Conflict of interest accusations and defenses

[ericsammons]

The problem is if a small group of MN owners are able to pass proposals that benefit themselves but not Dash -- skimming the cream off the top without spilling the milk. It's the way insiders and parasites have always operated.

The MN voting system is a terrific innovation, but the MNOs have to be vigilant, active and smart not to allow the system to be abused.

I still don't think there is a problem. If some small cabal of MN owners votes for proposals that benefit themselves but not Dash, that is out in the open for all to see. It's not like the proposals are secret - we know where the block rewards go. We might not know exactly who is in the cabal, but we'd see block rewards going out with nothing to show for it. People would lose confidence in Dash and eventually it would die. Problem solved.

Masternode owners -whether they own 1 MN or 1,000 - are incentivized to vote for proposals that improve the network and raise the value of Dash. A small cabal might be able to get away with a few small insider proposals, but eventually it would catch up to them.

 

[jimbursch]

A small cabal might be able to get away with a few small insider proposals, but eventually it would catch up to them.

True dat.

 

[David]

The problem is if a small group of MN owners are able to pass proposals that benefit themselves but not Dash -- skimming the cream off the top without spilling the milk. It's the way insiders and parasites have always operated.

The MN voting system is a terrific innovation, but the MNOs have to be vigilant, active and smart not to allow the system to be abused.

I believe that's the crux of @camosoul 's critique -- that chunks of the Dash budget are being wasted and frittered away because MNOs aren't paying attention.

Jim & OP: I answered a similar question awhile ago over on BCT. I'll repost here, updated for current prices and MN count. RE: "How can we be sure that MN owners won't collude and skim budget funds if they have enough MN votes to do so."

This potential problem assumes that the vast majority of masternode owners just sit around and do nothing. Let's think about it:

a) Proposals have to be submitted about 96 hours before superblocks are created. It takes 72 hours for a proposal to "mature" and become valid, and then budget finalization happens around 24 hours before superblocks. Votes after budget finalization don't count. Consequently, we can say that masternode owners have a minimum of 72 hours to vote on any proposal.

b) An "abuser" would need to attract 10% net votes, which at the present time is about 410. Now, we're reasonably confident that nobody owns more than a couple hundred masternodes (assuming everybody is honest about how many they own). Even Otoh is down to 76 masternodes (again, according to him). So right off the bat, we're assuming that at least two people have to collude, and that's with ZERO masternode owners noticing the "attack" and voting against it.

c) An abuser (individual or, more likely, a group) would need to possess at least 410 masternodes, which is 410,000 DASH ($43 million at today's price). The maximum reward they could get from attacking the budget system is the entire budget amount, which is 6,920 DASH ($726,600 at today's price).

d) A successful abuse of the budget system would likely crash the price of DASH, at least temporarily. Let's say that such an attack reduces the value of DASH by just 10% (in reality, it would probably be far worse than that). The attackers gain AT MOST $726,600 but lose $4.3 million (10% of the value of their $43 million holdings).

e) In reality, there are generally many proposals that reach greater than 10% support. In fact, we often see the majority of the budget consist of proposals with greater than 18% support. That means the abusers would have to control even more masternodes to be able to seize the entire budget. In reality, only a small percentage of the budget is usually available to a "barely passing" proposal...usually less than 1,000 DASH. The most that an attacking consortium with $43 million worth of DASH could hope to seize is...about $105,000 (1,000 DASH * $105 USD per DASH).

Therefore, an attack on the budget system by a rogue group of masternodes is a) unlikely, and b) not economically feasible.

tl;dr Somebody who owns enough MNs to successfully abuse the budget system would lose far more money than he/she would gain.

 

[Acedian]

If someone owns 51% of masternodes then that is more than 2000 masternodes. The value is about 2 million dash with an income of over 16000 dash per month. Why would you waste time voting for projects that line your pockets with a few hundred dash per month. They would already be getting 22.5% of the block reward an extra 1 or 2% from dodgy proposals seems almost pointless, a waste of your clearly valuable time. If you vote for proposals that hurt dash you are still burning your money. I don't really see a conflict of interest unless the person with the 51% is just building to a massive troll.

 

[GrandMasterDash]

Jim & OP: I answered a similar question awhile ago over on BCT. I'll repost here, updated for current prices and MN count. RE: "How can we be sure that MN owners won't collude and skim budget funds if they have enough MN votes to do so."

