EOS wrote history today

Today EOS was governed. Today EOS stood out from code as 21 BPs and all of the standby BPs made a decision: to overrule the code and freeze five accounts. Five people could prove they were spoofed and had received incorrect private keys. Five people that would have lost all EOS on their accounts.

How was this meant to go? The ECAF rules allow for emergency arbitration. However, the arbitrator appointed handed the matter back to the community. He choose not to rule. I don’t know his reasons yet but for now that doesn’t matter.

What happened today?

A lengthy zoom call. Some BPs found they shouldn’t do anything. Especially since the BP agreement states that a BP should only freeze an account following a valid arbitrator’s ruling. The dilemma was that the arbitrator stated that in this particular case he couldn’t rule (which is not extraordinary, that can happen) and referred the matter back to the BPs. So it was up to the BPs. They found themselves in an awkward spot. They are set up to provide the technically impartial execution of EOS and the arbitration system, but now they were asked to step away from that core position and to make a decision themselves.

Some BPs were hesitant to freeze the accounts.

Understandably. Freezing without an arbitrator’s verdict, means entering into a conflict with the BP agreement. And would mean, further, a precedent. Because if in this case the BPs would act, they might become prone to more external pressure in other cases as well and that might impair the system. And, even more important, since there was no legal basis for freezing, some of the BPs argued, this may lead to claims because the claimant could argue that the BPs overstepped their authority. Especially when mistakes were made in the process and no crime was committed. The other BPs argued that if the house is on fire, you put out the fire first and ask questions later.

EOS Amsterdam wanted to freeze the accounts. We believe that in situations like these one needs to take responsibility. Especially given the overwhelming evidence that the account owners were misled.

A technical explanation from EOS 911 convinced the BPs to freeze the accounts temporarily so more time was available. A new smart contract on Etherium could proof the truthfulness of the owners of the scammed accounts. The community decided unanimously to indeed freeze the accounts. Each of the BPs and standby BPs wished to check the evidence first. At the end they all agreed: not freezing the account would mean genuine owners would lose their EOS.

What lessons are to be learned here from a legal and governance perspective?

First of all: the system worked. The community defined an action that was good. Spoofing didn’t get rewarded. Legitimate owners can probably hold on to their EOS. The community filled a gap in the rules. The following questions got satisfying answers: what to do if for some reason arbitration doesn’t work? Should we do nothing or act? Should we follow the letter of our BP agreement or find a way out? To me it is clear that n this particular case the decision made was right. Another decision would have meant an unfair result and might have had negative impact on EOS.

Secondly: the legal takeaway is that the idea of EOS Constitution and the BP agreement are as they are now difficult to manage. Because it is not clear what happens when a gap occurs. There is no last resort clause or entity that has authority to act in the situation where, contractually, no one else has authority. From a contractual point of view, this might lead to liability in case of a wrong decision. If, e.g., the spoofed accounts weren’t spoofed.

Minding the gap

We could solve this issue now. It is the process of minding the gaps. One learns when one goes along and adapts the docs to new insights. In this case we could introduce an article in the Constitution that stipulates that BPs are allowed to act once such act is based upon an unanimous decision by the BPs and standby BPS together and such act is in the interest of the community. Further such article should stipulate that the BPs wouldn’t become liable provided, however, that they acted in good faith. (Meaning: they are not liable if they could have reasonably been of the opinion that what they were doing was the right thing.)

Legally we would contractually introduce some kind of meeting that has the authority to temporarily correct and amend the Constitution and the related documents in specific cases where arbitration doesn’t work and the BP agreement leads to an clearly unfair outcome. This looks in fact a lot like the organization of many companies/association where there is always such a gathering, sit down, meeting etc, that can act on behalf of the organization.

It is the hybrid face of our documents: they are a contract but we organize governance in them. Governance is typically organized in bylaws or articles of association. Realizing that might help: we could look how others did this. There are tons of valuable insights out there.

We did start something incredible here. Something completely new. Something that hasn’t been done before. Yet, humanity has met a lot of our current challenges before and resolved them. Let’s use ancient knowledge to strengthen our brand new and beautiful community.

Amsterdam, 17 June 2018

Jetse Sprey
EOS Amsterdam
eosamsterdam.net

Comments

  • JetseSprey_EOSIOAmsJetseSprey_EOSIOAms Posts: 29 Jr. Member - 1/5 EOS Tokens

    The BPs still debate freezing the accounts of which the private keys were stolen. The BPs all agree that the owners fall victim to a phishing website. No debate there.

    ECAF did not issue an emergency freezing order. They didn’t do so because they concluded that there is no valid arbitration agreement. We should urgently fix that hole.

