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Plz No Cat: The Future of Crypto Disputes Is Being Decided By Doges

Could you sneak a cat past the doges?

That’s the idea behind a new game launched by Kleros, an ethereum-based startup that raised $2.5 million in the first round of its crypto token sale in July. Called “Doges on Trial,” the game is designed around the principle of crypto-economics: the theory that a properly designed system of incentives based on cryptocurrency tokens will yield the desired user behavior.

In this case, Kleros wants to incentivize people using the platform to curate a list of images … of doges.

For the uninitiated, “doge” is a meme of an apprehensive-looking Shiba Inu. It’s captivated the internet, giving birth to a particular method of mangling English (“so scare,” “why this happened”), as well as a dedicated cryptocurrency, dogecoin, whose community is known for its playful antics.

So, while you might expect “Doges on Trial” to be much the same – just a fun activity to bring some lightheartedness to crypto – actually Kleros has much bigger, more serious use cases in mind for its decentralized dispute resolution protocol.

For instance, spotting fake news, resolving disputes on gig economy and e-commerce platforms, and helping ratings platforms curate their lists are all within the scope of Kleros’ mission.

The company’s founder and CEO Federico Ast told CoinDesk:

“We want to fill this need for the crypto ecosystem that’s going to be very useful for mass adoption.”

And needed it is. Recently dispute resolution, or more broadly governance, has been top of mind for many blockchain entrepreneurs and enthusiasts – especially for a new rash of protocols, think EOS, whose methods for making decisions that affect many stakeholders are opaque, to say the least.

Rather than building their own dispute resolution mechanisms, though, Ast hopes projects will delegate that aspect to Kleros.

And the way that Kleros, which is participating in the Thomson Reuters Incubator program right now, is proving it has the right crypto economics for the job is by running a cute little game in which users are rewarded for slipping forbidden cat images into a collection of doges.

The goal, Ast said, is “to have as many people as possible coming to test this and trying to break it” through bribery and other methods that bad actors would inevitably try to use against Kleros if it were deployed for higher-stakes purposes.

Remaining relatively quiet about the game that debuted on ethereum’s live blockchain, or “mainnet,” in July, the company is now ready to start communicating the system’s effectiveness to the broader ethereum community, said Ast.

Plz no cat

Backing up, it’s worth noting how the doge proof-of-concept has worked.

Over the course of the past couple months, a few dozen users, mostly investors in the platform’s native token, pinakion (PNK), have submitted more than 100 images for judgment and selection.

It works like this: a user submits their image – a doge, cat or otherwise – to the list along with a deposit of ether, ethereum’s native token. The image sits in limbo for a day, during which time other users can challenge it by submitting an ether deposit equal to the submitter’s.

If no one challenges it, the image is added to the list and the submitter’s deposit is returned.

At the end of the trial (for which no date has yet been set), successful meme-submitters will split a reward of 1 million dogecoin.

If the image is challenged – because it lacks a doge, is a duplicate, or contains a cat – it goes before a jury of three users, who have made a deposit of Kleros’ PNK token.

The jury then makes its decision to reject or approve the image. If you are a jury member that votes in dissent with the majority, you forfeit some PNK tokens, which get redistributed to the majority-voting jurors.

If the meme is accepted, the challenger’s ether deposit goes to the submitter, minus a fee for the jurors. If it’s rejected, the challenger gets the submitter’s ether deposit, also minus the fee.

doges challenged

The submitter of the image can appeal the decision, however, by making another ether deposit. Then, the same process as above repeats itself, but with seven jurors. And after that, the submitter can appeal the decision with a jury of 15.

The reason for increasing the number of jurors with each round of appeals, Ast explained, is that bribing a majority of the jurors gets more expensive.

“It’s going to cost you a lot of money to keep on attacking the system and to win,” Ast said.

One user, Tristan Roberts, tried this route, posting a picture of a cat with an offer to pay jurors 0.3 ether to break the rules. Roberts told CoinDesk that he found it “practically impossible to keep bribing the jurors, [since] the amount of ETH I would win would be less than the amount needed to bribe them.”

doges bribery

“All in all, I’m impressed with how the game theory dynamics worked out; I wasn’t able to break it,” said Roberts.

