Deep Dive Review into EOS (December 2018) - Crush Crypto

Deep Dive Review into EOS (December 2018)

Summary

  • Project name: EOS
  • Token name: EOS
  • Crowdsale Dates: June 2017 – June 2018
  • Network Release: June 10, 2018

What is EOS?

EOS is a blockchain-based development platform designed for building decentralized applications (dApps). Developers can write and deploy smart contracts that power dApps and decentralized autonomous organizations (DAOs).

The platform has a native token with the ticker EOS. EOS tokens were first released as an ERC20 token on the Ethereum blockchain, but a main-net token swap occurred after EOS Version 1.0 was deployed in June 2018.

EOS is often referred to as a decentralized operating system, where holding tokens represents a proportional share in the network bandwidth, storage, and computational resources. DApp developers must stake a certain number of tokens (called RAM) to cover the resources used by their DApp, but they receive those tokens back if the DApp is taken down.

Because of this staking model, users can interact with and use dApps for free. There are also no transaction fees on the EOS network, and block producers earn rewards from newly minted tokens.

EOS was developed and launched by the software company Block.one, who released the software as free and open source. Block.one built the EOS platform to incorporate 3 major features: scalability, flexibility, and usability.

It aims to be scalable by supporting thousands of commercial scale dApps, facilitating inter-blockchain communication, and separating authentication from execution.

It aims to be flexible through the ability to freeze and fix faulty or bug-laced dApps and incorporating generalized role-based permissions.

It also aims to incorporate usability through a web toolkit for interface development, self-describing interfaces, and a declarative permission scheme.


EOS Consensus Mechanism

The EOS blockchain uses a Delegated Proof of Stake (DPoS) consensus mechanism with 21 block validators and integrated Byzantine fault tolerance. Delegated Proof of Stake is a consensus mechanism where blocks are validated by a pre-selected group of nodes and it allows for high transaction throughput.

Byzantine fault tolerance is the ability of a network to handle situations where nodes go down or malicious nodes broadcast faulty information. EOS is theoretically Byzantine fault tolerant because 15 out of the 21 block producers are required to confirm a transaction (a 2/3 majority).

For a more detailed discussion on Byzantine fault tolerance and the reason a 2/3 majority is important, refer to our Practical Byzantine Fault Tolerance article.

EOS transactions are typically confirmed within 1 second with a 99.9% certainty, as a new block is created every 0.5 seconds. Dan Larimer stated in an April 2018 blog post that EOS can theoretically support over 1,000 transactions per second and aims to scale to 6-8,000 transactions per second in the future.

EOS also implements a mechanism called Transaction as Proof of Stake (TaPoS), where every transaction must include part of the hash of a recent block header. TaPoS makes it difficult to forge counterfeit chains considering the counterfeit chain would not be able to migrate transactions from the legitimate chain.


Key Features

  • DPoS consensus mechanism: See above section.
  • Parallel processing: The ability to do things in parallel on the EOS network allows for faster transaction speeds and more scalability. This is planned for implementation in future versions of EOS.
  • Network flexibility: If a DApp is faulty and contains a critical bug, the elected block producers can freeze it until the issue is resolved.
  • High transaction throughput: EOS can theoretically support over 1,000 transactions per second with hopes that the platform can scale even higher.
  • Ownership model: Owning EOS tokens represents a proportional share of the network resources like bandwidth, storage, and processing power. Developers must prove they hold a sufficient number of tokens to create DApps on the EOS blockchain.
  • No transaction fees: Sending EOS tokens to another user or using them for a DApp requires no fee.
  • EOS Constitution: The Constitution is a multi-party contract entered into by members of the EOS ecosystem by virtue of their use of the platform. The Constitution has 18 articles that outline the rules and user rights governing the EOS blockchain.

