Block.One Is Taking a Bigger Role With EOS (And That's a Big Deal)

Block.One has decided to start voting with its hoard of EOS tokens.

Announced last week, the decision finds the startup that created the EOS software, now powered by the fifth most valuable cryptocurrency, breaking with precedent in a move that may have come as a surprise to those following the project's decentralized launch.

That's because since going live on June 14, the company has largely declined to exercise its influence over the code, preferring to encourage its users to unite, even in sometimes messy decision-making.

And there's a good reason for that. For one, Block.One controls 10 percent of the 1 billion tokens set aside for developers prior to the network's launch. Further, since decision-making on the platform corresponds to token holdings, the change could put the company in an extraordinarily powerful position, enabling them to decide who can determine truth on the ledger.

As of now, each wallet can vote to up to 30 candidates to serve as block producers, however, it's worth noting that block producers with the most support on the network have less than 3 percent of the current token supply backing them.

This means that Block.One controls so many tokens, that the field of potential block producers could effectively narrow to the 30 it picked, if and when it decides to finally enter a vote.

It's no surprise then, that the move has left some alarmed.

"I find it problematic that Block.one is now involved in selecting block producers, as it undermines their role as a neutral third party, and affords them a significant amount of influence over the network," Arianna Simpson of Autonomous Partners told CoinDesk via email. (Simpson is not an investor in EOS.)

But others believe the decision is in line with necessity of innovation.

Christian Catalini of MIT's Cryptoeconomics Lab argued that each new approach to crypto governance deserves a chance to be tested so the wider crypto world can benefit from its lessons, saying, "In general when you experiment you may land on solutions that may look appealing but don't stand the test of time."

That said, the EOS community has largely expressed excitement about the company taking an active role in governance.

On a Reddit thread about the news, this reaction was fairly representative:

"I have been waiting for this. I think this is a good thing, and will continue to align interests ... If Block.One makes money, I will make money as well most likely."

But intermixed with the positive reactions, there were also observations like this one:

"I think EOS will do great things, but this makes it Ripple 2.0. It's essentially a blockchain that is owned and run by Block.One. I'm not even saying that's a bad thing, but let's not kid ourselves either."

How voting works

By design, EOS only has 21 block producers. The small size allows them to come to consensus very quickly, which is why EOS supporters believe it can surpass the leading blockchains by overtaking it in transactions per second.

The EOS community elects these 21 block producers in a continuous election, which allows bad actors to be removed at any time. Each wallet can vote its tokens for up to 30 block producer candidates. The 21 organizations with the most votes get to do that work, for which they are rewarded with some of tokens emitted through inflation by the protocol.

One of the reasons it took EOS so long to finally activate was because the software wouldn't go live until 15 percent of the total token supply had been staked for votes, but, as of this writing, roughly 30 percent of the tokens are staked for voting.

Block.One's founder tokens gradually release over a 10-year period. Until then, all they can do is stake them for use of the network, including voting. They can only cast one ballot and since all their tokens are staked until they unlock, they have to vote all of them or none.

As one redditor who looked at the wallet balances in the genesis block reported, 99 percent of EOS token holders control less than 14 percent of the token supply. The top 1,000 wallets control 85 percent of the supply. So, it remains very much a network controlled by its richest users.

Block.One is the largest single holder. Joshua Kauffman, who leads governance and community efforts for one of the top block producers, EOS Canada, told CoinDesk that he believes Block.One, ironically, wants to exercise its vote to undermine other whales.

There's a few block producers with very little support from small holders, he said, suggesting they are propped up by whale votes. Kauffman believes Block.One wants a chance to vote for the technically strongest candidates with the most community support in order to support the consensus of the most users.

"It's in their best interest and the community's best interest to insure the best possible producers are the ones running the network," Kauffman said.

When it announced its intention to vote, Block.One also expressed support for a code change so that it can support 50 or more block producer candidates. That way, it's more widely spreading around its big votes, allowing the community to make the final decision about who gets into the top 21.

It would take a minimum of two months for such a code change to go live, according to Kauffman, so if Block.One waits for that change to vote, it could still be a while

Big decisions ahead

Besides changing out block producers, EOS faces other big decisions going forward, and by taking part in block producer elections, Block.One could make its say over those decisions even more decisive.

First, EOS hasn't yet passed a constitution to govern the protocol, so it doesn't have official rules for how block producers should resolve conflicts, as we have previously reported.

To fix it, Block.One has proposed a completely new constitution. The new constitution is much more narrow in scope than the one developed by the community. The company is asking longtime supports to jettison all that work in favor of a narrow proposal.

Block.One cofounder and EOS creator Dan Larimer wrote in a Medium post:

""I have seen that if you give people arbitrary power to resolve arbitrary disputes then everything becomes a dispute and the decisions made are arbitrary."

Second, the worker proposal system is coming closer to fruition. That system will allow the community to vote on paying tokens generated by inflation to teams that want to build new products to make the whole protocol serve users better.

With time, decisions about these proposals could also be important in determining the direction the network takes.

Even if Block.One abstains from votes in both of these cases, block producers with its support are likely to follow its lead, and the supporters of those block producers are likely to follow them.

By expanding the number of block producer candidates it can vote for, it might also expand the number that feel inclined to follow the company's lead.

"I agree that Block.One has an oversized voice," Kauffman granted, but he also pointed out that the best way for Block.One to grow its wealth is by increasing token value. Disenfranchising rank-and-file users by controlling the process won't achieve that, he argued.

"They want this to be the community chain," he said.

EOS is experimenting in a space that blockchains haven't adequately grappled with, Catalini said.

He and his collaborator Joshua Gans explained in a 2016 paper, this means that EOS has dramatically lowered the cost of verification, but it's now facing another cost also described in that work, the cost of networking.

Blockchains don't only need to come to consensus around the truth, they also need to find a way to coordinate economic activity around the world. That's their networking cost, and "that's the one that really changes market power and market structure," Catalini said.

He added:

"That's the one we don't really have a governance structure for; that's why you're seeing so many false starts."

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