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EOS Community Is Challenged After Node Announces Financial Rewards for Votes

EOS’ governance model has attracted another round of criticism.

This week, the EOS blockchain protocol angered decentralization proponents yet another time. Specifically, Starteos, one of EOS’ officially sanctioned Block Producers (BPs), appeared to publically offer its token holders financial rewards in return for their votes.

Starteos’ vote-buying tendencies seem to fall in line with previous scandals centring around EOS: This year, the blockchain protocol reversed previously confirmed transactions and started an internal investigation after Huobi, its other BP, was accused of running a corruption scheme, among other things.  

Brief introduction to EOS and its key features

EOS.io is a blockchain-powered smart contracts protocol for the development, hosting and execution of decentralized applications (DApps). It was launched in June 2018 as open-source software, while the first testnets and the original white paper emerged earlier in 2017. The platform was developed by block.one, a startup registered in the Cayman Islands and lead by Daniel Larimer and Brendan Blumer.

EOS has raised the most funds during its Initial Coin Offering (ICO): The startup managed to gather around $4.1 billion worth of investments, after fundraising for nearly a year. That number remains unmatched to date.

The protocol is supported by the native cryptocurrency, EOS — currently the sixth largest crypto by total market cap. Those tokens can be staked for using network resources either for personal use or leased out for developer-use — basically, EOS.io attempts to represent a decentralized alternative to cloud hosting services.

EOS employs a consensus model called delegated proof-of-stake (DPoS). Essentially, that means that its investors are rewarded with voting power and decide who gets to mine the EOS blockchain.

Hence, the EOS ecosystem rests upon at least two major entities: the EOS Core Arbitration Forum (ECAF) — effectively its ‘judicial branch’ — and BPs, who produce blocks on the EOS blockchain — just like miners do within the Bitcoin (BTC) blockchain.

BPs earn EOS tokens produced by inflation — according to some estimations, top EOS BPs obtain around 1,000 tokens per day. They are elected through the constant voting process, and their number is capped at 21 — consequently, the top is fluid by design, and BP candidates who earn enough votes can replace the BPs in power at any minute.

Starteos: Major BP’s explicit vote buying

Starteos is a startup based in Chengdu, China. According to its website, the company “entered blockchain industry [sic]” in 2013.  This year, Starteos has reportedly issued at least two products: the self-titled digital wallet and ‘Memory Box,’ a “one-tap access” cold-storage wallet. Currently, Starteos is the fourth-largest BP, as per eosnetworkmonitor data, meaning that it gets a large portion of the BP revenue.

On Nov. 27, Starteos published a Medium post titled “We Gonna Share BP Proceeds With You — This Is the Way We Warm You Up in This ‘Winter’!” In it, the startup team claimed that “after delegating Starteos.io as proxy, you could get continuous and stable EOS revenue.”

“The ‘winter’ of cryptocurrencies has come. How much faith do you left to have [sic]?” the post reads, continuing:

“Now, Starteos is still gonna stay with YOU, our most important and best friends! And we [are] gonna share the proceeds with you and make [it] through the difficulties together.”

Further, the Chinese startup outlines an instruction on how to claim the benefits: After selecting Starteos as a proxy, users can pick “stable income,” “mining” revenue mode or the “random revenue” mode, where they play “Lucky Fruit Slots Machine” with game tokens to get “EOS revenue.”

Explicit vote buying seems to contradict decentralized and democratic blockchain policies advocated by the EOS administration and the project’s original white paper. Its co-founder and  chief technology officer, Daniel Larimer, wrote soon after EOS mainnet went live:

“EOS is fundamentally different from other governments and blockchain communities in that its community wishes to operate at the highest possible ethical standard of voluntary consent and non-violence.”

More specifically, Starteos’ winter promotional campaign seems to violate Article IV of the current EOS constitution titled “No Vote Buying,” which states the following:

“No Member shall offer nor accept anything of value in exchange for a vote of any type, nor shall any Member unduly influence the vote of another.”

Community reaction: Calls for unvoting, constitutional reform

Expectedly, the crypto community, which traditionally values decentralization, was not happy about an EOS BP openly buying votes.

On Nov. 8, weeks before Starteos published a Medium post explicitly describing how users can claim some of the revenue, EOS investor Maple Leaf Capital pointed out that Starteos was launching a slot machine DApp, where users allegedly could set Starteos as a voting proxy to obtain in-game tokens. According to the original article describing the DApp, the rewards to the gamers would come directly from games.eos’s BP reward, which, in turn, is owned by Starteos.

