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EOS : governance, arbitration and “code is law”

These first weeks following the birth of EOS blockchain were marked by controversy over decisions taken by block producers (freezing accounts associated with phishing activities), role of ECAF (EOS Arbitration Forum), and content of EOS Constitution.

We had supported the decision taken by top block producers to freeze 7 accounts, that contained funds stolen from several EOS members (proven facts). Our opinion was that this decision was taken in good faith by the block producers, who, in order to protect concerned members, had used the tools at their disposal without waiting for ECAF’s ruling. We believe that protection of members’ private property at the launch of EOS blockchain, in the absence of a rapid and efficient arbitration process, justified this decision. Nevertheless, this case raised several questions :

  • Is EOS Constitution precise enough to establish common rules for the community ?
  • Is it ECAF’s responsibility to deal with cases of phishing, or loss of private keys ? What is the relevance of an arbitration forum if block producers can bypass its guidelines ?
  • What is the counterpart of the supreme power entrusted to the top 21 block producers ? In particular, if BPs can override the opinion of the arbitration forum and freeze accounts by mutual agreement, does this considerably weaken EOS network censorship resistance ?
  • How much money have to be lost and for what degree of error can we reasonably intervene to protect EOS members ?

It must also be acknowledged that the litigation administration body, ECAF, remains very opaque for EOS community. Moreover, EOS Constitution is considered too subjective by many members.

Recently, Dan Larimer judged that “damage to community from ECAF is greater than funds we hope to restore to users”, and called on block producers to “campaign on making a charitable donation to the cause of helping these people out”.

Dan Larimer also suggested ways for token holders to amend the EOS Constitution. EOS Constitution may be amended by a vote of EOS token holders. This vote must collect:

  • At least 15% participation ;
  • Not less than 10% more “Yes” votes than “No” votes ;
  • 30 consecutive days of support in a 120-day period.

Ricardian contracts and governance

One of the concepts that strongly differentiates EOS from other public blockchains and decentralized platforms is the mix between social consensus and algorithmic consensus. This is referred to as “governed blockchain” – a term which sums up the idea of an interventionist social layer, placing itself above computer code.

A Ricardian contract establishes a contractual relationship between several parties, executed via computer code. A smart contract is a Ricardian contract deployed on a blockchain.

Original cypherpunk “code is law” idea is an ideal that even Bitcoin and Ethereum could not achieve. In reality, current blockchains all include a human factor in their governance. EOS includes this social layer directly in the protocol.

This is a paradigm shift in open blockchains universe, all consensus mechanisms combined. Cryptosphere generally places code well above human, as shown by recent setbacks on Ethereum, with Parity’s multi-signature contract case : error is human and sanction is financial ! On EOS, members can submit disputes, and with the consent of independent arbitrators, block producers have the power to conduct operations that are impossible on most open blockchains, such as freezing accounts.

This supreme power attracts or frightens, and EOS is therefore at the heart of all polemics, but this governance model is precisely a differentiating factor that seduced franceos team.

What is ECAF ?

ECAF stands for EOS Core Arbitration Forum. Theoretically, this independent body of arbitrators (who are themselves independent) is responsible for settling disputes between several parties on EOS.

ECAF is very controversial since mainnet launch, because its functioning is opaque, its governance centralized, and its state of development is little advanced. In fact, this arbitration forum was notably unable to address the complaints collected by EOS 911, concerning funds stolen to certain members via phishing of private keys.

EOS Constitution gives ECAF power to order block producers to freeze accounts when members’ free consent is violated (for example, in cases of fraud, such as phishing attacks against certain users) :

“Members guarantee the right to contract and the right of private property between them, therefore, no property may change hands except with the consent of its owner, by a valid arbitration order or by community referendum. This Constitution does not create any positive rights for or between Members.” Art. III – Rights

ECAF’s problem concerns its legitimacy. There wasn’t any on-chain tool to verify authenticity of complaints received, no tool to appoint arbitrators in a decentralized manner, and in general EOS Community has no visibility and very little power over arbitrators’ actions.

ECAF website is strangely empty, and general distrust against this organisation is understandable given the opacity of its operation. Arbitration rules have been developed, but little discussed, on the EOS Go forums.

ECAF Rules for Dispute Resolution brings together the rules for resolving disputes and conflicts that may arise between different members of EOS community.

Disputes that ECAF can arbitrate are the following :

  • “Classic” disputes : the issuer of an assert claims damages and reparations ;
  • Emergency intervention requests to fix bugs or account freezes ;
  • Complaints concerning data on or relating to the EOS blockchain ;
  • Claims including legal proceedings from foreign courts.

The Forum, led by arbitrators, is created to serve EOS Community. It should apply the rules defined in a transparent manner, and may call on various people to support its decisions (experts, translators, case managers, etc.).

