Recently there has been growing concern over the state of the EOS consensus structure.
EOS uses Delegated Proof of Stake (DPoS), an offshoot of the Proof of Stake (PoS) system first outlined by EOS founder Dan Larimer. Unlike Proof of Work (PoW) which requires computer nodes to solve complex cryptographic puzzles to validate transactions which is extremely costly and consumes a lot of energy, PoS allows network participants to validate transactions by staking an amount of cryptocurrency and then validating under the terms that fraudulent behavior will result in the loss of the stake.
In PoS, the validators are pseudorandomly selected based on a number of factors, such as the size of their crypto holdings. In DPoS, however, the validators are elected – and therein may lie the problem.
EOS Block Producer Controversy
A recent Medium post by ‘Blockchain Kid’, creator of EOS block producer (BP) rating platform mereo.io, cried foul play after analyzing the interactions between various BPs in the network.
EOS is designed so that only the top rated 21 BPs can produce blocks, and the nature of DPoS is that the BPs are supposed to be trusted and well-known, well-established members of the community. If you just saw the word “trusted” and thought to yourself “isn’t blockchain supposed to be trustless and decentralized?”, well, you’ve made a good point.
BlockchainKid states that he’s seen “many excellent BPs, like this one which, by almost all accounts, add tremendous value to the EOS community are currently being squeezed outside of the Top 21. At the same time, BPs that lack basic governance disclosures, have added less in terms of value-add tools for the community, or who have only formally announced their candidacy within the last two weeks, are experiencing incredible voting support and have a place among the Top 21.”
What is going on? It’s a little concerning, isn’t it?”
It is indeed concerning that BPs with just two weeks of candidacy could manage to get into the top 21 and begin choosing which transactions to validate. BK writes in his article that there are, by his estimation, 15 to 20 EOS accounts or entities that essentially call the shots when it comes to voting in the top BPs.
The accounts make up half of the 250 million votes currently being cast on the network (with each vote backed up by 1 EOS token). Obviously, if they were to start covertly working together the integrity of the entire network would be compromised and open to the DPoS version of a 51% attack.
The identity of the account owners is unknown.
Blockchain Kid writes:
“When you consider the disparity in token ownership that clearly exists, coupled with what could only be described as “highly correlated voting patterns” among groups of “similarly situated Block Producers,” which results in a Top 21 that excludes some of the top BP contributors, we must ask ourselves: is this system currently working the way we wanted it to?”
He goes on to express his dedication to the network, and his hopes that it can avoid further centralization along with suggestions as to how to do that. The issue remains that a thought leader in EOS block producers has openly stated that he believes they are colluding to centralize the network – and he’s not the only one.
An EOS investor by the handle Maple Leaf Capital also posted about the appearance of a collusion conspiracy among the EOS elite, writing a series of tweets which leak an internal document from EOS block producer Huobi.
Maple Leaf Capital alleges that the EOS BP community is engaging in collusion and bribery, and that the proof of this is in the leaked document:
Recently, an internal excel document from Huobi (one of the BPs) is circulating in the Chinese community. This file documents the collusion, mutual voting, and pay-offs that occur amongst the Chinese BP community. I’ m working on getting the file.
— Maple Leaf Capital (@MapleLeafCap) September 26, 2018
In allegation 2, Huobi votes for eosiosg11111, cochainworld, and eospaceioeos in exchange for 170, 150, and 50% of the returns respectively, as shown below in the tweet. pic.twitter.com/cO2HEkTqnD
— Maple Leaf Capital (@MapleLeafCap) September 26, 2018
The document in the image above shows what Maple Leaf Capital believes to be evidence of mutual voting in which Huobi votes for 20 BP candidates, 16 of which voted for Huobi.
MLC goes on to state that Huobi specifically voted for 3 other BPs in exchange for a percentage of the voting returns, and pointed out that 12 of the 21 BPs are based in China which the investor views as suspicious and potentially compromising.
Suggestions for Improvement
Given that EOS is worth over $5 billion, the allegations are serious and could have devastating ramifications over time if left unchecked.
Blockchain Kid suggested moving away from the 1 EOS = 1 vote mechanism and switch to 1 entity = 1 vote, a method which may soon be possible if the rumors are true that Dan Larimer’s Block.One firm has almost completed research into creating a biometric identity system.
By identifying individual biometric identities on the EOS network, the number of votes could be reduced to a fraction of the current figure of 250 million, something which would make voting more transparent, easily traced, and balanced.
MLC, on the other hand, advocated increased community awareness and higher voter participation as well as some sort of punishing mechanism for bad actors on the blockchain.
It’s worth noting that the allegations should perhaps be taken with a pinch of salt. Marshall Long, seemingly the head of one of the firms acting as a BP accused of mutual voting by MLC, claims that there are errors in the recent accusations leveled against the BPs.
Tweeting to MLC, Long stated:
“Some of this has been disproven already. Huobi voted for us. But we aren’t even a Chinese company. Additionally, I never voted for them. This article states BPFish is Chinese. I’m as white as they come. Nobody in my company even lives in China. Not sure all of it is accurate.”
As with anything in the crypto space, due diligence is of paramount importance. The claims that EOS BPs are colluding in secret and in blatant breach of the DPoS system are not 100% verified, but they certainly merit further investigation and community vigilance.
The issue with DPoS is that it leaves the network wide open to corruption and centralization. Blockchain was invented partially to help reduce the corruption that is inherent in all human value system.
While potentially impossible to eradicate completely, DPoS perhaps leaves it far too easy for the big fish to group together and vote themselves into a mutual position of power where they could reap the financial rewards of validating transactions and control the entire network in a small, centralized group.
One of under half a dozen companies, for example.
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