Steemit: How Delegated Proof of State can go wrong

Steemit is an interesting blockchain project that rewards its users with the cryptocurrency STEEM for publishing and curating content.

Without going into the details, Steem’s Delegated Proof of State consensus was essentially hijacked by a consortium of exchanges in order to replace the validators of the network and “take over“.

Check it out:

How Delegated Proof of Stake (DPoS) works

Standard Proof of Stake (PoS) consensus algorithm allows individual users to lock up their coins in order to validate transactions and earn transaction fees (compared to miners competing for hashrate).

More importantly, PoS allows for vote signaling in these types of systems as well. Literally, your money = your votes (roughly).

However, in standard PoS, you yourself have to signal these votes and manage your own stake.

In Delegated PoS, you have the option to allow someone else to manage your stake. They can leverage your coins to participate in staking, get rewards (and distribute to you), and vote on your behalf.

Now, combine DPoS with centralized exchanges holding your coins for you.

Whether you opt-in to have your coins participate in staking through the exchange or simply the fact that, when your coins are in an exchange, the exchange owns the coins and can do whatever they want, the exchanges consolidate a vast amount of DPoS staking and voting power.

And then, they might use it to take over a blockchain.

Vote with your wallet

The classic adage is here to stay: not your keys, not your crypto.

If you leave your DPoS coins and tokens in your exchange, not only do you leave yourself liable for their theft/loss/hack etc, you are also enabling the exchanges to vote on your behalf.

If you don’t want exchanges to have this type of buying power, withdraw your tokens to a personal wallet.

I recommend the Ledger.