“It may not be bad-intentioned, but it looks awfully close to transferring block-producing reward value to its voters, with a thin veil of gamification & probability attached to it. This could set a bad precedence and deserves some debate.”

Later, on Nov. 29, the investor announced it would discontinue voting for Starteos, arguing that “swapping block reward for votes in gaming form is detrimental to the long-term economic value for the EOS.”

Steemit user theawakenment stresses that games.eos is holding a paid position, being ranked at the 66th position (game.eos has since moved up to the 50th place). He wrote an open letter after failing to receive a response from the Starteos administration:

“If other BPs copy what Starteos is doing and launch a second or third BP themselves, we will soon end up with the large BPs being owned and run by the same handful of owners.”

After the letter was published, a Starteos representative reportedly did message him:

“[They] admitted to creating the games.eos account and admitted to ‘collaborating’ with games.eos, but they told me they had different owners, which does not match up with what they have stated on their website.”

Australia-based crypto persona Crypto Tim, who covers mostly EOS-related news, published a video titled “EOS BP Starteos Are Vote Buying,” which gathered some commentary from the community on Reddit and YouTube. On Twitter, he called for Starteos “to be removed as a Block Producer.”

Some of the BPs have expressed their views on vote buying as well, albeit without directly mentioning Starteos. On Nov. 27, EOS New York, which is currently the eighth largest BP, wrote that “the EOS constitution is simply not good enough and we deserve a clear document that outlines our basic system of governance,” and then shared their proposal. After being asked in the comment section whether the document features any restrictions on vote buying, EOS New York stated, “There are not. We have it now and we have BPs violating it. No point.”

Moreover, Starteos has reportedly been unvoted by at least one BP, Bulgaria-based EOS Titan. Nevertheless, Starteos continues to hold the third/fourth positions in the BP ranking, which suggests that it is still largely supported by other BPs. The list of Starteos supporters can be monitored via a resource powered by EOS Titan — according to their data, Starteos’ largest ally is Huobi, which has been previously accused of running a mutual voting rig.

Source: EOS Titan

Price drop

The EOS vote-buying scandal has correlated with the token’s massive price drop. While it followed an overall bearish market trend, the losses EOS/USD experienced were more significant comparing to other top coins. EOS is trading at $2.36 as of press time, down around 25 percent over the past seven days.

Source: coin360.io

Previous signs of centralization in the EOS protocol

EOS’ model of governance has attracted controversy before: Just a few weeks ago, in November, a screenshot showing an ECAF moderator reversing transactions — which had already been confirmed — was posted on Reddit and gathered hundreds of comments.

According to Reddit user u/auti9003, a dispute allegedly involving a phished EOS account was referred to one of the platform’s “arbitrators” Ben Gates, who decided to reverse transactions that happened without the owner’s permission. This, the user noted, involved undoing transactions which had already received network confirmations.

That move outraged decentralization maximalists, as Reddit responses mostly claimed that EOS had failed to prove its use case versus other, more traditional centralized structures.

“Why would anyone use this over a bank account and traditional legal system?” the most popular comment read, adding:

“These guys raised [$4 billion] to recreate the legal system using a token that is neither censorship-resistant, nor immutable.”

Moreover, in early October, allegations arose accusing the platform’s major BPs — including Chinese crypto exchange Huobi — of “mutual voting” and “collusion.”

Essentially, an alleged leaked Huobi spreadsheet suggested that main EOS nodes were involved in mutual voting along with payoffs to remain in power of the EOS blockchain and keep their profits. Interestingly, Starteos was also listed in the document.

Soon after, Block.one — the developer of EOS — published a statement, saying it was “aware of some unverified claims regarding irregular block producer voting, and the subsequent denials of those claims.” Nevertheless, there was no further update on the matter, while Huobi remains EOS’ top BP as of press time.

Further, in June, another scandal occurred when EOS BPs overrode an ECAF decision and froze seven accounts associated with phishing scams after the arbitration body failed to promptly come up with a response. The ECAF later retroactively ordered the accounts frozen, but the BP conference call-based decision caused some to question EOS’ decentralized system, and to label the move as “power abuse.”

Less than a week after, another ECAF order to stop processing transactions involving 27 more addresses surfaced. Interestingly, it lacked any explanation for blocking the addresses, promising to do so on a later date.

That attracted another round of harsh criticism from the crypto crowd, and, after an apparent fake ECAF order began to circulate on social media several days later, some BPs — notably EOS New York — announced that they would suspend execution of any such orders, as they couldn’t tell if they were legitimate. Yet again, the ECAF and BPs struggled to coordinate their action, and that many decisions on EOS blockchain were handled by centralized entities.