Although, at least one user does appear to have sneaked a cat onto the list. According to the Doges on Trial rules, they’re entitled to receive two ether and a CryptoKitty for beating the system. The ultimate decision as to whether the picture below contains an illicit cat will be left up to Coopérative Kleros, the legal entity behind the platform’s development.

doges cat

Such partnership

If Kleros proves its mettle with Doges on Trial, Ast said, the platform could serve as an arbitration layer for swathes of the blockchain ecosystem.

A number of cryptocurrency projects in different niches, such as e-commerce and gaming, are building out their own dispute resolution mechanisms, he explained, adding:

“Our vision is to tell all of these guys, just focus on your platform, on your product, and just delegate arbitration to Kleros.”

And already, some are interested.

In March, the Kleros team said it would integrate the platform with Ink Protocol, a cryptocurrency payment and reputation system built on ethereum. Ink’s native token XNK has replaced the credit system on Listia, an e-commerce site with 10 million registered users, in which individuals trade goods among themselves using credits rather than buying them from vendors.

The same month, Kleros announced a partnership with Dether, which allows users to buy and sell cryptocurrencies locally for cash.

For certain use cases, though, Kleros faces competition. Civil, for example, has developed a similar crypto economic system targeted specifically at identifying and weeding out fake news.

And the decentralized prediction market Augur shares Kleros’ goal of “keeping people honest on the blockchain through game theory,” according to Kleros crypto economics researcher William George, in a recent blog post.

Still, Ast remains optimistic that tons of use cases exist for the platform.

“There are lots of use cases of Kleros that we don’t even know [about yet] … people are going to find them eventually,” he said.

Doge meme images via 

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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Nobel Laureate Oliver Hart to Advise Blockchain Startup

Blockchain economics and governance design startup Prysm Group has added Nobel Prize laureate Oliver Hart and former Microsoft chief economist Preston McAfee to its senior advisory board.

Prysm assists blockchain startups by providing “counsel in the complex economic fields of contract theory, market design, game theory and social choice. McAfee told CoinDesk that he was “excited” to join the group, adding that “blockchain enables a variety of new business models by permitting decentralization and publication of digital records.”

Moreover, “there is no other mechanism that simultaneously provides decentralization, secure privacy and verifiability,” he said.

McAfee added:

“Many blockchain applications involve creating economic systems [or] groups of agents who interact in multiple ways, with distinct roles. The challenge in designing such systems is that they have many interacting parts — various incentives, policing, contract rules, information provision, prices — that need to be simultaneously optimized if good performance is to be achieved.”

In a statement, Hart echoed McAfee’s words, saying it was “important” for the founders of blockchain startups to “understand the possible complications” that can come from creating code to replace traditional institutions and power structures, “so that they can design better systems that are more likely to accomplish their objectives.”

He told CoinDesk that he was “intrigued” by the ways blockchain technology could allow developers to “design better incentives and contracts.”

“Prysm Group is dedicated to the idea that economic principles provide a powerful tool for understanding the issues and I am excited by the prospect of working with them,” he added.

Hart’s statement suggests that there will be some parallels between the project and his past work. Hart and Finnish economist Bengt Holmström won the Nobel Prize in Economic Sciences in 2016 for their work on contract theory.

Oliver Hart image via Bengt Nyman / Wikimedia Commons

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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Ethereum's Most Heated Tech Debate Is Proving It's Far From Over

Ethereum’s most polarizing debate is back – and, arguably, as complex as ever.

Largely undiscussed since April, the question of whether the world’s second-largest blockchain would consider a system-wide software upgrade as a way to return $239 million lost due to a mishap at a major startup resurfaced with a new round of infighting among stakeholders this week.

Sparked in the days prior to a meeting in Berlin meant to address decision-making challenges on the decentralized network, the issue revolves around a code proposal called ethereum improvement proposal (EIP) 999 and the specific way in which it has been reviewed.

At issue is not just how ethereum developers will handle this contentious code change, but those that may arise in the future as the platform grows and expands.

Still, this week’s events began on a smaller scale, with the planned meeting of the Council of Ethereum Magicians, a developer group launched in early 2018 as a forum for discussion on how ethereum should handle technical updates and code disputes.

Following the discussion Saturday, Afri Schoedon, communications manager at Parity Technologies, the startup whose code snafu caused the widely publicized fund freeze, suggested a change to EIP 999 – a proposal that seeks to reactivate the 584 wallets in which much of the lost funds remain.

