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EOS: Ethereum’s competition

EOS is a blockchain-based, decentralized operating system and competitor to Ethereum, founded by Dan Larimer (who also created BitShares and Steemit) and Brock Pierce (a former child actor who played a young Gordon Bombay in the Mighty Ducks).

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EOS Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Like Etherum, EOS is hosting environment for decentralized applications. It’s an open source smart contract platform upon which dapps can be built on. The platform has large aspirations of confirming millions of transactions per second as opposed to about 10-20 per second for Ethereum. Additionally, the EOS protocol requires the receiver to pay the fees, so that the companies who own the applications rather than the users are responsible for the cost of storage and bandwidth each time a user runs a dApp. Founder, Dan Larimer, explained that this system more closely resembles current websites and applications, where users do not have to make micropayments each time they click “Like” or post something on Facebook or Instagram, for example. Currently, they are selling their tokens through an ICO on the Ethereum platform while the platform finishes its development and testing phases. Therefore, as of now the tokens have no purpose. Once those phases are complete, EOS tokens will be exchanged for EOS coins on the EOS platform which will be used in a delegated proof of stake system (DPOS) described below for companies to pay for the storage costs of their dApps.

Pros: Similar to Ethereum with extremely high transaction speeds (~ millions of transactions per second); delegated proof of stake validation method increases transaction speed and significantly reduces computing power necessary to run the network compared to proof of work used in Bitcoin, Ethereum, and many other decentralized networks; uses parallel processing to increase transaction speeds even further; executes Turing-complete smart contracts in a platform for developing dApps; no fees for users to execute smart contracts, developers bear the costs of storage and bandwidth requirements; smart contracts can be frozen or fixed.

Cons: Still in the conceptual phase and the tokens currently lack a purpose –it has not started to even test the network and plans on a long testing phase before releasing its smart contract functionality to the main network; unlimited supply where block producers receive new coins each time they produce a new block. Accordingly, unlike many other cryptocurrencies that are deflationary EOS is subject to inflation; founder Dan Larimer has a reputation for starting projects and leaving in the middle; very high transaction speeds can lead to centralization

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Unlike Bitcoin, Ethereum, and many other cryptocurrencies, EOS uses a delegated proof-of-stake (DPOS) system, via Graphene technology, to validate transactions rather than the more common proof-of-work system. In a DPOS system, token holders vote on block producers which validate subsequent blocks, where the token holders’ votes are weighted in proportion to the number of tokens they own. In this manner, token holders (which may be application developers) can be in control of a percentage of storage and bandwidth in the EOS network in proportion to the number of tokens they own. In other words, a company who owns 1% of the EOS tokens can use 1% of the bandwidth and storage capacity. This way companies can anticipate the amount of bandwidth and storage they need to run their applications and can purchase the corresponding number of EOS tokens. To produce blocks, the block producers receive a reward from the EOS network in the form of newly minted coins making EOS an inflationary currency. Moreover, a block is produced every 3 seconds and unlike other decentralized systems that produce blocks sequentially, the EOS platform plans to allow for several blocks to be produced at the same time (in parallel). This is how EOS can achieve a confirmation rate of millions of transactions per second. While parallelization would allow for thousands of dApps to run on the platform, this concept is merely theoretical at this time. EOS still has extensive testing to do before it can demonstrate such a high level of scalability.

Leadership/Community Participation

As mentioned above, EOS was founded by Dan Larimer – a controversial figure in the cryptocurrency community. Although he founded other decentralized platforms, such as Bitshares and Steemit and is responsible for creating Graphene technology for a DPOS system, Larimer is known for leaving projects without fully seeing them through. On the other hand, Larimer insists his company block.one causes him to have a higher level of professionalism than his past projects. Former child actor and co-founder Brock Pierce was recently removed from the project amidst allegations of a shady past.

Transaction Volume and Market Capitalization

EOS has the 6th largest market cap (~4.3B) and a daily transaction volume of over $260 million despite requiring substantial development before the tokens are converted into EOS coins and used in a staking system.

Industry Participation

Although a few dApps have indicated an interest in migrating to the EOS platform, as it is still in its very early stages, the majority of companies seem to prefer Ethereum at this time.

Security

In terms of security, it has many of the same advantages and disadvantages as Ethereum. In some instances, staking can lead to increased centralization as only a small number of users will have enough tokens to win a block reward. An attack directed at one of those accounts could severely disrupt the network. Additionally, the extremely high transaction rate can lead to expensive data storage costs, and as a result, only a small number of block producers may participate in the network. Therefore, EOS could become highly centralized.

Usability

Currently, the EOS token has no purpose or use. Once the EOS platform is released to the public, the tokens will be converted to EOS coins used in the DPOS system. Token holders with a large number of EOS coins can control a significant amount of the bandwidth and storage in the network. This way a large application such as a decentralized version of Facebook can store all of its users, posts, likes, etc., on the blockchain by maintaining a large number of EOS coins.

Technical Features

To perform DPOS, EOS uses Graphene technology developed by Dan Larimer and used in the decentralized networks BitShares and Steemit. Transactions are feeless and instead, block producers receive newly minted coins for generating the blocks. Furthermore, EOS plans to have block producers operating asynchronously and in parallel to further increase scalability. By identifying groups of transactions that are unrelated to each other, producers can generate two blocks at the same time that do not depend on each other. There are plans to include a “constitution” as a smart contract laying out the terms of service for participants in the network. This may include the jurisdiction and choice of law for dispute resolution. Another interesting feature in the EOS platform is the ability to freeze or fix issues with smart contracts. Smart contracts in Ethereum cannot be changed once they are recorded on the blockchain which is problematic when code is known to have bugs which may not be discovered even after extensive testing. In the DPOS system, producers may simply stop confirming transactions for a particular dApp and EOS even allows for smart contracts to be updated on the platform.

Growth/Legal Risks

There is potential for growth as development proceeds further. Eventually, it may compete with Ethereum as the platform advances further in its development and testing phases and a functional version is released. Nonetheless, EOS at the moment appears risky as it is very early in the development phase, and it’s unclear whether the platform will be able to deliver all that it promises.

Estimated Time of Arrival

Although tokens can be purchased through the token sale as well as exchanges, they have no purpose until they are converted into coins on the platform. Currently, EOS seems to be somewhere in between the conceptual/development and testing phases and plans to perform extensive testing before releasing the platform.

ETA: Mid -May 2018

Conclusion

A blockchain operating system capable of confirming millions of transactions per second could support a very large number of dApps running on its network, and would allow for almost any website/application to become decentralized. While these concepts make EOS sound very attractive, there is still a lot of work to do for them to deliver on these promises. Also, the EOS tokens that are currently available have no purpose until they are converted into coins and used in their staking system. Thus, EOS is a risky proposition at the moment.

Acknowledgment:

Analysis brought to you by the hugely talented cryptocurrency enthusiast Cameron Pick. Find out more at https://cryptonalysis.net and be sure to follow the cryptoanalysis Twitter account: https://twitter.com/Cryptonalysis1

 

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