On Nov. 1, more criticism of EOS’ governance model arrived, as blockchain testing company Whiteblock published results of “the first independent benchmark testing of the EOS software.” Essentially, the investigation came to several conclusions about EOS, the most bold of which was that “EOS is not a blockchain,” but “rather a distributed, homogeneous database management system” because its transactions were reportedly “not cryptographically validated.”

Additionally, the research results showed inaccuracies in performance claims. In July, EOS CTO Daniel Larimer tweeted that EOS was performing 2,351 transactions per second (TPS) — Ethereum, for comparison, can process around 15. The Whiteblock report, however, showed that with “real-world conditions” of round-trip latency and 0.01 percent packet loss, EOS performance was below 50 TPS, “putting the system in close proximity to the performance that exists in Ethereum.” The investigation concluded that “the foundation of the EOS system is built on a flawed model that is not truly decentralized.”

Similarly, a report published by Hong Kong-based peer-to-peer cryptocurrency exchange BitMex in late November suggested that EOS resembled a “distributed database system” rather than a blockchain-powered network. The document is no longer available for unknown reasons, but has been covered by various media outlets before going offline.

Still, EOS’ Daniel Larimer has previously confirmed that his company does not aim to be decentralized. In an interview with YouTube blog “Colin Talks Crypto,” which aired on Oct. 3, Larimer clarified his vision:

“Decentralization isn’t what we’re after. What we’re after is anti-censorship and robustness against being shut down.”

Cointelegraph has reached out to various Block.one representatives as well as Starteos for further comment, but none of them have replied to date.

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Losing the Lambos: It's Time to Get Serious About Crypto's Big Questions

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


“Crypto in crisis.”

Mainstream press outlets covering battered crypto markets have frequently invoked that phrase in recent weeks. For those of us who’ve followed the cryptocurrency scene for five years or more, the natural retort is: “When hasn’t it been in crisis?”

I would suggest that crisis – or at least relentless, chaotic drama – is the natural state for an open-source technology that engages a diverse, global, leaderless community in exploring an idea that promises to reorganize the fabric of our economy.

The outcome of this grand experiment is unknowable. But if we accept that the prospect of replacing 5,000 years of centralized record-keeping with a decentralized model of computerized consensus is rife with transformative potential, then we must also accept that it will generate wild, impossible-to-measure predictions, along with rampant speculation and hype.

By extension, these will frequently also generate fear and disappointment, and, unavoidably, price volatility.

The other thing you’ll hear from crypto “veterans” – yes, just five years in bitcoinland qualifies you for that title – is that crisis, and bitcoin’s capacity to survive it, is precisely what proves its worth.

The meme most frequently used to describe this resilient quality is that of bitcoin as the honey badger. But I prefer Andreas Antonopoulos’s “sewer rat” analogy: bitcoin as a tough-as-nails subterranean rodent that has proven it can take what the world throws at it.

Our increasingly distributed, fragmented economy needs open, self-healing systems that can withstand threats. The fastest way to build such resiliency is to expose the system to those threats so that it generates self-correcting counter-responses. Bitcoin, unprotected by a corporate IT team’s firewalls, rises to that challenge.

About here you might assume I’m going to smugly argue that the latest round of crypto critics are doomed to the same fate as past naysayers, who were proven wrong by the price recoveries that occurred after prior moments of “crisis.” (These newcomers would include former Paypal CEO Bill Harris, who told CNBC this month that he saw bitcoin going to zero.)

But that’s not what this column is about.

History is not prologue. The fact that bitcoin eventually recovered from the low of $210 it hit one year after its late-2013 peak of $1,150 is no guarantee that it will rebound from its current price near $6,500 and revisit its late-2017 peak of $19,783. And, yes, it could definitely go lower.

Fewer Lambos, more education

Rather, what I’d like to talk about is how the crypto community should use this moment to forget about price fluctuations and instead engage the world in a proper discussion about blockchain technology’s potential.

Let’s have less “to the moon” and “Lambo” talk and more discussions about the promise of peer-to-peer exchange, smart contracts and decentralized applications.

It’s time to ask questions about what we want this movement to be when it grows up. What do we want cryptocurrency and blockchain technology to achieve? And embedded in that is a question about who we are. As it stands in 2018, what does the crypto and blockchain community represent?

Some serious crypto developers might submit that bothering oneself with such flimsy questions of identity is no better than obsessing with price levels, when the most important thing they need to do is write code and develop real, battle-tested functionality.

