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The Ancient Tragedy On The Digital Market Stage: EOS Reversed The Transaction And Created Environment For Corruption

21 November 2018 17:11, UTC
Oleg Koldayev

Experts in the field of network law have repeatedly noted: the decentralization of the blockchain will sooner or later lead to one problem - the impossibility of reversing the transaction in case of an error or malicious actions of users. Although the other part of the expert community, on the contrary, considers decentralization to be the only possible form of existence of distributed networks as a legal phenomenon. There is no denying that the legal conflict is in evidence and it is not so easy to resolve.

But to begin with, we give a simple example. During the week, an interesting screenshot appeared on the network: the user of the EOS blockchain showed that, according to the decision of the ecosystem judge, the chain of confirmed transactions had been canceled, which had restricted his rights. The citizen complained to the administrators that with the help of fishing, his private keys had been stolen, and by using the stolen key the theft of money had been committed.

The decision of the judge Ben GATES was unequivocal: “In accordance with the authority granted to me as to the judge under article 6 of the Dispute Resolution Rules, I, Ben GATES, establish that the EOS account must be returned to the applicant immediately, and the money sent from this account must be frozen and refunded.”

Perhaps, this is not the first, but, for the moment, the only public example of the action of the traditional legal instruments of self-government in the new legal reality. In other words, a community of people in a digital ecosystem is organized the same way as in real life: it comes up with rules, creates power bodies and officials.

The creator of the EOS protocol, Den LARIMER, publicly stated once: "Decentralization is not what we are striving for." At the same time, he proudly emphasized that despite the lack of interest in the consensus, his blockchain remained more decentralized than Bitcoin or Ethereum ecosystems. For example, to control 50% of the EOS network, 11 pools will be required, for Bitcoin - 4, and for Etherium - 3.

But the question arises: despite the greater number of pools, can the EOS network be considered a blockchain? Technically, yes, but his legal nature is in doubt. On the one hand, the internal rules of the blockchain, the EOS Constitution, will help avoid many criminal problems. They allow, for example, returning the stolen money to a person without unnecessary delay and vigorous actions on his part. It is enough to complain to the judge. On the other hand, a new vulnerability appears, which is characteristic of any traditional society: inequality, the struggle for power, abuse of authority, and corruption - everything that the blockchain was created to avoid.

It must be recalled here that in the traditional blockchain, by definition, there can be no government bodies where to complain about anything. All issues are resolved on the basis of consensual law. For example, if one has stolen money from a user and spent it on a chain of transactions, then the user has only one way out - to build an alternative chain that confirms that the money has been stolen from him and must be returned. If the chain of a conscientious participant of the network exceeds the chain of the attacker, the latter will have to either voluntarily return the stolen or to use the money that will be marked as stolen. No one will continue to deal with a person who performs operations with criminally acquired coins.

Here is the conflict: Greek democracy with formal legal insecurity in a decentralized system or republican Rome with corruption risks generated by the power of one over the other. Yes, such an example is quite appropriate here, since consensual democracy was characteristic of ancient Greek city-states, where expulsion was the most terrible punishment. A written law defining human rights and sanctions on the part of the state for its violation was the destiny of Rome.

And here is a simple illustration of centralized network vulnerability: just two weeks after the launch of EOS, an internal political scandal ran high. Users demanded to change the Constitution (the main collective agreement of the ecosystem) in terms of limiting the rights of judges. LARIMER himself proposed to reduce the powers of the bodies of government before checking the compliance of users' intentions with the rules and analyzing hacks and vulnerabilities. Moreover, amendments to the basic law should be done by counting the votes of users, which also contradicts the idea of ​​consensus, since voting is a competitive process, not a contractual one. Simply put, the struggle against power and the struggle for power.

If we analyze this conflict in more detail, then we cannot but ask a couple of significant questions: if the consensual right of the traditional blockchain cannot effectively protect the property rights and take into account the will of the network participants, then maybe it is not needed at all? Maybe, it will be fairer to leave consensus behind and build relationships of participants on already existing legal traditions?

Trying to answer them, you will have to listen to the critics of the digital economy. For example, the well-known financier Kai STINCHCOMBE believes that “Bitcoin (like any decentralized cryptocurrency - ed. note) now looks like banking in the Middle Ages. The advantages of existing financial systems - from personal identity verification to clarifying statements made in a controversial transaction, outweigh the supposed benefits of an irrevocable, automated execution (blockchain – ed. note)."

And here, there is no denying the truth of the financier: the technology of the distributed ledger has no special advantages over the already existing communication solutions - it is not cheaper, not faster, and not more authentic. It turns out that from the point of view of the law, the only advantage of the blockchain over ordinary loaded networks is that it is decentralized and only due to this it helps overcome the flaws of traditional financial systems.

What do we end up with? Of course, in terms of today's day, EOS achieved a reputational victory, having returned the stolen money to a particular person. But from the point of view of tomorrow's day, it has triggered a dangerous precedent for a simple solution in a complex system, which, in turn, devalues ​​its advantages and contradicts its purpose. The centralized system is, of course, better managed but the price of this controllability is corruption and social tension.

But it may still be better to admit that the history moves in a spiral, and the blockchain offers us a new version of Greek law, where not only the person is part of society but society is part of the person. That is why the most severe punishment (heavier than the death penalty) in the ancient polis was expulsion; to lose society meant to lose yourself.

Returning to today's day, how will crypto-thieves like that in case of non-repayment of money, no community will have to deal with them, and their money will become dust, because it won’t be accepted by anyone and anywhere? It is unenviable fate to be a living, healthy, and free social outcast.