EOS Constitution Referendum: When Democracy Meets Blockchain
Legal Nodes Team
EOS.IO is a blockchain protocol, developed by a private company block.one, which has published a White paper for the EOS.IO project back in 2017. The company raised funds via an ICO, collecting more than 4 billion U.S. dollars, claiming to develop a new groundbreaking blockchain architecture.
EOS project aimed to eliminate shortcomings in existing blockchain protocols. The architecture was designed to build decentralized applications. Thus, the software provides accounts, authentication, databases, asynchronous communication, and the scheduling of applications across many central processing units cores or clusters.
Key features of the EOS.IO are:
1) Minimized latency: the system can currently process up to 3998 transactions per second, which has the potential to be multiplied using sidechains.
2) Actions can be delivered to and accepted by multiple accounts atomically.
3) All EOS.IO accounts can be referenced by a unique human-readable name of up to 12 characters in length, chosen by the account`s creator, with an opportunity to have unique shorter names.
4) Multi-user account control with a system of control levels (e.g. “Friend”, “Lawyer”) tied to respective keys, which create a hierarchical structure.
5) The software provides an account owner with an opportunity to use any owner key, active in the last 30 days along with approval from their designated account recovery partner to reset the owner key.
6) EOS.IO also introduces a novelty governance system, with a Constitution being an integral part of it, making EOS a governed blockchain.
Legal nature of the EOS Constitution
A governed blockchain is a permissionless blockchain (meaning, anyone can join the network) with legally binding rules of entry and participation.
Although collocation “governed blockchain” might not make much sense at first, as it defies the nature of the distributed system, a governed blockchain simply utilizes a formalized set of willingly accepted rules, known as the Constitution; and there is no centralized “parliament” that enacts these rules.
Therefore, EOS Constitution is a peer-to-peer Terms of Service Agreement or a binding multilateral Contract for those users who sign it, which sets forth:
1) user`s and block producer`s obligations;
2) dispute resolution procedure by establishing jurisdiction and the choice of law;
3) human-readable intent of the source code protocol;
4) voting rules; and
5) other accepted terms.
Just like “traditional” constitutions that are aggregates of fundamental rules of the state, EOS Constitution establishes a “rule of law” within the network. However, the material scope of the EOS Constitution is obviously much narrower.
Considering that EOS Constitution is still, after all, a Service Agreement, referred to as the “Constitution”, it follows the rules of offer and acceptance as in contract law, though adapted to a distributed network.
EOS Constitution Referendum
Pursuant to the currently effective version, in order for a Constitution to be adopted, token holders with no less than 15% participation have to vote no fewer than 10% more “Yes” than “No” votes (meaning, with at least 55% voting “Yes”).
“EOS Community Constitution, New York, and block.one (that is expected to be published shortly) versions are most likely to be submitted for a referendum as the most sustainable and closely updated versions. While working on EOS Community Constitution we took into consideration different points of view, as far as many EOS teams around the globe used to work on it”, says Dmitri Prokopenko, Co-Founder at MEET.ONE and co-author of one of the drafts.
Both currently available drafts establish the fundamental principles of the EOS blockchain code use, such as:
1) supreme legal force of the Constitution and an obligation to abide by it in an event of ownership of EOS tokens;
2) freedom to a contract;
3) rules of dealing with inflation;
4) voting rules and amendment procedures.
However, the drafts seem to reflect slightly different legal opinions of its authors. For example, the NY draft formally recognizes The New York Convention of 1958 allowing foreign arbitral awards to be recognized so long as the award author is registered on-chain, while the ECC edition simply sets forth freedom to choose an arbiter or a court to resolve a dispute.
In addition, the inflation rate is set at 1% in both drafts, but the New York edition does not allow it to be raised on a referendum, unlike the other one.
Besides, Community version also prohibits any person to own or control more than 10% of the EOS tokens, includes provisions on intellectual property, liability and damages, as well as an opportunity to introduce additional agreements and documents through a referendum lite, that shall be in compliance with the Constitution (just like provisions of state’s constitutions are interpreted in more details in laws and other legal acts).
Regardless of the ECC draft containing more detailed provisions on a broader material scope, the NY version holds a great “constitutionalization” potential, with Ricardian contracts being an integral part of the proposed text.
“Ricardian contracts are read by robots and computers alike, which means they can be executed electronically, opening more opportunities to facilitating the provision of legal services”, says Max Maliuk, CTO at Legal Nodes.
Changes to the Constitution: another form of direct democracy
The constitutional process also traditionally includes the rules of adopting changes to constitutions. EOS Constitution is no different.
To amend the Constitution, the amended text has to receive an approval of 15 out of 21 block producers and maintain it for 30 consecutive days. Block producers then adopt changes to the source code to reflect the change in the constitution and propose it to the blockchain using the hash of the new constitution.
After that, block producers have to maintain approval of the new code for 30 consecutive days. Changes to the code come into effect in 7 days, which gives non-producing nodes time to upgrade after the ratification.
The “constitutional process” unfolding around the EOS Constitution lets us witness how blockchain industry can wisely apply legal concepts that are normally used in drastically different fields of law to the distributed ledger technology.
With multiple forms of direct democracy, arbitration, reduced latencies, free use and endless possibilities to develop blockchain products, EOS blockchain protocol has the potential to disrupt the industry and change the way we are used to applying legal categories to already existing social relations.
Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.
Nik Kliapets, Legal Counsel at Legal Nodes