Hi Mendezj,
This un-hardened damascus knife you have on order, did you know ahead of time that it was going to be delivered in a unfinished state? How did you find this out? And how many hundreds did you spend (you don't have to answer that but it certainly enters the scenario)?
Unless you completely agreed to accept and pay for the piece (it's not a knife) in this condition, you have every right to back out of the deal. If the maker knew the blade was not hardened, and did not volunteer this information, it's fraud plain and simple.
And what of the future of this piece? What if you someday want to sell, trade, or even give it away? What if you leave it in your will? IMO, ethically I don't think you can do any of those things. Or some sort of documentation would have to follow it until the end of time. It's a can of worms. In the spirit of character, integrity, honesty, and a love for the art, I would like to see such a piece destroyed. This is based on what I understand from you post.
Personally, I'd like to know exactly who this maker is, and the full story of why he thinks this is acceptable. Please understand that I am in no way disparaging you

. I just read your post over and over again, and that is what I came away with. If I read it wrong,
sombody set me straight! Much of my time is spent in a state of rectal-cranial insertion

and I often require a little guidance.
Cheers,
TV
Terry Vandeventer
ABS MS