HomeCryptoAltcoin NewsEOS stolen funds arbitration ruling scoffs at decentralization

EOS stolen funds arbitration ruling scoffs at decentralization

The EOS blockchain was built with the intention of providing a means to scale transaction speed while still providing a certain level of decentralization. The extent to which EOS is decentralized, however,  has always been a point of contention since network transactions are validated by a small group of “supernodes” which must be elected every 21 blocks.

The goal of decentralization, with every blockchain, is to eliminate points of central control meaning no single entity can wreak havoc on the network rules or invalidate the transactions of others. Unlike your bank, which can practically do anything it wants with your checking account, a blockchain wallet should be different.

EOS Arbitration

The latest issue to arise within EOS concerns a practice known as arbitration. Unlike Bitcoin, or most other chains, EOS allows coin holders to file a claim or grievance regarding a transaction or practice on the EOS network.

At the discretion of an entity known as the EOSIS Core Arbitration Forum (ECAF), transactions can be reversed on the chain, and accounts can be forcibly confiscated if wrongdoing or unethical behavior is determined to have taken place.

According to the ECAF website, “Arbitration is a way of resolving disputes without going to court. Both parties in the dispute present their side to a professional arbitrator who thoroughly reviews the dispute and comes to a reasonable resolution.”

Reversed Transaction

On November 10, it was revealed that an EOS arbitrator had reversed several transactions and restored a wallet which was stolen during a phishing attack first reported for arbitration on October 17.

According to the report, which was published online by ECAF, the arbitrator, Ben Gates, explained his rationale:

Under the powers afforded to me as arbitrator under Article 6 of the Rules of Dispute Resolution, I, Ben Gates, rule that the EOS account in dispute should be returned to the claimant with immediate effect and that the freeze over the assets within said account is Removed.

The Claimant presented sufficient evidence to establish there was a case to be answered. The respondent was notified but declined to respond.

On the balance of probabilities, the claimant is found to be the true owner. The claimant’s rights under Article III of the EOS Constitution have been breached.

When the news broke several days back, the EOS Reddit forum was lit up with anger over watching a supposed decentralized chain exercise power and authority to simply reverse transactions and forcibly transfer ownership of assets in a manner similar to a traditional legal system.

As one Reddit user asked, “Why would anyone use this over a bank account and traditional legal system? These guys raised $4BN to recreate the legal system using a token that is neither censorship resistant, nor immutable.”

Defining Decentralized

This latest incident is not the first time EOS has come under scrutiny for seeming to contradict the very definition of a “decentralized” blockchain.

In June of 2018, just one week after the EOS network went live with a native chain and currency, seven EOS accounts were frozen by block producers. The move itself violated the EOS constitution which stated clearly that only arbitration, conducted by ECAF, should be the final determiner of such matters.

However, the 21 block producers who signed on to the asset freeze claimed that their actions were necessary to keep bad actors out of the EOS system and to protect funds from being stolen.

According to Dan Larimar, EOS creator, his blockchain “will be the safest place to hold tokens without fear of unjust rulings, identity theft, token hacks, lost passwords, etc. It will have stable monetary policy with civilized dispute resolution.”

In other words, Larimar is saying that EOS, unlike truly decentralized chains, will have a quasi-customer service department in the form of ECAF to adjudicate wrongdoings and protect coin holders, even if from themselves.

Limitations of Immutability?

While some users criticize EOS for allowing a practice such as arbitration to exist on the platform, others would point to transaction irreversibility as a shortcoming of immutable blockchains.

According to Milos Dunjic, Associate Vice President for Enterprise Payments Technology at TD Bank, immutable blockchains could turn ugly for users if quantum computing is able to crack the encryption algorithms used to secure the chains.

“Using quantum computer, with today’s key sizes, the reverse engineering becomes possible in matter of hours, instead of billions of years when using classic computers.”

As quantum computing matures and becomes more powerful, Dunjic warns that “this is going to become a significant problem, in the next 5 to 10 years.”

Other researches are already working on the quantum computing problem in relation to blockchains, and one proposal simply looks to balance the scales by creating a quantum blockchain which is hardened against quantum computing.

Decentralization vs. Injustice

Immutability and decentralization are arguably two of blockchain’s biggest strengths when it comes to creating a trustless system. At the same time, what, if anything, can or should be done in a situation like the EOS coin holder who was phished and robbed of his funds?

The standard argument is that the user needs to be smarter and do a better job of protecting his or her keys and coins. Blockchain can be an unforgiving beast and one wrong move can swallow your wallet and there is no recourse. By using the chain and holding the currency, the coin holder implicitly acknowledges this risk.

The other argument looks at adoption rates by the general public and wonders how the average person will ever trust their life savings and daily transactions to cryptocurrency if there is a chance their money could disappear and there’s no customer service number to call.

Multiple Paths

As it stands today, if a credit or debit card number is phished and a thief spends thousands or tens of thousands, there is recourse for the account holder.

Most consumers feel a sense of comfort in this which is why online shopping, where you literally type out a credit card number and send every piece of information contained on the card to some far away server, has become a “safe” way to transact. If your card number gets stolen, even if it’s your fault due to a phishing scam, no problem, your bank will reimburse you for the stolen funds.

EOS has chosen one way of doing things, and everything is a gamble right now to see which system and model will pay off in 5 or 10 years. Will it be the highly-decentralized model or the decentralized-light model offered by EOS? Cryptocurrency consumers and the market will eventually decide.

The above is to be considered opinion and not investment advice in any way, as an unbiased media, no one interferes with the Editorial content of CryptoInsider.com, writers have freedom to choose their own direction, members of Crypto Insider do not participate in trades based on content.

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Nathan is a full-time software developer with a love for studying and learning every facet of cryptocurrency and blockchain. He is also an avid blogger and enjoys writing about crypto and other technology-related topics.