Web 3.0 is here to stay. Decentralized blockchain technology is an ever-expanding landscape with DeFi and dApps at the centre of it. Ethereum heralded in the new form of blockchain technology by providing a platform for decentralized applications and smart contracts.
However, issues with scalability are creating doubts about its ability to stay at the cutting edge of the industry. EOS claims to be able to combat this and much more. What is EOS and does it live up to its claims?
What is EOS?
EOS is a smart-contract enabled, decentralized blockchain platform for using and developing smart contracts or DApps (Decentralized Applications). It allows developers to create blockchain-based applications in a user-friendly way. It provides security, data-hosting, management tools and communication protocols between dApps.
EOS has a native utility token, EOS, that is used as a payment method to unlock resources within the network and as a staking and governance coin. It has similarities to other application-focused blockchains, notably Ethereum.
One of its primary focuses has been scalability. Ethereum has seen hurdles in the recent past where its network has been overwhelmed by traffic. For dApps and blockchain platforms to have mainstream adoption they will need to be able to handle a huge volume of transactions.
While Ethereum can handle 15 transactions per second, EOS claims to be able to process 1000s a second. This is done by using a Delegated Proof-Of-Stake consensus mechanism.
Another major difference is the lack of transaction fees for users. Many blockchains, including its main competitor, Ethereum, have extremely high transaction fees at the moment. This is often due to scaling issues. Many users can find this off-putting and a barrier to using dApps on the blockchain.
EOS had a highly successful Initial Coin Offering in June 2018 that raised over $4 billion in cryptocurrency. The ICO was carried out by Block.one, who developed the open-source software EOS.IO that runs on the platform. EOS.IO functions like an operating system for developers. There have been some criticisms of EOS regarding how decentralized it truly is and its claims of transaction speed and uses.
EOS Use Case: Using EOS for dApps
To design and launch new dApps, EOS developers combine multiple smart contracts. EOS.IO provides the software and tools needed to help developers. Developers need to buy and stake EOS to use network resources like bandwidth, computational power and RAM.
The amount of resources allocated is based on the number of tokens staked for 3 days prior. This incentivizes the buying and holding of EOS tokens. Bandwidth can also be rented to other token holders if wanted.
RAM is dealt with slightly differently as this is data that is needed to be stored indefinitely. Tokens must be held until that information is deleted and once deleted the tokens are removed from circulation. This raises the value of all EOS left in circulation.
While Ethereum has cornered the lion’s share of the dApp market, EOS has shown some growth due to its usability, lack of transactions and scalability. Examples of dApps on EOS include Everipedia, a blockchain-based online encyclopedia, ONO, a decentralized social network and EOS Dynasty, a role-playing game.
EOS Use Case: Staking
To handle the vast amount of transactions needed, EOS uses a delegated Proof-Of-Stake consensus mechanism. A delegated proof-of-stake system works by token holders voting on who they want to validate and add blocks to the blockchain.
The chosen 21 block producers must supply the computational power, bandwidth and resources needed for the network. Block producers provide the same functions as miners for a Proof-Of-Work consensus mechanism or validating nodes within a Proof-Of-Stake blockchain.
Staking EOS tokens in this way is used for voting power alone. Rewards are not given to any stakers of EOS by the network. Instead, block producers receive a small reward of EOS tokens for block creation via built-in inflation. This is a small issue of coins every time a block is created that is decided by the block producers. There is no maximum supply of EOS tokens. To stop block producers misusing this, this inflation is capped at 5%.
Voting on Block Producers
EOS token holders must stake their tokens for 3 days to participate in voting on block producers. The more coins that are staked, the more say a voter has in who the block producers are.
These block producers can also be voted out by token holders or removed if they do not produce blocks within 32 hours. This was designed to keep a changing rotation of block producers and avoid centralization (most Bitcoin mining is currently done by only 10 mining pools and Ethereum is potentially facing similar problems).
However, as time has gone by, block producers have tended to become large groups or companies with resources who look to profit off inflation and developer fees. Some block producers and proxy voters reward stakers for giving votes to them which has caused further issues in decentralization and put more power in the hands of large corporations.
EOS Use Case: Governance
EOS is used as a governance token within the EOS network. Any holder of EOS can suggest and vote on changes within the network. However, only the 21 block producers can carry out these decisions. This gives a huge amount of power to the block producers. They can freeze accounts, revisit transactions and much more with only a majority of block producers voting in favour.
Block producers can be voted out of power by the token holders. However, this is affected by some EOS whales (large token holders) voting in certain block producers and proxy voters paying rewards for the votes of holders. There has been a lot of online controversy over centralization and connections between token holders and block producers.
EOS Network Foundation Vote
Block.one, the software company behind EOS.IO, was allocated funds for the support of the EOS network. They were to receive about $376 million worth of EOS over 10 years. In December 2021, a collection of EOS coin holders known as the EOS Network Foundation (ENF) voted to block any remaining funds going to Block.one. They claim that Block.one is no longer acting in the best interest of EOS. This vote was then approved and enacted by the top block producers on December 8, 2021. ENF has developed a roadmap for what they consider to be the best plan for EOS in the absence of sufficient help from Block.one.
Is EOS the Next Ethereum?
Ethereum has proven itself on the dApp and DeFi landscape; however high transaction costs and scaling issues have plagued it recently. EOS has shown itself to be a scalable, fast blockchain capable of handling a wide variety of dApps. They handle many issues important to developers using the EOS token to allocate resources. This has helped hugely with adoption.
However, EOS suffers from the huge risk of growing centralization as EOS whales tend to pick the block producers that suit them rather than the entire EOS network. Proxy voting has skewed the balance of power even further. The parent companies involved are at odds with the wider community and governance mechanisms have been shown to facilitate centralized authorities rather than the intended aim of decentralization
The EOS coin is of good use to developers and block producers but has less use for the average token holder who has little say in the development of the blockchain and receives less reward for participating.
Hopefully the work of ENF and others will help EOS change and develop into its original vision. Otherwise the most passionate proponents of blockchain technology and dApps will continue to flock to Ethereum and find the solutions that will solidify its position as the leading dApp platform, leaving EOS behind.