“Shock” allegations of EOS block producer collusion shock no one

Posted: 2 October 2018 1:49 pm
EOS weekly - FI
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EOS's main problem might be that it regards its flaws as features, rather than risks to be managed.

A "shocking" new allegation has emerged. A spreadsheet authored by supposed Huobi insider Shi Feifei has allegedly detailed some collusion between Huobi and other block producers. The gist of the accusation is that Huobi is accepting money in exchange for supporting other block producers, while also being a block producer itself.

Why are people so uppity about this?


Being a block producer is a desirable position that people are naturally willing to invest in because it gives back a significant amount of money in return in the form of EOS rewards. The amount can vary from hundreds to thousands of dollars per day depending on what EOS prices are doing at the time, and the exact position of the block producer. But block producers are elected, with EOS token holders being allowed to lodge votes, the power of which depends on how much EOS they stake on their chosen candidates.

Huobi has a big say in deciding who gets to be a block producer. First, because as an exchange, it's holding on to a lot of customer EOS, which it can use to vote for whoever pays it. Second, because it's a block producer itself as well as an entity that's allegedly being paid significant sums in EOS per day. This means its voting power keeps accumulating day by day as it hoards more EOS tokens.

The main reason people are pretending that this is some kind of big deal might be because it's EOS users whose funds are being used to facilitate this alleged abuse. There might be some sense of indignity stoking people's fires.

"With the secret internal information [of Huobi] as direct evidence, seeing the world of EOSONE still feels shocking!" says Weixin, one of the outlets that first spread the news.

Of course, shock is relative. In the real world it would be much more shocking if these kinds of backroom shenanigans weren't going on. Far from discouraging it, EOS's entire system might as well have been designed specifically to facilitate this kind of thing.

It's worth noting that none of what's alleged to have happened here is actually illegal, and there almost certainly won't be any actual penalties except the potential for a bit of bad PR. The grand EOS constitution – the guiding light for this supposedly cutting edge decentralised governance system – is just a meaningless and easy to ignore set of terms and conditions, enforced by nothing but the honour system.

The kicker is that actually levying any penalties, or changing the system to prevent this kind of abuse, can only be done with the approval of block producers. There are only 21 block producers, and as long as the colluders control 8 of them, either directly or indirectly, it's going to be almost impossible to pass a resolution to prevent these kinds of abuses.

Basically, solving the problem within the bounds of the EOS system is dependent on the people profiting from these arrangements to altruistically turn in their cash cows. It's not going to happen.

It's a failed system, which once again comes as no surprise to all those who pointed out that it was destined for corruption and failure before launch. The weak official response to these allegations doesn't instil much confidence or hope for EOS's future, but at least it's good for a laugh.

The official response

"We are aware of some unverified claims regarding irregular block producer voting, and the subsequent denials of those claims. We believe it is important to ensure a free and democratic election process within EOS and may, as we deem appropriate, vote with other holders to reinforce the integrity of this process," wrote Block.one CEO Brendan Blumer in an official response." We continue working on our potential involvement with the goal of empowering the intent of the greater community through a transparent process that incorporates community feedback."

In short, Block.one (which is itself a huge EOS holder with a lot of voting power) is saying that it might just start voting for desired block producers itself. This would mean dropping the pretence of decentralisation though, and there's similarly no reason to expect Block.one to be any more altruistic than the other colluding block producers. Block.one raised about $4 billion to drag this hunk of junk to market, so it's safe to say they're pretty well motivated by money.

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Hilariously, Blumer then described the poorly thought out EOS constitutional democracy as the forefront of optimal system design.

"As we go forward and continue to improve the EOSIO open source code, we extensively think about the future of decentralized governance and are committed to continually pushing thought leadership on optimal design," he said.

If extensive thinking from the finest minds of EOS couldn't conceive of a governance system other than an obviously flawed cargo cult democracy powered entirely by the honour system, it's not entirely clear what else they have to offer going forwards.

The problem might be that most thoughts on "the future of decentralized governance" probably don't include EOS except as an example of how not to do it, and that you can't be at the forefront of "thought leadership on optimal design" from within EOS. Its system is inherently flawed, backed as it is with nothing but a worthless and unenforceable constitution, and the only real solution is to tear it down and rebuild it from the ground up with a more solid foundation.

That's not to say centralised elements and constitutions in themselves are inherently worthless, and that voting systems can't be an important piece of a decentralised network, but they must be managed as risks in order to be effective. By contrast EOS approaches its voting system and centralised elements as a core strength, and touts them as game-changing benefits rather than necessary evils.

To be fair, effective decentralisation in cryptocurrencies is extremely difficult to achieve, and governance problems in general are endemic to human society as we know it. Solving these problems requires a lot of hard work, a lot of trial and error and a lot of learning from mistakes.

And EOS is turning out to be an extremely educational train wreck.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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