A relatively minor suggestion, Schoedon asked to advance EIP 999 within the parameters of ethereum’s process for code review. Due to what he perceived as a lack of technical objections to the proposal, he inferred it should be set to “accepted” status.

But the move had wider repercussions, with sometimes vitriolic debate surfacing on Twitter, Github and Reddit. The reaction was swift, with those against the code even proposing a rival pull request to move the proposal to the “rejected” state.

“I wish people would stop using the EIPs repository for political grandstanding,” core developer Nick Johnson tweeted.

The move has sparked a heated reaction from those who don’t want to see the funds restored out of fear these requests will become too commonplace.

As the rationale goes, if ethereum users and developers are able to act like market managers, how are they different from today’s central monetary authorities?

“The Parity bailout EIP was just stealth ‘accepted’ by the Ethereum Foundation despite community rejection. Apparently the community found out and now the pull request has been closed,” one observer tweeted:

“Ethereum is completely centralized.”

Backtracking the code

But if the implications of the move have been lasting, the inciting incident was arguably brief.

Schoedon has since asked for the pull request to be closed, stating that his actions stemmed from a misunderstanding of how others believe the EIP process should be conducted (the subtleties of which are still being debated).

Complicating matters was that Schoedon, who initiated the pull request to move the proposal to “accepted,” is also the author of EIP 999.

More broadly, however, the issue appears to have exacerbated the very problems that many ethereum developers have acknowledged for some time – despite attempts to coordinate in person, digital communications hold the potential to vastly polarize users.

On top of this, there are concerns that, on the internet, competing projects could deliberately add fire to the controversy, swarming social media with fake accounts to create the illusion of outrage.

In an effort to ease the impact this could have on core developers tasked with accepting code changes, the controversy has forced developers to consider how to clarity the EIP process, the formal way by which code changes are organized in the ethereum repository.

One user summarized:

“EIP 999 is a great example of stalled governance and it just won’t go away, and it is consuming every discussion to the point of exhaustion.”

Ritual magic

But in response to the uncertainty produced as a result of Schoedon’s pull request, efforts to further clarify the EIP acceptance process have been attempted.

Micah Zoltu, a developer from prediction market Augur, submitted a pull request to clarify that the process should “focus on technicals not community sentiment,” in order to liberate core developers from becoming trapped in political debates.

The pull request sparked concerns on social media, though, with one Reddit user warning that “changes are being made to the EIP process which remove the need for gauging community opinion and bypass a core [developer] vote.”

Speaking on a forum, Zoltu explained that he wished to avoid the situation of “ritual magic or tribal knowledge” being relied on to produce agreement among developers.

“What I’m trying to avoid is the situation where the process looks something like: do X, do Y, ritual magic or tribal knowledge, do Z,” Zoltu said.

Such discussion echoed the Magicians meetup in Berlin, where talk centered on how, to reduce political gridlock, core developers should evaluate proposals purely based on technical merit – a sentiment that informed Schoedon’s decision to submit a pull request to move EIP-999 to “accepted.”

According to attendees, if the EIP review and acceptance process is heralded as purely technical, it can relieve core developers from the role of social adjudicators.

Still, when it comes to proposals like EIP 999, the boundaries between such things are more opaque. As one attendee of the Magicians meetup noted:

“It is a very clear technical proposal with also profound social implications.”

Initiated as a way to allow a wider group of stakeholders to coordinate on technical changes, the Magicians group has a wider scope than the fund recovery question.

However, because it provides an outlet for more complex discussions, the question of fund recovery has long been associated with the group – which was created in part to address the governance concerns that the recovery debate had revealed.

In the days prior to the meeting, Ryan Zurrer, principle and venture partner at Polychain Capital, published a blog post urging the Magicians specifically to a produce a roadmap for recovery, stating that ethereum’s ability to remain adaptive was at stake.

The post led to bickering on social media, with researcher Dean Eigenmann going so far as to warn that the Magicians group was being “hijacked” to serve the needs of those who lost funds.

“You thought we were all done with EIP 999,” Eigenmann tweeted, “It will lead nowhere.”

With much at stake, and many affected parties present at the meeting, the question of recovery haunted the event – so much so that Peter Mauric, head of public affairs at Parity Technologies, called it the “8,000-pound elephant in the room.”

EIP 867

A roadmap for recovery was discussed, but not without recognition of the fact that the Magicians group is an informal body only.