Who are the arbitrators ?

The arbitrators are appointed by community referendum. They may be revoked by quorum of more than two thirds of the three constituent entities of EOS : block producers, the Community and the Forum.

ECAF, a not-so-well defined organization

Following the fake ECAF statement case, EOS New York explained in an article that in the absence of a process to certify on-chain veracity of informations submitted to block producers, the team decided not to take into account recommendations promulgated by ECAF until the situation improved.

EOS New York also suggested renaming ECAF to ECDR (EOS Center for Dispute Resolution) and clarifying its primary roles : maintaining a set of rules for dispute resolution and a database of independent ECDR arbitrators, as well as assisting parties using arbitration proceedings from start to finish.

For financing, just like franceos, EOS New York defends free market. Costs of arbitration proceedings should be deducted from funds involved in those proceedings.

Proposals from this top EOS block producer concerning arbitration process are very interesting : in order to provide as much transparency as possible, each arbitrator will have to sign the messages relating to the dispute with his key, if they are accompanied by all the rules used to arbitrate the case. Arbitrator information (location, costs, language, expertise, EOS account name) would be stored in a JSON to which any member of EOS Community would have access.

While each block producer is committed to respecting EOS Constitution, which grants decision-making authority over integrity of the blockchain to arbitrators, it would still require consent of EOS community as a whole. It is clear, however, that this is not the case ; moreover, ECAF does not seem to be in a position to fulfil the mission conferred on it by EOS Constitution and its Rules for Dispute Resolution.

franceos’ position on ECAF

franceos team is composed of 8 members involved in cryptoeconomics, gathering around a set of common principles. Our values and vision are detailed on our homepage and can be summarized quite simply : right to private property, to free enterprise and to contract on the basis of free consent. With emergence of decentralized value exchange systems, the idea of a society where human relations are based on free consent is now taking the form of a concrete utopia.

However, team members are also individuals with diverse opinions. For example, top BPs’ decision to freeze 7 accounts was not unanimously welcomed. Some members are uncompromising with “Code is Law” school of thought, from reading Nick Szabo’s notes to recent events on EOS, without forgetting TheDAO case. Therefore, it is  often difficult to reach a common position, and debates can be heated.

We place EOS Constitution above all bodies or members with a role to play in EOS governance. The idea of having a set of rules governing arbitration of disputes and conflicts between several members is attractive, but extremely complex to set up. Overall, we agree with Dan Larimer that this interventionism can be harmful. Thus, code becomes law, and block producers wishing to interfere in order to protect rights of certain members are above all subject to the principles defined in the Constitution.

We are in favour of a concise and precise Constitution, drafted in objective terms, setting out principles that cannot be subject to multiple interpretations. These are foundations of a strong society, and history shows that a human society based on a heavy, complex and subjective constitution creates many injustices and inefficiencies. If EOS Constitution needs to be revised, it is to be clearer, to establish principles that are unanimously accepted within EOS community, and especially token holders.

A decision-making body such as ECAF should be much better administered before it can influence block producers’ decisions. Scope of its powers should be defined in Constitution itself and all arbitration procedures should be subject to on-chain ratification. Token holders should have maximum means available to be informed of decisions taken by arbitrators, and should have a significant weight in the appointment of arbitrators.

Current ECAF structure doesn’t really satisfy needs for efficiency and impartiality dear to franceos team members. This also seems to be the case for many EOS members. However, criticism alone is totally unproductive. We wish to participate actively in discussions to improve this system and urge token holders to do the same.

Since computer code is resistant to corruption, but fragile to error, a balance must be found between absolutism of “code is law” and primacy of human over machine. Humans cannot always be superior to the code and vice versa, code cannot totally supplant human justice ; conditions for dispute resolution require risks sizing and perspective. As long as integrity of the ecosystem as a whole is not compromised, staying on “code is law” side is certainly the best option.

Goal of decentralized value exchange systems is to have a fair, predictable and efficient allocation of wealth. This is only valid if code is well written. Risks must therefore be analysed on a case-by-case basis, on tangible and economic facts. The problem is therefore dimensioning of the resolutions. In our opinion, ECAF should only cover systemic cases.

Like many block producers, we are developing our code of conduct, which will be consistent with EOS Constitution, to clarify our core values, principles and roadmap. We will follow ECAF recommendations insofar as they are not the result of coercion by some members, do not violate Constitution or our values, and processes are objective and transparent.

Finally, we will always strive for the most decentralized and impartial kind of organization.

New version of EOS Constitution proposed by Block.one limits the power of arbitrators to enforce what is defined in the code; as such, we support this proposal.

Long live EOS Community !

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