A look at the issue of EOS freezing accounts in order to restore stolen tokens to their rightful owners

There is a lot of debate going on right now in the crypto community on weather or not freezing of stolen funds and subsequent return to their rightful owners is ethical or not. Many claim that EOS block producers are acting like ‘gods’ of the EOS blockchain and are just the same as a corrupt state actor in their ability to freeze accounts and restore stolen property to the rightful owners.

Tweet by @NickSzabo4

In EOS a few complete strangers can freeze what users thought was their money. Under the EOS protocol you must trust a "constitutional" organization comprised of people you will likely never get to know. The EOS "constitution" is socially unscalable and a security hole.

Also, due to the fact that the EOS chain recently launched there were some issues surrounding the constitutional nature of the decision. You can read more about that on their official statement here

But I want to focus on the block producers, the ethical ramifications of this issue and also, how this decision relates to an average person’s experience with cryptocurrencies.

Many people arguing that this action was unethical, weather they know it or not, are using the ethical theory of Deontology to make their point. A quick summary of Deontology:

Deontology - Do no wrong actions, look at the action itself and not the result of the action.

“Thus, to a Deontologist, whether a situation is good or bad depends on whether the action that brought it about was right or wrong. What makes a choice "right" is its conformity with a moral norm: Right takes priority over Good. For example, if someone proposed to kill everyone currently living on land that could not support agriculture in order to bring about a world without starvation, a Deontologist would argue that this world without starvation was a bad state of affairs because of the way in which it was brought about.”

ref link

In isolation, the action of freezing an account and censoring an individual is understood to be an unethical action. This also means that the blockchain is not immutable as an actor on the blockchain is having their right to transact taken away from them.

But I can see a counter to this argument. Whose property are the stolen funds?

Alice steals from Bob by transferring funds from Bob’s wallet to Alice’s wallet (previously empty). Who owns the funds that reside in Alice’s wallet, Alice or Bob? Alice has access to those funds but as these funds are stolen goods surely they belong to Bob don’t they? Common law would answer yes, these funds do still belong to Bob. The only thing that is stopping Bob from retrieving the funds in Alice’s wallet is access permissions.

The main thing we need to establish at this point is does Alice lose access rights to her wallet by stealing these funds from Bob and placing them into her wallet? Once again, common law would prevail to establish that stolen funds are just that, stolen, and not rightfully hers. So in order to return property to the original owner, we at first need to remove access rights from Alice to her wallet and, at least notionally, give access rights to Bob for that wallet.

So if Bob can prove the funds are his and we freeze the wallet and return the funds back to his original wallet then all we are doing to performing an action on behalf of the rightful owner of the wallet, who is Bob. Alice lost the access rights to her wallet when she stole the funds from Bob and placed them in her wallet.

I would argue that a reallocation of access rights to the correct and rightful owner is not censoring nor is it proving a breach of immutability. It is only a restoration of access to a proven, rightful owner.

This above point is summarised in EOS’ constitution:

Article III - Rights

The Members grant the right of contract and of private property to each other, therefore no property shall change hands except with the consent of the owner, by a valid Arbitrator’s order, or via community referendum. This Constitution creates no positive rights for or between any Members.

Block Producers

The next issue we need to look at is the block producers responsible for the account freezing

First let’s look at the centralisation problem in Bitcoin by looking at an article by Jimmy Song.

The main takeaway from this article is that the thing that stops the centralised miners from acting bad on the network, especially in the case of ‘Scenario 4: Majority-only chain’, is that it would be against their interests to do so. Other nodes on the network would stop trusting the bad actor and he would be left with a relatively useless hard fork of bitcoin in his attack. This kind of scenario would be highly undesirable for bitcoin though, and would most likely cause the price to at least temporarily take a pretty major dive.

So, from this we can see that the miners are responsible to the network and will be punished for their bad behaviour if they choose to act in a manner that is against the best interests of the overall network.

The EOS block producers are democratically elected in an ongoing voting process and can be voted in or out in a very short space of time. In order for the block producers to take action to restore rights to property that have been lost they need consent of at least 15 of the 21 block producers for their action to be valid on the network. And much like the bitcoin network it is within the interests of the block producers to act within the interests of the greater EOS network meaning that it is not only difficult to abuse block producer power but also easy to lose status as a block producer and be voted off the network.

Cryptocurrencies mass adoption

“The rule of law is at the heart of the relationship between society and the state. It is the basis for creating trust and accountability and forms the social contract between a government and its citizens. When countries experience conflict and when government is weakened and can no longer protect its citizens, this social contract collapses. When it’s time to rebuild, rule of law must be among the first priorities.”

ref link

It is restoration processes like this that will help to bring about mass adoption of crypto. Governments have failed to provide a sound money that serves the people. Let’s decentralise the governance of our currency in a voluntary system and manage the network for the people, by the people.

EOS, like Bitcoin is a voluntary system. If you prefer Bitcoin as a currency then you may chose Bitcoin, or any other crypto. If you like EOS but don’t agree with all of the constitution then you can attempt to have the constitution amended. EOS is an open currency and system of governance which is able to be changed by a democratic process. It is an open and community run blockchain.

Follow @BitcoinHomer on twitter