaper and more efficient, declares Levine. “When Koinos goes live, you will be able to pipe right into it.”
The silver lining
Steem now lives under the reign of Tron, and Hive, the hard-forked blockchain that emerged from the contentious split, has gained significant traction and even a listing on Binance. Rumors about Steem and Tron circulated as far back as December of 2019 in some circles, and despite the drama the market capitalization of Steem has increased from $44m to $76m at the time of writing, according to CoinMarketCap, while the new Hive blockchain already commands a market cap of $75m .
The old saying, “buy when there’s blood in the streets” rings true for Levine. The biggest opportunities can be found in the worst circumstances, he says. When things are going badly, it means there’s a huge opportunity, but people have to step up and exploit it.
“What I’m doing right now is a dream come true, so I can’t be too upset. It was a really difficult time. It was a very stressful time. Working in crypto, in startups, is very stressful. If you just consider the stress of startup life combined with the market volatility of crypto, you can only imagine the level of stress we were experiencing, even in good times.”
“The silver lining, if I’m practicing gratitude, is that all that stuff ultimately worked out for the best, because I’m still working with the people I want to work with, with the greatest team I think exists in the world.”