Key Milestones

EOS is an open source project and its source code can be viewed here: https://github.com/EOSIO

  • June 5, 2017: EOS Technical White Paper released.
  • June 9, 2017: Draft of the EOS token sale smart contact released.
  • September 14, 2017: EOS.IO Dawn 1.0 released – the first release of the EOS.IO software development kit (SDK).
  • December 5, 2017: Dawn 2.0 released.
  • January 13, 2018: Former Bithumb CEO Richard Jung joined Block.one as Head of Korea.
  • January 16, 2018: EOS.IO Blockchain Focused Fund formed.
  • January 23, 2018: Block.one and Galaxy Digital announced joint venture for $325 million EOS.IO fund.
  • April 5, 2018: Dawn 3.0 released.
  • April 6, 2018: Block.one signed a $200 million joint venture partnership to accelerate Asia-focused EOS ecosystem development.
  • May 11, 2018: Dawn 4.0 released.
  • May 31, 2018: EOS Bug Bounty Program went live.
  • June 1, 2018: Version 1.0 of open source EOS blockchain software released and EOS Developer Portal went live.
  • June 9, 2018: EOS main-net launched.
  • July 19, 2018: EOS Version 1.1.0 released.
  • August 14, 2018: EOS Version 1.2.0 released.
  • September 18, 2018: EOS Version 1.3.0 released.
  • October 17, 2018: EOS Version 1.4.0 released.

Future Development

Block.one has committed to investing over $1 billion into projects focused on growing the EOS ecosystem through their venture capital firm EOS VC. They also host EOS hackathons around the world and fund prizes for the winning projects.

Projects can receive more information about EOS VC and find an application link here: https://vc.eos.io/about-eos-vc/

There is no updated roadmap for the future technical development of EOS.


Token Economics

The EOS blockchain has a native token called EOS. As of December 7, 2018, the total supply is 1,006,245,120 EOS and the circulating supply is 906,245,118 EOS.

EOS tokens represent a share in the platform’s resources – this includes bandwidth, storage capacity, and processing power. Developers who wish to build dApps that run on the EOS blockchain must prove they hold a certain number of tokens and then stake those tokens to deploy the DApp.

Application developers must stake tokens to cover the nominal cost of account creation to sign up new users for their DApp. In addition, they must stake tokens for any storage, CPU power, or bandwidth used by the user. If the developer takes the DApp down, they receive their staked tokens back.

Developers can refer to the EOS Resource Center for up-to-date staking cost calculations. Baseline costs as of December 7, 2018 are outlined below:

  • Cost for 1KiB of data in random access memory (RAM): 0.063 EOS (~$0.122 USD)
  • Cost to reserve 1 KiB of network bandwidth per day: 0.00043303 EOS (~$0.001 USD)
  • Cost to reserve 1 MS of CPU bandwidth per day: 0.20370257 EOS ($0.369 USD)

This token model is unique to EOS and differs from other smart contract platforms such as Ethereum. For Ethereum, ETH tokens are used to pay transaction fees and upfront costs of deploying smart contracts for dApps.

There are no transaction fees on the EOS blockchain – meaning the 21 block producers receive compensation solely from newly minted tokens in each block. The inflation rate was initially set at 5% upon main-net release, which may be updated in the future but will not exceed 5%.


Team

EOS is an open source, free platform that was released by the software company Block.one. Block.one was founded in early 2017 and is registered in the Cayman Islands but operates out of Hong Kong, Los Angeles, and Virginia. The biographies of key team members are listed below:

Daniel Larimer, CTO – Dan specializes in software development and has founded prominent technology companies including BitShares, Steemit, and Block.one. He is the inventor of the Delegated Proof of Stake (DPoS) and Decentralized Autonomous Corporation (DAC) concepts. He has been involved with blockchain technology since 2009 an also serves as a guest lecturer and curriculum advisor to Virginia Tech’s Computer Science Department.

Brendan Blumer, CEO – Brendan started his career by founding Gamecliff in 2001, a company that automated the valuation, purchase, and resale of in-game video game items. He also founded okay.com, a data-sharing ecosystem for the Asia Pacific property market that is now Hong Kong’s largest digital property agency. He is an early investor in blockchain technologies and co-founded Block.one with Dan Larimer.

Rob Jesudason, President – Prior to joining Block.one, Rob worked as the CFO of Commonwealth Bank of Australia, Head of Global Emerging Markets for Credit Suisse, and held various positions at JPMorgan, Barclays, GE Capital and more. He is a member of Block.one’s Board of Directors and is responsible for group global operations.

Andrew Bliss, CFO – Andrew is a financial professional, investor, and entrepreneur that has served as the CFO of Block.one since its inception. Prior to Block.one, he held financial and accounting positions with Rockwell Collins, where he worked for just under a decade.