To be sure, a post-bubble period, when the speculators’ distracting hype has dissipated, is a great time for developers to get work done. It’s no coincidence that Segregated Witness (Segwit) and the Lightning Network were developed during the prior bitcoin price lull. The ERC-20 ethereum token standard was also forged in that period, paving the way for ICO boom of 2016-2017.

But the involvement of others in the advance of this technology must also be acknowledged – even those from the enterprise world, the corporate community that hardcore crypto folks tend to dismiss. The blockchain community’s identity is complex and multi-faceted.

Learning from private blockchains

During the previous bitcoin market hiatus, while bitcoin developers worked on scaling solutions amid a different kind of “crisis” – the block size debate – a wave of non-developer newcomers started getting interested in blockchain technology: lawyers, bankers, supply-chain managers and regulators.

Rising to serve their interests were a variety of permissioned blockchain platforms, including IBM’s Fabric, introduced within the Hyperledger project, and the R3 consortium’s Corda.

Fast-forward to 2018 and, while cryptocurrency investors lick their wounds and wonder what the future holds, permissioned enterprise solutions are marching ahead, moving from proofs-of-concept to real-world implementations.

In just two recent examples, the World Bank teamed up with Microsoft and the Commonwealth Bank of Australia to issue its first blockchain-based bond and Maersk and IBM announced that 94 firms have signed up for TradeLens, their supply chain, shipping and logistics platform.

Many crypto developers dismiss these enterprise-driven private blockchain solutions, which typically employ pre-bitcoin consensus solutions such as practical byzantine fault tolerance and a trusted entity to administer the network, as a retrograde solution that’s not censorship-resistant. Like them, I believe permissioned blockchains will ultimately be proven inferior to permissionless systems, much as the open internet’s greater access to innovation and bigger network defeated private companies’ walled-garden “intranets” in the 1990s.

But I also think the work being done on these permissioned blockchain solutions is immensely valuable.

Until scaling solutions such as Lightning and sharding are working at full capability, permissionless blockchains can’t introduce decentralized applications at scale with anywhere near the ease of permissioned systems, which have fewer governance and computational limitations. In the meantime, there’s a great deal of learning that we can – indeed, need – to take from how these real-world private blockchain implementations play out.

Consider what the TradeLens project might tell us. What standards and practices will shippers, manufacturing companies and customs agents adopt as they integrate smart contracts to coordinate the movement of goods across multiple jurisdictions?

Finding common ground

This cross-community learning is precisely why the “who are we?” question matters.

Believe it or not, across a diverse and even divisive community – public versus private blockchains, BTC versus BCH, maximalists versus everyone else – a common vision does exist. We just need to define that shared identity more constructively than the one that many outside of the community assign to it: that of a nerdy, fanatic cult.

(An aside: one response to Bill Harris’s derisive comment about the “cult of bitcoin’s” false claims – “that it’s instant, free, scalable, efficient, secure, globally accepted and useful” – is to point out that in post-AD Rome, Christianity was a cult. Also, why do people who made their living from the constant improvement of the internet assume that crypto technology is doomed to a static existence? Dismissing bitcoin because of its limited scalability and adoption in 2018 is like attacking the Internet in 1995 because 28 bps modems were too slow to enable meaningful connectivity – as if no engineers see the problem or are working on it. Sheesh.)

How do we get society to go beyond these simplistic representations of the blockchain community? What is the core commonality that matters within this wide tent?

To me it the common recognition that decentralized consensus mechanisms that enable groups of people to collectively assess the veracity of shared information can help society more efficiently overcome the cost of trust, an age-old human problem. They all see in this new model big opportunities to disintermediate value exchanges of all kinds and, in doing so, to open markets and unlock innovations that produce better outcomes for everyone.

Blockchains are a complex, multifaceted social technology. As such, achieving its full potential requires different types of expertise. Of course, we need a great deal of protocol development, but also UX and application design. And beyond the engineering realm, we need legal reforms, governance solutions, standards agreements, and marketing and education.

Here the 2014-2015 price lull is also instructive. At that time, bankers and lawyers, their interest piqued by the market mania they’d witnessed in 2013, took early moves toward comprehending blockchain technology. In doing so, they spurred a valuable societal debate on the challenges and opportunities it presents.

Even as a few ham-fisted regulatory solutions, such as the BitLicense, emerged and as banks undertook a clumsy, misguided attempt to co-opt “blockchain without bitcoin,” the opening of a mainstream conversation enabled sensible advocates for the technology such as Coin Center and the Chamber of Digital Commerce to establish an invaluable dialogue with policymakers and society at large.

