Breaking News
0

EOS Voter Collusion Scandal Highlights Issues Of Trust And Governance

By Investing.com (Tanzeel Akhtar/Investing.com)CryptocurrencyOct 10, 2018 01:38AM ET
www.investing.com/analysis/how-serious-is-the-eos-voting-scandal-200347581
EOS Voter Collusion Scandal Highlights Issues Of Trust And Governance
By Investing.com (Tanzeel Akhtar/Investing.com)   |  Oct 10, 2018 01:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

In what looks like it could be a blow to one of its key founding protocols, decentralization, the EOS cryptocurrency recently become embroiled in a scandal based on alleged collusion between an Asian cryptocurrency exchange and voters for EOS block producers. Reports have emerged that the fifth most popular cryptocurrency by market cap, valued at nearly $5.4B at time of writing, was in hot water over accusations that the Singapore-based Huobi exchange may have tried to help itself and some other block producers gain votes that would enable them to manipulate and control the verification process for EOS's proof-of-stake system.

In late September, Twitter user Maple Leaf Capital tweeted:

"Recently, an internal excel document from Huobi (one of the BPs [block producers]) 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."

For those unfamiliar with the term BP, block producers are meant to be the decentralized entities that govern the EOS blockchain as well as produce the actual digital blocks that make up the cryptocurrency's blockchain. The accusation claims that Huobi voted for 20 specific block producers and in return, 16 of them voted for Huobi.

Huobi has denied the claims:

“Based on the initial investigation, there were no financial contracts involved between Huobi and any third party. The investigation is still on-going and therefore, we seek your patience and co-operation in this matter.”

Not long after the EOS news broke, Apple quietly removed an allegedly malicious cryptocurrency wallet, EOSIO Wallet Explorer, from its App Store, after some users complained that their EOS tokens had been stolen after they used the app.

EOSUSD 300 Minute Chart
EOSUSD 300 Minute Chart

Despite the negative news, EOS continues to trade in the $5.8 range.

How serious are these allegations? Would better technology governance have insured something like this couldn't have happened?

Issues of Trust and Regulation

Exchanges should be handling custody as if all their coins were physically in user hands, says Joshua Greenwald, CEO of LXDX, a cryptocurrency trading platform aimed at institutional investors.

“Proceeds from forks, proof-of-stake, etc. should be passed onto users as if they were dividends or interest in traditional markets. Exchanges getting paid by claiming technical ignorance has to stop!”

In an unregulated sphere such as the cryptocurrency environment, trust and governance must be practiced says Georg Greve, co-founder and president of Vereign, a blockchain-secured communication company, in much the same way they're part of doing business in more conventional financial markets.

"The principles of good governance do not change with blockchain because the acting parties are always human. It is not possible to solve social issues, such as trust and governance, purely at a technical level. The sooner the ecosystem around blockchain understands this, the sooner it will reach maturity. For EOS, I believe this means recognizing the issue is not fundamentally technical in nature.”

As has been covered here before, the cryptocurrency space has been rife with criminals preying on vulnerable investors. John Jansen, CEO of Deribit, a Netherlands-based Bitcoin derivatives exchange, notes that any part of a blockchain governance system that relies on an assumption of trust will become vulnerable to fraudulent behavior.

“In this case the necessity to trust block producers not colluding causes a huge potential issue. If votes are really worth something, one way to solve this governance problem would be to set up a public bidding process for the votes. In such a system Block Producers would advertise and pay a percentage of their return to all their pledged tokens. Market forces would take over and collusion between Block Producers would not make sense anymore.”

The EOS community is up in arms as a result of these allegations, with some mentioning that the EOS software and governance were perhaps too primitive at launch, points out Harsha Cuttari, CTO of AQUA Intelligence, an all-in-one property management system.

”The current governance model of EOS allows for block producers to be financially incentivized to cheat the system. Even though EOS GO has said many times that it would be out of integrity for block producers to pay for votes —here we are with these allegations. We cannot assume the BPs operate independently and with community goals in mind. Vitalik Buterin's concern echoes in this current situation as he articulated the vulnerability to vote buying before EOS launched.The community already suspected the block producers do not do all the things as required per their agreement and even if Huobi is not purchasing votes now, someone eventually will.”

Cuttari notes that several things must happen in order for EOS's developers to address the community’s concerns. The major criteria: transparent governance with a clearly-written and easy to understand constitution. With these in place, independent third party audits can be introduced to check for security, infrastructure and even spending . BPs would then have a responsibility to the community to be as transparent as possible.

Another factor that would help, adds Cuttari, is having location diversity, something many have mentioned before. Twitter user Maple Leaf Capital noted that at least 12 of EOS's 21 major BPs were currently controlled by Chinese entities. Having BPs placed in a broad variety of geo-political climates would assure additional diversity and could increase cooperation without fostering collusion.

EOS Voter Collusion Scandal Highlights Issues Of Trust And Governance
 

Related Articles

EOS Voter Collusion Scandal Highlights Issues Of Trust And Governance

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Erik Osinga
Erik Osinga Oct 10, 2018 8:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
IF you really want to look at a coin that seems to have done the best as respect to Governance than look no further than the coin that actually created the first ever and still function DAO...The name of this coin is Dash
Reply
0 0
Leo Ks
Leo Ks Oct 10, 2018 8:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I’d say its name is Tezos.
Reply
0 0
Navin Shende
Navin Shende Oct 10, 2018 8:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yes I can right
Reply
0 0
Dennis Droushiotis
Dennis Droushiotis Oct 10, 2018 7:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
EOS is going to continue to gobble ETH market share.
Reply
2 0
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email