“There is no finality in the room here,” Boris Mann, co-organizer of the event, reminded everyone. “We know that humans meeting face-to-face is a good way to get a job done, but finality in any decisions will be made in a much more open and accessible forum than this discussion.”

As such, Mann posited that rather, the Magicians should be used as a forum to discuss the development of EIPs that are then handed over to the core developer team for review.

In order to assist this process, the Magicians members vowed to coordinate in smaller working groups, or “rings.” These rings, and the EIPs they produce, will be supported by a signalling website led by Griff Green, that measures a wide group of ethereum stakeholders in an attempt to add legitimacy to changes to the protocol.

Rather than just measuring ether holdings – as is the case with the current signaling tool, Carbon Vote – the new signaling system would try to measure responses from miners, developers and even non-technical stakeholders as well.

“This is a really, really important topic and, I think, the foundational layer for us to make decisions on ethereum,” Green said.

In order to simplify the review process for core developers – the body of developers that are tasked with maintaining the ethereum core base – fund recovery proposals would require a process like ethereum improvement proposal EIP 867, that offers a generic framework for recovery proposals.

While fiercely debated at its inception, such a framework would allow anyone who has lost funds on ethereum, not just from the Parity multisig, to apply for fund recovery.

Mann told CoinDesk:

“I think that people feel unstuck in the sense of, ‘Hey, EIP 867 needs to get turned into an actual process.'”

Risks of inaction

That’s not to say that progress at the in-person event couldn’t help mitigate future issues with controversial code proposals.

Speaking on a forum subsequently, Mann summarized the situation, saying that, once EIP 867 is improved, it could be submitted as an EIP alongside a “request for signaling.”

“Signaling gets done, signaling results inform core dev decision, core devs decide whether to schedule into next planned [hard fork],” Mann continued.

Speaking at the Magicians meeting, other pro-recovery participants suggested that such proposals could conform to a process suggested by Vitalik Buterin in a recent interview, in which the network’s founder hinted that developers could initiate a one-time “clean up” recovery fork.

“That said, I do not think it is my place to make that decision or even heavily influence it,” Buterin said in June.

According to attendees at the meeting, no matter which direction is taken, the decision would need to come with a strict social contract that defines ethereum’s attitude to fund recovery far into the future – such that the debate doesn’t impinge on ethereum indefinitely.

Still, the question of governance is still far from being solved and remain an issue that is frustrating users on both sides of the debate.

“I get emails and phone calls on a very regular basis,” Mauric from Parity told CoinDesk, “The reality is these are good projects that have committed to building distributed tech. These are builders funds, and its difficult to come back to the people behind these projects and say ‘Right, we understand, but we need to figure out governance first.'”

As a result of the stasis, some ethereum developers even urged the Ethereum Foundation to take a stronger leadership position when it comes to the debate.

Zoltu concluded:

“Choosing to not implement EIP-999 is making a decision. So is choosing to completely ignore it. I’m generally against [the Ethereum Foundation]/Core Devs using the ‘bury head in sand’ approach to governance. I don’t think it is healthy at all. It favors stagnation over moving forward, and eventually leads to calcification.”

Rain on glass 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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It's Too Soon for On-Chain Governance

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.

Blockchain governance is hard.

That’s the only reliable conclusion to draw from the chaotic, contentious rollout of EOS, the $4 billion project whose consensus model was touted as a way to enable smoother governance and scalability in 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 a day to validate transactions. Then, the EOS Core Arbitration Forum, a body set up 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 New York block producer threw up its hands and refused to participate.

Now, after Dan Larimer, CTO of founding company, called the ECAF’s order a mistake and argued that its handling of the problem did more harm to confidence in EOS than any lost funds that the suspect accounts might have stolen, his company wants to rewrite the entire EOS Constitution.

Just three weeks into the launch, the spat has provided a popcorn-worthy spectacle for commentators on Crypto Twitter. But, in reality, as a way to assess on-chain governance mechanisms such as EOS’s delegated proof-of-stake (DPOS) consensus mechanism, there’s a lot 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 the first director of the foundation overseeing its $243 million war chest, the EOS disaster offers a strong reminder of how entrenched human mistrust can be difficult to overcome.

To offset the mistrust there must be a sufficient store of shared community trust in whatever mechanism or institution is in place to resolve those problems. That’s the case whether the overall system is described as “decentralized” or “centralized.”

