The EOS Arbitrator Problem: A Crypto Governance Breakdown Explained

“They have to figure their own shit out.”

Those were the harsh words of one of EOS’ top “block producers” – the network participants in charge of maintaining the blockchain – on Monday as the world’s fifth largest cryptocurrency attracted public ridicule for its current state of confusion.

As told to CoinDesk by Kevin Rose, co-founder and head of strategy at EOS New York, the statement could reflect the broader snags the software has faced since release, but this comment was focused specifically on the EOS Core Arbitration Forum (ECAF).

So far, it seems many both inside and outside the EOS community aren’t clear what ECAF, the main body tasked with resolving disputes between token holders on the network, is and what control it has over transactions.

That’s largely because ECAF’s role and duties were discussed back and forth over months of forum discussions, but clear methods and processes don’t seem to have been decided on. It’s become apparent over the past few days that this mess of information now needs to be organized and clearly communicated to the community.

Stepping back, all this turbulence began on June 17, just three days after the network’s launch, when the network’s top block producers unanimously intervened to stop seven addresses from making transactions. That decision was retroactively endorsed by an ECAF order (the arbitrator had initially refused to rule on the issue).

Then on June 22, an order made the rounds that ECAF wanted to freeze 27 more accounts, to which “the logic and reasoning … will be posted at a later date.” On June 24, another order was seemingly issued, demanding that tokens be revoked from some addresses.

That order, however, turned out to be a fake.

With all the mayhem, EOS New York made a big decision. Until it can be reasonably certain about their authenticity, the block producer wrote on Sunday, it will ignore ECAF decisions – or decisions that appear to be ECAF decisions.

“We cannot with confidence execute any statement claiming to be an ECAF opinion,” the organization said, adding:

“We will resume normal processing once communications can be established on-chain such that they can be audited by both EOS New York and the community.”

Adding to that, Rose pointed to what he called a “rampant misunderstanding about what arbitration is” on the EOS network. According to him, ECAF needs improved processes, more transparency and ultimately, competition.

Roshan Abraham of EOS Authority, another top block producer, agreed that ECAF’s processes are flawed. Meanwhile, EOS Telegram chats are abuzz with complaints, speculation and unanswered questions about the arbitrator.

The judge and the bailiff

Still, these folks are supposed to be held to predictable and rational governance rules, those within the EOS “constitution,” although that ruleset is still at an early stage.

And that seems to be somewhat at the heart of the issues.

After the fake order to revoke tokens from some addresses, Rose told CoinDesk, “I woke up to a scanned PDF on Twitter claiming to move property and I spent the next 45 minutes trying to figure out if it was real.”

He continued:

“I don’t have time to do that, that’s not secure, that’s not how professionals work.”

Rather than having to “spend its time analyzing the merits and evidence of a case,” Rose said, a block producer should be able to leave the arbitration to “somebody who is trained to do that” – an arbitrator who can “just tell us what to do.” In other words, he said, block producers should be like courtroom bailiffs.

“He’s not going to do anything unless the judge is asking him to take someone away … it doesn’t make him stupid, that’s his job,” he said.

So far, though, such credulousness on the part of block producers has been impossible, given the quality of ECAF’s efforts. Its decisions are not stored in any one repository but passed around social media as screenshots of PDFs signed by hand.

ECAF has a website, but “you’d think it was some shady shell company,” said Rose.

And that could lead to misinformation – if not outright scams, like the fake order displays – which thrives in such a crypto environment.

The situation is especially embarrassing for EOS, though, which has attempted to reject most cryptocurrencies’ state of borderline anarchy: EOS has erected quasi-official institutions, governed by quasi-legal structures, laid out in a written constitution.

Not about centralization

It’s important to note, though, that Rose himself, EOS New York and other block producers are not upset about alleged centralization, which is what caused an uproar among the broader cryptocurrency community.

All of these events – and in particular ECAF’s promise to explain “at a later date” – led critics, mostly from outside EOS, to call block producers a “junta” and a “cartel,” “bankers” and “centralized.” ECAF, with its use of flowery legalese, was compared to “kids” playing pretend, while the EOS network as a whole was accused of conducting “consensus by conference call.”

But the idea that uncensorable transactions are the ultimate goal of cryptocurrencies – settled doctrine in many circles – is met with skepticism or outright rejection in debates among EOS block producers. Instead, EOS supporters want a blockchain that’s fast and cheap, but also has the governance structure in place to make decisions that are in the best interest of the user.

That’s why EOS was built on delegated proof-of-stake (dPOS), which allows for a certain number of organizations to validate the blockchain, instead of incorporating a proof-of-work mining system (like bitcoin has, for instance).

Whereas anyone (with the correct hardware) can be a miner on proof-of-work blockchains, EOS’ 21 block producers are being constantly voted into and out of those roles by users of the network staking tokens – a vote is held every two minutes.

At the time of writing, there were 370 block producer candidates vying for the 21 slots.

Rather than centralization, EOS New York – consistently one of these top 21 block producers – said it has chosen to disregard ECAF decisions because the way they are issued is “haphazard, opaque, and without a process.”

“The world is watching,” Rose told CoinDesk.

As for ECAF’s belated explanation for why it ordered 27 accounts to be frozen, Rose found it satisfactory. These were, he said, verifiable owners freezing their own accounts because they feared “imminent property theft” due to phishing, hacking and scams.

Improving the process

Still, it appears the conversation around how to clean up the messy arbitration process is now moving in a productive direction.

Sam Sapoznick, who signed the ECAF order sent out on June 22, said he does not speak officially for ECAF, but wrote on Telegram that the arbitrator “is working on a sensible draft proposal to address the outstanding issues.”

And in a post on June 24, EOS New York outlined specific proposals for on-chain communication by arbitrators, governed by smart contracts.

Plus, EOS Argentina (ranked 22nd at the time of writing) recently rolled out an EOS-based application for signing and time-stamping documents on the blockchain, pointedly inviting ECAF to use it. Other block producers are deciding that from now on ECAF requests must be published through a “trusted source” and not just on social media.

EOS Authority’s position, for instance, Abraham told CoinDesk, is that all orders “must be published through a trusted source such as the EOS blockchain or electronically signed by ECAF.” Plus, he added, “All evidence and reasoning should also be published with all cases.”

But until any particular technical fix is adopted, Rose expressed worry that the community would continue to flail until it corrected “rampant confusion” about the roles of various stakeholders and the role of arbitration more generally.

First of all, he said, “ECAF isn’t making these decisions; the arbitrator with his or her name on the paper is making the decisions.” For the time being, he, added, these arbitrators are simply volunteers.

And even though ECAF does not (or should not) have any power outside of its role as a forum for qualified arbitrators, Rose said, it should also face competition in a system of “free-market justice.”

He explained, “If you are an arbitrator and you’d like to arbitrate disputes on chain for EOS, you can do that. You as a private person – two people just need to consent to you as the arbitrator.”

It’s difficult to say whether this system is a description of arbitration in EOS as it is today, or rather as Rose would like it to be. For now, it seems, the entire process is up in the air.

The most up-to-date documentation on the rules governing EOS arbitration is buried in a forum. And even that, for now, is just a proposal, whereby it’s unclear what rules are actually in effect.

For these rules, or anything having to with EOS’ constitution, to be finalized, there needs to be a system for conducting token holder referendums, and that process is also still in progress.

The governance-focused EOS network was born without a governance process, and as Rose put it:

“That’s like your arms not being there when you’re born.”

Destroyed tire image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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