If steam is down blockland can't verify, so you're wrong
That's absolutely true, but let's say the Steam servers crash right after Blockland retrieves the key from Steam.
I'm pretty sure the activation would work.
The bottom line is, all the steam auth does is connect to the Valve servers with a username and password, get the BL key, and give it to Blockland. Steam is just the way the game gets the product key, instead of using the key.dat file.