The problem is that when large amounts of money are involved, forging that common store of trust in the dispute resolution mechanism is especially difficult.

The best laid plans…

I’m actually sympathetic to the creative efforts of the Tezos and EOS founders – as well as those of a host others, including Decred, NEO and Cardano. In exploring protocol-level solutions such as voting and staking to enable some level of internal, functional democracy, they are trying to help blockchain communities make orderly decisions on important changes and upgrades and to avoid the contentious disputes and chain splits that have rocked bitcoin, ethereum and others.

I’m not willing to say that on-chain governance won’t ever work – or that our only choice is to either live with disorder, acrimony and gridlock or turn to external legal solutions that expose user identities and require a dependence on external government bodies. But I think we are getting a very clear demonstration that it’s very difficult to design the right algorithm to overcome the toxic mix that money and mistrust create.

We should note that the ECAF, which was formed in the midst of forum discussions among EOS community members before the launch, was conceived as a solution to these problems. Its existence reflects a recognition that disputes would arise and that an off-chain mechanism was needed. But it was very poorly put together, with unclear rules and processes for arbitration.

The question is: Would it have been better designed, more capable of earning the trust of all participants, if the community wasn’t founded on a kind of utopian-like blind faith in the DPOS mechanism?

In other words, the root of the problem may be the unreasonable claims being made by on-chain governance proponents.

As it is, the reliability of the DPOS mechanism was tested by the size of the EOS money pot. The giant fundraise fueled expectations of high valuations, which in turn stoked greed and mistrust. It fed the perception, right or wrong, that those who obtain power and influence inside the EOS network might be able to game the system.

Larimer, others from and many EOS fans swear by the various checks and balances intended to protect 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; and that there’s always the option (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 have been biased against EOS, there was sound logic to ethereum founder Vitalik Buterin’s warnings in a blog post three months ago of the risk 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 think that’s true. The wellspring of trust in these mechanisms isn’t yet strong enough to overcome the problem of cross-user mistrust.

The solution, for now

So, what to do? Bitcoin’s drawn-out block-size debate and the contentious hard fork that resulted from it presented an image of dysfunction that undermined mainstream confidence in the technology.

And in ethereum, where there has a long been a clearer sense of identifiable leadership, Buterin is himself often accused of having too much CEO-like power. (The slide in ether’s price when he was rumored to have died in a car crash illustrated the problems of perceived centralization that have persisted around ethereum ever since Buterin and others supported the hard fork to rescue funds lost in The DAO attack of 2016.)

Well, for now – and this will be anathema to crypto-anarchists and some blockchain libertarians – the solution likely lies in recognizing the limits of the algorithms and  relying instead on human-led, legally defined institutions for dispute resolution and off-chain governance.

While I have been a constant critic of permissioned blockchains, especially of the risk that the consortia that run them can act as colluding gatekeepers to curtail innovation and hold users hostage, they are popular among companies precisely because they operate within a recognized legal structure that they’re comfortable with.  Legal certainty is valuable.

The failure of The DAO taught us that code is not law. By defining it as a system in 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 was not acting illegally. Yet those who 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 can resolve disputes through fluid, lightweight arbitration rather than being bogged down in courts. They carry the weight of law, but try to avoid the process of it.

Key here are the words  “well-designed, trusted.” Lightweight, off-chain arbitration might have been the intent of those who created the ECAF, but it was 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 out in a useful assessment of the outlook for blockchain governance for The World Economic Forum.

The Internet Corporation for Assigned Names and Numbers (ICANN), the Internet Engineering Taskforce (IETF) and 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 these organizations has mostly assuaged concerns that any one party, government or otherwise, has excessive power of the rules by which internet real estate is managed.

Blockhains, with anti-corporatist, decentralized principles at their heart, can’t and shouldn’t try to emulate the process by which these internet bodies were formed, which relied upon the bargaining positions of different governments in international forums like the United Nations. But there’s still much that can be done by standards bodies and NGOs to forge consensus among a variety of stakeholders in this industry. (The W3C and other standards bodies are already seeking to establish authority here.)

Does this mean immutability and censorship-resistance are impossible? Yes, perhaps, if you think in absolute terms. But these were also aspirational objectives, not absolutes.

What matters is a system that works in the service of the widest possible array of users. And, as of now, on-chain governance models like that of EOS clearly don’t.

Cracked window 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.