    Yesterday the block producers believed it is possible to help the account owners notwithstanding the lack of arbitration. Today some BP’s only wants to continue with the fix following an arbitration order. We refer to our earlier post regarding this issue.

    We at EOS Amsterdam believe the top 21 block producers can help the victims. This can be based on “negotiorum gestio”.

    Negotiorum gestio means that you are allowed to pull out someone else’s fire and get your costs, if any, rewarded and further that you are not liable for meddling in the other person’s affairs. I believe (at first sight) we could base a BP action on that principle. It is an ancient Roman principle that survived the millenia.

    In this concrete case negotiorum gestio would be an elegant way out of the problems the alleged lack of agreement and lack of arbitration causes.

    Further, a sidestep, not doing anything and let the phishing site cash in on their scam in full sight while totally being able to prevent that easily, might lead to liability also. In my jurisdiction that is.

    Jetse Sprey
    EOS Amsterdam
    eosamsterdam.net

  • KevKev Posts: 399 admin
    edited June 18

    @JetseSprey_EOSIOAms said:
    The BPs still debate freezing the accounts of which the private keys were stolen. The BPs all agree that the owners fall victim to a phishing website. No debate there.

    ECAF did not issue an emergency freezing order. They didn’t do so because they concluded that there is no valid arbitration agreement. We should urgently fix that hole.

    Yesterday the block producers believed it is possible to help the account owners notwithstanding the lack of arbitration. Today some BP’s only wants to continue with the fix following an arbitration order. We refer to our earlier post regarding this issue.

    We at EOS Amsterdam believe the top 21 block producers can help the victims. This can be based on “negotiorum gestio”.

    Negotiorum gestio means that you are allowed to pull out someone else’s fire and get your costs, if any, rewarded and further that you are not liable for meddling in the other person’s affairs. I believe (at first sight) we could base a BP action on that principle. It is an ancient Roman principle that survived the millenia.

    In this concrete case negotiorum gestio would be an elegant way out of the problems the alleged lack of agreement and lack of arbitration causes.

    Further, a sidestep, not doing anything and let the phishing site cash in on their scam in full sight while totally being able to prevent that easily, might lead to liability also. In my jurisdiction that is.

    We've been dealing with "chicken and egg" problems for a while now on a host of issues, from picking a constitution to tallying community sentiment with a basic poll. We haven't had the tools to arrive at a community decision for action and we didn't in this case either, which seems to be the reason ECAF did not deliver a verdict. Our tools are still in development.

    What stands out about this case, is it's the first time we've had a group with the power to act unilaterally, which they went ahead and did. ECAF said "we don't have the power to act" and BPs said "well we do, so we're going to". My understanding is this stands as a direct overrule of the ECAF decision, and is the core of the issue.

  • JetseSprey_EOSIOAmsJetseSprey_EOSIOAms Posts: 29 Jr. Member - 1/5 EOS Tokens

    It is indeed the core of the issue. I wouldn't phrase the BP action as a "direct overrule". ECAF couldn't act. That left a vacuum. The BPs stepped in. "We cannot rule" is a decision of course but taking action in the absence of ECAF authority, is, in my view, not overruling ECAF.

    I believe that in each jurisdiction/governance structure/company/organization there should be a body/meeting/gathering that fills such a vacuum. A kind of "left over" authority.

    Jetse Sprey
    EOS Amsterdam
    eosamsterdam.net

  • fcecinfcecin Posts: 5 Brand New

    There is ALWAYS a last resort "clause," and it was used. It is called morality or obvious right action. It is always implicitly stated in every "constitution" or "rule," for which constitutions or rules are mere models or proxies.

    There is no gap. There is never a gap. The gap is filled by people and their own sense of what is right.

    It is not possible for bureaucracy to bail out the individual sense of individual, humanitarian duty to actual human society. We wish we could always delegate to some written thing that exempts us from using the powers that we hold, but that's just not how the real world is.

    Sure, we can improve the paper trail, so that an individual can always make a case that they had a mandate because what they did was in written letter from some process that extracted some sort of consensus on the society he's acting upon, but it will never be perfect.

  • JetseSprey_EOSIOAmsJetseSprey_EOSIOAms Posts: 29 Jr. Member - 1/5 EOS Tokens

    I think we fully agree that the outcome of this case is as it should be.

    I understood however (from hear say, I haven't verified this with them) that EOS New York did demand a ruling based on their assessment that they were overstepping their authority as block producers. They could be of that opinion since the BP agreement forbids them to freeze an account without a valid order of an arbitrator and doesn't detail what happens if such order cannot be provided.

