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EOS Block Producers Freeze User Accounts, Prompting Anti-Centralization Outcry

EOS block producers have frozen seven accounts in response to concerns from users that their wallets had been compromised due to phishing attacks. This has caused some controversy, likening EOS to centralized banks that freeze money at will. Some commentators believe this defeats the primary goal of cryptocurrency: to function as decentralized money that no centralized organization controls.

There has been a heavy backlash on social media following the block producer’s decision, and price dropped several percentage points when this story broke, shaving USD 300 million off the EOS market cap.

Some randomly elected 3rd party arbitrator is now making “orders” to #EOS block producers. In this case, regarding locking user accounts.

Can’t even make up comedy this good. pic.twitter.com/Dfs7UH0f5T

— Eric (@econoar) June 19, 2018

EOS recently migrated from the Ethereum blockchain to its own native blockchain, a process that ended up being slower and more difficult than expected. Concern over the centralization of EOS during the transition period, since full control of the network was handed over to a single block producer, caused a 30% price crash. Eventually, EOS went live after 15% of total EOS was staked in a vote, and dozens of block producers began to run the blockchain.

The migration resulted in a major opportunity for phishing scams, which is where the current problem stems from. It was a confusing and complex process for users to transfer their tokens to the EOS MainNet and vote for block producers, and many websites sprung up to help make the process easy. Voting requires the private key, and some of these websites ended up being fake and stole private keys.

A service called EOS 911 was created to report incidents of private key phishing. The block producers decided to protect users who had reported phishing by freezing their accounts indefinitely. The EOSIO Core Arbitration Forum (ECAF) is supposed to be in charge of such decisions, but it isn’t fully set up yet and decided not to rule. The block producers unanimously decided to take action despite this to protect users from losing their coins.

Regardless of the good intent behind the freezing of the accounts, the main concern is that block producers have this power at all. Effectively, EOS appears to exercise power just as a centralized bank would.

Perhaps even worse than freezing accounts, professor Emin Gun Sirer from Cornell University says EOS block producers can reverse transactions. If true, this means EOS transactions are never final, which could result in serious losses for merchants and exchanges down the road depending on block producer’s decision making.

Cryptocurrency generally has intrinsic value in its unique aspects of decentralization and irreversible payments. EOS appears to have eliminated these positive characteristics and has put control over user money into the hands of a small group of block producers.

Theoretically, block producers must act unanimously for accounts to be frozen or transactions reversed, and for the time being all 54 active block producers have been working together in a centralized fashion via conference calls. However, it is possible in the future that block producers will fall into disagreement and stop working with each other like this, which would help increase decentralization.

That being said, block producers are determined via voting which is directly tied to wealth. Someone with enough money could vote for themselves and take over EOS block production and then proceed to steal coins, attack other users without reason, or even go as far as destroying the entire network. The idea of having block producers who can easily modify transactions might be the fatal flaw that negates all the other positive aspects of the EOS platform.

 

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