I see potential to do even more at this time, as securities regulators grapple with how to define and manage token markets and as wide-membership industry initiatives such as the Token Alliance come with up useful frameworks for self regulation.

A time like now, with the bubble burst and the market mania subsiding, is the ideal one in which to undertake this kind of multi-stakeholder engagement.

Lamborghini engine image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ripple’s XRP the least Loser in the Last 7 Days & Daily Life Uses

The San Francisco based crypto-startup Ripple, since its debut, is close connected with deviation of traditional cryptocurrency philosophy. The delivering of traditional banking infrastructure solutions for efficiency, the centralized nature of XRP and the team’s comments in favor of the fiat standard has made the community engage a hate sentiment towards the coin.

XRP

As commented by the CEO of Arrington XRP Capital – Michael Arrington, saying that indeed the only thing in common and that everybody agrees on in the cryptoverse is that they all hate the token.

But, this does not impact the company at all to grasp success as they are offering financial solutions to traditional banking systems and ordinary users also.

After partnering with Wirex, the company was able to add XRP token support to its Visa card. Subsequently, the number of sign-ups and transactions on the platform had a considerable boost.

Another user mentioned that XRP is an excellent tipping option. This case of microtransactions is essential because many cryptos have been attacked because of the high costs of uploading a transaction to the blockchain. The use of XRP allows for fast and cost-free transactions, providing an excellent opportunity for adoption in real-life scenarios.

The Crypto-Market

The last week has been a constant violent sell-off for the digital crypto-assets as even the leading coins by market capitalization are over 20% in the red. The only that is in a single digit loss is Ripple’s famous XRP against the US Dollar as it has been able to stand in mid of the two major mark $0.40 and $0.50 [per time of writing $0.4400]. Other leading coins like BTC or ETH are dangerously surfing just above the important holding levels of $7,010 and $406.50.

Source: coinmarketcap

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NO to Bitcoin SegWit2x – Litecoin Creator Charlie Lee is Against

The founder and creator of Litecoin [LTC], very respected cryptocurrency-community figure Charlie Lee – supporter of Bitcoin for a long time, via twitter has showcased his concerns related to SegWit2x for the pursuit of solution by a group of companies which are in change of BTC protocol with no user consensus:

“Miners and business cannot change Bitcoin without user consensus. So today, to show my disapproval, I’m adding [NO2X] to my name.”

First, the upgrade was suggested to increase the block size of Bitcoin by 2MB, followed up by the activation of the Bitcoin Core development Team’s scaling and transaction malleability solution SegWit2x (Segregated Witness) – by Barry Silbert-led Digital Currency group which followed as a solution to the Hong Kong agreement.

However, the majority of the Bitcoin community opposed the activation of SegWit2x, due to the lack of support from Bitcoin Core developers and users. Acknowledging the decline in the probability of the Bitcoin community agreeing to the SegWit2x proposal, the companies behind the movement proposed a hard fork execution in November, to create a separate Bitcoin-based Blockchain network, like Bitcoin Cash.

By many this event taking place is quite odd as the timing of the suggestions is the issue while a centralized group of businesses are trying to change the Bitcoin protocol without the agreement of BTC core developers, the open-source development community, the industry and users. Adding on that, the SegWit activation is still on its early phases of adopting while it has showed quite impact on the network. While only five percent are Segregated Witness enabled of the network, the block size decreased from 1MB to 0.86MB and the mempool from 150 mln bytes to lower than 10 mln bytes.

The substantial decline in the size of the Bitcoin mempool is especially important to consider, because the mempool is the holding area for unconfirmed Bitcoin transactions. For the past month, the size of the Bitcoin mempool has remained below 15 mln bytes, less than 10 percent of where it was a month ago.

Worthy to mention, Bitcoin pioneer and Blockstream CEO Adam Back in 2015, showed his support towards increasing the BTC block size. This represents that not all Core developers could be against increasing the Bitcoin block size.

But, it is vital to increase the Bitcoin block size when necessary. SegWit has already scaled the Bitcoin network at a similar rate, as a 2MB block size increase and still at five percent capacity. If it reaches 50 percent and 100 percent in the upcoming months, the Bitcoin Blockchain will scale even further.

From that it is easily concluded that there is need to let SegWit expand out and play out, and then when it is absolutely necessary, follow the idea of increasing the BTC block size. That is why it feels odd to implement an important update on the protocol when Segregated Witness was just implemented and is still in the progress of adoption.

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