    One could indeed look at it in two ways. One: there is no gap since one has always the implicit duty to act humanely. Two: there are gaps and there'd better be some explicit safety net to prevent accidents. Such safety net could be to make explicit that each party has always the duty to act in good faith or humanely.

    Jetse Sprey
    EOS Amsterdam
    eosamsterdam.net

  • ArbitratorArbitrator Posts: 4 Brand New

    There are so many questions to unpack here; starting with the basic ones:

    • Was there a valid arbitration agreement in the first place? It seems there wasn’t since the arbitrator decided he does not have the jurisdiction to decide the case.
    • Was there a valid agreement between the BPs and account owners, allowing the BPs to freeze the accounts? In my opinion there isn’t, otherwise there would be no need for an arbitration at all. It seems to me the BPs overstepped their authority and set a dangerous precedent.
    • Were the claimants and respondents both given adequate opportunity to present their case?

    These are just the most basic issues, but still also the most important ones as well.
    Arbitration is a “contract-based” dispute resolution mechanism. The contract (i.e. arbitration agreement, rules etc.) need to clearly define the process and what are the powers and authority of certain entities / persons involved. To me it seems the BPs acted without any contractual basis and made a decision that is outside of their powers.

    This conclusion might sound harsh and against the “practical reality” of the current state of EOS. However making unilateral actions without contractual basis is even more dangerous, diminishing the legal predictability of the whole EOS network. Because, perhaps there is someone whose account has just been frozen and did not even have the opportunity to present his case. If there is no clear process to determine this, the BPs are grossly invading someone’s property, without any legal basis.

    In my opinion the example of putting out a fire of a burning house and negotiorum gestio principle are not applicable in such case. Here we are facing a potentially complex “legal” dispute where rights and obligations are not clear. BPs are not resolving an outside threat (like vis maior) where an adequate course of action is more clear. Here we are closer to a situation where an uncalled-for person would intermediate in a dispute of two strangers, decide who is right and take the money form the other party to the winning party. This is not how any of this works.

    There are probably several reasons why an arbitrator (or ECAF) is the only one competent to decide the case: 1) they were (or should have been) contractually appointed to decide the case within the arbitration agreement, 2) they possess the needed skills and knowledge (legal, technical, dispute resolution knowledge and 3) are therefore considered as objective and competent third parties. On the other hand, BPs do not fulfill these criteria.

    I am not sure the system worked as intended. In an ideal scenario, all the documents (EOS constitution, arbitration rules etc.) should provide a strong framework, available already at launch. This would introduce predictability and fairness. It seems this has now been completely disregarded, making the EOS network a strange place to be in.

    Sorry for the long rant, I just feel this needs to be discussed if we want to have a functional EOS network!

  • JetseSprey_EOSIOAmsJetseSprey_EOSIOAms Posts: 29 Jr. Member - 1/5 EOS Tokens

    I fully agree that arbitration would have been preferable. Essential here was that that wasn't possible. What happened next brought to light the essential difference between a governed blockchain and just code: humane intervention.

    Once we accept the principle of humane intervention, looking for a legal basis for the action of the BPs, is important but it is as equally important to realize that sometimes governing happens outside strict cadres. Someone has to act when (not if) the unforeseen happens. Did the Declaration of Independence have a legal basis? Did the Acte der Verlatinghe (our declaration of independence from 1581) have one?

    I totally agree that BPs need to live by the rules. We cannot have a dictatorship of BPs. Predictability of rules and of the exercise of power is a very basic human right. However, governing asks for a more subtle interaction between predictability and fairness than the letter of a contract sometimes does.

    In this case the BPs acted unanimously. They froze the accounts. They didn't make a final decision on who owned the EOS. It was an emergency measure. The case it was not a legal dispute between two reasonable parties but an attempted theft effectively blocked.

    The legal basis of EOS is ambiguous. It has elements of contract law and of article of association. We need to find a workable balance between predictability and justice.

    I have suggested to formalize the united BPs role. To appoint, as is done in many articles of association, some gathering that is entitled to act when no one else is. It could be the unanimous BPs. I don't see the BPs grabbing power. We, at EOS Amsterdam, would surely stand against it. As will many other BPs. But we would have a gathering of last resort. In case the rules rule out.

    And if it's not the BPs we could introduce a parliament. Voted for by the tokenholders. We would end up with a very real society based on the Trias Politica: the legislative (the parliament), the executive (the BPs) and the judiciary (ECAF).

    Montesqueu: one cannot escape him nor should one want to when governing.

    Jetse Sprey
    EOS Amsterdam
    eosamsterdam.net

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