This potential problem assumes that the vast majority of masternode owners just sit around and do nothing. Let's think about it:

a) Proposals have to be submitted about 96 hours before superblocks are created. It takes 72 hours for a proposal to "mature" and become valid, and then budget finalization happens around 24 hours before superblocks. Votes after budget finalization don't count. Consequently, we can say that masternode owners have a minimum of 72 hours to vote on any proposal.

b) An "abuser" would need to attract 10% net votes, which at the present time is about 410. Now, we're reasonably confident that nobody owns more than a couple hundred masternodes (assuming everybody is honest about how many they own). Even Otoh is down to 76 masternodes (again, according to him). So right off the bat, we're assuming that at least two people have to collude, and that's with ZERO masternode owners noticing the "attack" and voting against it.

c) An abuser (individual or, more likely, a group) would need to possess at least 410 masternodes, which is 410,000 DASH ($43 million at today's price). The maximum reward they could get from attacking the budget system is the entire budget amount, which is 6,920 DASH ($726,600 at today's price).

d) A successful abuse of the budget system would likely crash the price of DASH, at least temporarily. Let's say that such an attack reduces the value of DASH by just 10% (in reality, it would probably be far worse than that). The attackers gain AT MOST $726,600 but lose $4.3 million (10% of the value of their $43 million holdings).

e) In reality, there are generally many proposals that reach greater than 10% support. In fact, we often see the majority of the budget consist of proposals with greater than 18% support. That means the abusers would have to control even more masternodes to be able to seize the entire budget. In reality, only a small percentage of the budget is usually available to a "barely passing" proposal...usually less than 1,000 DASH. The most that an attacking consortium with $43 million worth of DASH could hope to seize is...about $105,000 (1,000 DASH * $105 USD per DASH).

Therefore, an attack on the budget system by a rogue group of masternodes is a) unlikely, and b) not economically feasible.

tl;dr Somebody who owns enough MNs to successfully abuse the budget system would lose far more money than he/she would gain.

No no, sorry but this is utterly untrue. There is absolutely nothing anywhere to show who owns what, it's all conjecture. But while we're guessing, I'd say the recent mega rise in price is largely because of deep pockets snapping up whole masternodes. How is anyone going to prove me wrong? - clearly they can't. But we do know there are scripts that stagger voting times in order to obfuscate statistical analysis.

I think if we allow miners and MNOs a chance to be voluntarily accounted for in a decentralised manner, then the public at large could draw some confidence that the MN network isn't in fact centralised. There are plenty of merchants with AML / KYC processes and it would be relatively easy to detect the virgin coins coming from miners and MNOs... and so those independent merchants could publish broad statistics about it's miner / MNO customers without having to reveal their identity.

 

[xjones]

...
Therefore, an attack on the budget system by a rogue group of masternodes is a) unlikely, and b) not economically feasible.

tl;dr Somebody who owns enough MNs to successfully abuse the budget system would lose far more money than he/she would gain.

The kind of analysis you have done falls under the field of study called "game theory", I believe. This type of analysis has been done by many computer scientists and mathematicians for the bitcoin blockchain, and they have all generally concluded (with a few exceptions) that that blockchain is resistant to attack.

But that type of analysis has not been done for the case of masternodes owned by unknown parties that might collude to vote in favor of their own budget proposals. In your analysis you assumed certain specific numbers. It might be that for the specific numbers and scenarios you assume, that collusion and self-dealing won't occur. But there are simply too many possibilities for us to analyze them all. Until the experts who have analyzed the bitcoin blockchain do the same type of analysis of masternodes, and publish their research papers, and allow time for other experts to read those research paper and confirm their conclusions, I don't think it's safe for us to assume that dishonest self-dealing won't occur.

Rather than do a comprehensive game-theoretic analysis, it's so much simpler to just avoid the problem altogether, by prohibiting self-dealing without full disclosure of all conflicts of interest.

 

[xjones]

If some small cabal of MN owners votes for proposals that benefit themselves but not Dash....[W]e'd see block rewards going out with nothing to show for it.

They're not going to make it so obvious.

More likely, they will vote for budget proposals that are of the greatest benefit to them personally, and also of some benefit to Dash. Were the masternodes truly neutral, they would likely have voted for other budget proposals that would have been of greater benefit to Dash.

 

[David]

The kind of analysis you have done falls under the field of study called "game theory", I believe. This type of analysis has been done by many computer scientists and mathematicians for the bitcoin blockchain, and they have all generally concluded (with a few exceptions) that that blockchain is resistant to attack.

But that type of analysis has not been done for the case of masternodes owned by unknown parties that might collude to vote in favor of their own budget proposals. In your analysis you assumed certain specific numbers. It might be that for the specific numbers and scenarios you assume, that collusion and self-dealing won't occur. But there are simply too many possibilities for us to analyze them all. Until the experts who have analyzed the bitcoin blockchain do the same type of analysis of masternodes, and publish their research papers, and allow time for other experts to read those research paper and confirm their conclusions, I don't think it's safe for us to assume that dishonest self-dealing won't occur.

Rather than do a comprehensive game-theoretic analysis, it's so much simpler to just avoid the problem altogether, by prohibiting self-dealing without full disclosure of all conflicts of interest.

Other than a general statement of "we promise to be ethical" I don't know what you're wanting, exactly. Do you want Core Team to reveal the number of masternodes they own? Even if everybody is willing, how will you know they are telling the truth?

 

[xjones]

I don't know what you're wanting, exactly.

To begin with, to raise awareness of possible conflicts of interest. The awareness will be raised by the public anyway, once Dash hits the mainstream. Better we do it now and think about solutions.