The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
Blockchain governance is tough .
That’s the sole reliable conclusion to draw from the chaotic, contentious rollout of EOS, the $4 billion project whose consensus model was touted as how to enable smoother governance and scalability during a blockchain industry beset with conflicts and decision-making gridlock.
First, it took longer than expected for the EOS community to elect the network’s 21 block producers, which are paid $10,000 each day to validate transactions. Then, the EOS Core Arbitration Forum, a body found out to resolve disputes, sent out a memo ordering those block producers to freeze 27 supposedly sketchy-looking accounts.
Concerns immediately arose that the ECAF was arbitrarily censoring participants, inevitably raising accusations of centralized control and putting chain immutability into question right at the outset. As an ECAF representative threatened lawsuits against one block producer, and as a separate fake document purporting to be from the arbitration body appeared, one ny block producer threw up its hands and refused to participate.
Now, after Dan Larimer, CTO of founding company Block.one, called the ECAF’s order an error and argued that its handling of the matter did more harm to confidence in EOS than any lost funds that the suspect accounts may need stolen, his company wants to rewrite the whole EOS Constitution.
Just three weeks into the launch, the spat has provided a popcorn-worthy spectacle for commentators on Crypto Twitter. But, actually , as how to assess on-chain governance mechanisms like EOS’s delegated proof-of-stake (DPOS) consensus mechanism, there’s tons more at stake (excuse the pun) than entertainment.
Along with saga at Tezos, another very well-funded on-chain governance project, which was rocked by disputes between the founders and therefore the first director of the inspiration overseeing its $243 million fund , the EOS disaster offers a robust reminder of how entrenched human mistrust are often difficult to beat .
To offset the mistrust there must be a sufficient store of shared community trust in whatever mechanism or institution is in situ to resolve those problems. That’s the case whether the general system is described as “decentralized” or “centralized.”
The problem is that when large amounts of cash are involved, forging that common store of trust within the dispute resolution mechanism is particularly difficult.
The best laid plans…
I’m actually sympathetic to the creative efforts of the Tezos and EOS founders – also as those of a number others, including Decred, NEO and Cardano. In exploring protocol-level solutions like voting and staking to enable some level of internal, functional democracy, they’re trying to assist blockchain communities make orderly decisions on important changes and upgrades and to avoid the contentious disputes and chain splits that have rocked bitcoin, ethereum et al. .
I’m not willing to mention that on-chain governance won’t ever work – or that our only choice is to either accept disorder, acrimony and gridlock or address external legal solutions that expose user identities and need a dependence on external government bodies. But i feel we are becoming a really clear demonstration that it’s very difficult to style the proper algorithm to beat the toxic mix that cash and mistrust create.
We should note that the ECAF, which was formed within the midst of forum discussions among EOS community members before the launch, was conceived as an answer to those problems. Its existence reflects a recognition that disputes would arise which an off-chain mechanism was needed. But it had been very poorly put together, with unclear rules and processes for arbitration.
The question is: wouldn’t it are better designed, more capable of earning the trust of all participants, if the community wasn’t founded on a sort of utopian-like blind faith within the DPOS mechanism?
In other words, the basis of the matter could also be the unreasonable claims being made by on-chain governance proponents.
As it is, the reliability of the DPOS mechanism was tested by the dimensions of the EOS money pot. the enormous fundraise fueled expectations of high valuations, which successively stoked greed and mistrust. It fed the perception, right or wrong, that those that obtain power and influence inside the EOS network could be ready to game the system.
Larimer, others from Block.one and lots of EOS fans swear by the varied checks and balances intended to guard users from overly powerful block producers: that it requires agreement among 15 of the 21 block producers to reverse transactions; that ongoing voting holds them to account; which there’s always the choice (or threat) of a fork.
And yet, despite all that, the system has clearly generated mistrust and, ultimately, dysfunction.
And that’s not for nothing. While he may are biased against EOS, there was sound logic to ethereum founder Vitalik Buterin’s warnings during a blog post three months ago of the danger of bribes and collusion among block producers operating across different jurisdictions. Money and power breed corruption. Always.
Buterin’s main point, one that he made in support of his Ethereum developer colleague Vlad Zamfir’s critique of Coinbase co-founder Fred Ehrsham’s impassioned plea for protocol-based solutions to bitcoin’s and ethereum’s problems, was that on-chain governance won’t work.
In terms of where the technology currently stands, i feel that’s true. The wellspring of trust in these mechanisms isn’t yet strong enough to beat the matter of cross-user mistrust.
The solution, for now
So, what to do? Bitcoin’s drawn-out block-size debate and therefore the contentious hard fork that resulted from it presented a picture of dysfunction that undermined mainstream confidence within the technology.
And in ethereum, where there features a long been a clearer sense of identifiable leadership, Buterin is himself often accused of getting an excessive amount of CEO-like power. (The slide in ether’s price when he was rumored to possess died during a car crash illustrated the issues of perceived centralization that have persisted around ethereum ever since Buterin et al. supported the hard fork to rescue funds lost within the DAO attack of 2016.)
Well, for now – and this may be anathema to crypto-anarchists and a few blockchain libertarians – the answer likely lies in recognizing the bounds of the algorithms and relying instead on human-led, legally defined institutions for dispute resolution and off-chain governance.
While I even have been a continuing critic of permissioned blockchains, especially of the danger that the consortia that run them can act as colluding gatekeepers to curtail innovation and hold users hostage, they’re popular among companies precisely because they operate within a recognized legal structure that they’re comfortable with. Legal certainty is effective .
The failure of The DAO taught us that code isn’t law. By defining it as a system during which the software superseded all other legal recourse, that project’s founders created a model that allowed the thief who destroyed it to argue, quite reasonably, that he or she wasn’t acting illegally. Yet those that lost money wanted recourse, which is how ethereum ended up with its hard fork.
The solution, for now, lies in forming well-designed, trusted mechanisms that reside within a predictable legal framework and which may resolve disputes through fluid, lightweight arbitration instead of being caught up in courts. They carry the load of law, but attempt to avoid the method of it.
Key here are the words “well-designed, trusted.” Lightweight, off-chain arbitration may need been the intent of these who created the ECAF, but it had been not well-designed and clearly hasn’t earned the trust of all actors. It’s not at clear how social consensus was formed in support of it.
Here, the internet’s governance offers a model, as father-and-son team Don and Alex Tapscott laid call at a useful assessment of the outlook for blockchain governance for the planet Economic Forum.
The Internet Corporation for Assigned Names and Numbers (ICANN), the web Engineering Taskforce (IETF) and therefore the Worldwide Web Consortium (W3C) have worked fairly well as trusted avenues for governance and dispute resolution. Understandably, the United States’ historical influence over ICANN has been a bone of contention. Yet, even so, the multi-stakeholder structure of those organizations has mostly assuaged concerns that anybody party, government or otherwise, has excessive power of the principles by which internet land is managed.
Blockhains, with anti-corporatist, decentralized principles at their heart, can’t and shouldn’t attempt to emulate the method by which these internet bodies were formed, which relied upon the bargaining positions of various governments in international forums just like the United Nations . But there’s still much which will be done by standards bodies and NGOs to forge consensus among a spread of stakeholders during this industry. (The W3C and other standards bodies are already seeking to determine authority here.)
Does this mean immutability and censorship-resistance are impossible? Yes, perhaps, if you think that in absolute terms. But these were also aspirational objectives, not absolutes.
What matters may be a system that works within the service of the widest possible array of users. And, as of now, on-chain governance models like that of EOS clearly don’t.