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Unresolved Ethereum Governance Debate

  • Uncertainty over governance could be turning some investors off.
  • Similarly, the uncertainty over whether large sums of lost ETH can ever be retrieved may also be cooling investor sentiment.
Unresolved Ethereum Governance Debate 101
Source: iStock/PokPak05

No one likes losing crypto. Some people have gone so far as enlisting hypnotists in a bid to retrieve their lost coins, and it also seems that one company still wants to fork Ethereum in order to recover their lost ether.

This company is Parity Technologies, a software developer for the Ethereum network.

Last November, it lost a total of 514,000 ETH (at the time, around USD 150 million) due to a bug in the smart contract of its multi-signature wallet. This flaw enabled a hacker to rewrite the wallet's code and claim it for himself, although the hacker inadvertently ended up 'killing' the contract and losing the funds it controlled.

With the funds in limbo, Parity submitted an Ethereum Improvement Proposal (EIP 999) in April, which at the time was opposed by a majority of the Ethereum community. Yet the controversy has now been rekindled: on July 15, Parity attempted to move EIP 999 to "Accepted" status, sparking renewed community fears that the Ethereum network would be hard forked by the backdoor.

However, while this new proposal was in fact soon closed, its emergence reveals how Ethereum, much like other cryptocurrencies, hasn't really resolved issues of governance and reversibility that have haunted it since at least the June 2016 DAO (Decentralized Autonomous Organization) hack.

No Get Out of Jail Free card

EIP 999 was controversial mostly because of the implications its acceptance would have for Ethereum. It proposes to restore the lost 514,000 ETH to the affected owners, and to patch the bug that enabled the original hacker to take control of the smart contract.

So far, so modest, but accepting it would set a dangerous precedent: Ethereum is meant to provide an immutable, irreversible ledger, but Parity's proposal would essentially reverse a transaction. And if a transaction were reversed in this case, how would the Ethereum community justifiably refuse reversing the network in similar cases in the future?

This is why an April vote on Ethercain rejected the proposal by 55% to 39.4% (the rest were undecided), and why so many people were vociferous in their opposition to it:

"If we let this set a precedence [sic], it would undermine the immutability of the blockchain," said one user on the Ethereum sub-Reddit. "If the little guy can't get a get out of jail free card, neither should the big boys."

Do I like this change?

While the controversy eventually died down after the April vote, it has now reappeared.

EIP 999's status was moved to "accepted" on July 15. According to Parity's Afri Schoedon, the justification for this move is that the EIP was "technically not objected at Ethereum Core Devs Meeting 37 on April 20, 2018."

On Reddit, this explanation fed into fears that the EIP approval process was being changed, enabling EIPs to be accepted only on the basis of technical feasibility, and not also on the basis of their desirability.

However, core Ethereum developer Nick Johnson quashed this suspicion, clarifying, "Community consensus on EIPs has always been about technical issues, not about 'do I like this change'."

And fortunately for those who began worrying that a fork would be stealthily implemented so as to return the lost funds, the GitHub proposal to accept EIP 999 was pulled (apparently at the request of Afri Schoedon himself).

Nagging questions

While the matter is now finally closed (at least for now), it resurfaced some nagging questions for Ethereum, which had previously hard forked (creating Ethereum Classic) in response to the 2016 DAO hack.

First of all, how are governance matters really settled? The confusion over this question was revealed in the Reddit thread regarding the EIP approval process, with posters in disagreement as to whether technical standards were the only factors that enter into deliberation. Such confusion is a serious issue, since it's conceivable that uncertainty over governance could be turning some investors off.

Similarly, the uncertainty over whether large sums of lost Ethereum can ever be retrieved may also be having a cooling effect on investor sentiment. Founder Vitalik Buterin suggested in a June interview that there might be “some kind of one-time ‘cleanup’ of the public chain that will restore funds,” but there have so far been no concrete plans to confirm such a fork for anyone worried about the security of the large sums of ETH they (might) hold.

And together, these unresolved issues mean that, even if EIP 999 is now dead and buried, a similar controversy may very well arrive to replace it.

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