Michael Alexander, CEO (EOS VC) – Michael has more than 25 years of experience in Asia capital markets, previously serving as the CEO of Jefferies Group Asia, Head of Sales and Sales Trading at CLSA Hong Kong, Head of Proprietary Trading at JPMorgan Hong Kong, and more. He is responsible for managing direct venture investments and EOS VC partnerships for Block.one, focusing on sourcing and investing in projects developing on the EOS ecosystem.


Analysis

Strengths

  • EOS has a huge war chest to fund dApps to build on the network. It was announced that EOS VC has $1 billion, although the number should be lower now that EOS price has dropped substantially. 
  • Unlike most of the other popular blockchain platforms, users do not need to pay transaction fees on EOS. This is good in terms of user experience.
  • EOS uses the WASM virtual machine, which supports different popular programming languages like C, C++, and Rust. This makes it easier for developers to build on the platform.
  • The DPoS consensus mechanism used by EOS enables a high transaction throughput, meaning users can see their transaction confirmed almost instantly. It is significantly quicker than most decentralized proof-of-work blockchains and allows for scalable use of dApps.
  • EOS has flexibility in the sense that one bug in a dApp will not render it useless or impact the health of the network. The 21 block validators can freeze the application and allow developers to fix any issues before it goes live again.
  • Developers must stake EOS tokens to pay for storage, bandwidth, and computational costs associated with smart contracts/dApps, and receive the tokens back if they take the dApp down.
  • This model ensures developers have a vested interest in their work and the whole ecosystem but does not require non-refundable deployment payments like other platforms. This model could convince developers to build on the EOS blockchain.

Weaknesses

  • With transactions being free, users can easily spam the network without much cost.
  • It is not easy to create an EOS account to use the token and it requires a fee. This creates friction in user adoption.
  • The number of Block Producers for EOS is relatively low at 21. This leads to a considerable amount of centralization, with each block producer holding a significant amount of influence over the network. EOS cannot compare to the level of decentralization associated with other blockchains like Bitcoin or Ethereum.
  • The governance of EOS heavily relies on voting but the participation rate among token holders is low, which may lead to ineffective governance.
  • The Huobi voting collusion scandal highlights the weakness of a DPOS system. A lot of thoughts need to put in the selection of supernodes and incentive mechanism.
  • The rewards for being a super node is substantial. With EOS at $2, the top block producers earn over $500,000 per year with minimal operating expenses. This incentivizes Block Producers to use various tactics to maintain their status.
  • Dan Larimer has a tendency to leave current projects and move onto the next one. Steemit, one of Dan’s previous projects, recently announced that it would lay off 70% of its staff.
  • Although Dan said that he is not leaving EOS, he is indeed thinking about a new blockchain focusing on currency. The market is concerned because of his previous history of leaving unfinished projects.
  • Block.one claims the EOS network is flexible in the sense that faulty dApps can be frozen while the bugs are fixed. However, this same power allows for the Block Producers to reverse transactions that have been previously confirmed. One of the biggest features of blockchain technology is immutability, which is not present in the EOS network.
  • Quoting article XVII of the EOS Constitution: “After 3 years of inactivity an account may be put up for auction and the proceeds distributed to all Members by removing EXAMPLE from circulation.” Essentially any holder of EOS who has not made a transaction within 3 years can have their tokens taken away. This signals more centralization and sets a dangerous precedent.
  • The defining feature of success for smart contract platforms like EOS is building a strong developer community. In this respect, EOS is significantly behind Ethereum and other platforms and will have to recruit and retain blockchain developer talent to catch up to or surpass Ethereum.

Conclusion

Overall Rating: ​C

EOS has chosen to sacrifice traits like decentralization and permissionless to build a high-performance dApp platform. It has potential to succeed if more blockchain developers begin to migrate to EOS, but a lot has to be done before that happens. We could see EOS being used for certain use cases that do not require maximum censorship resistance that need high scalability.

There are quite a lot of activities on the EOS blockchain, with the most active dApps being BetDice (over 6 million transactions in the last 7 days) and Royal Online Vegas (over 4 million transactions in the last 7 days). However, because EOS transactions are free as previously mentioned, it is hard to see whether the transaction number is inflated or not.

The most important metric for smart contract platforms is developer activity, and EOS is behind when compared to other platforms such as Ethereum. According to Dapp Radar, there are 160 deployed EOS dApps compared to 1,216 for Ethereum.

Being a young blockchain platform, EOS relies on the founding team to work on the project and deliver on the project’s vision. However, Dan Larimer’s recent comments on a potential new project does not bring confidence to the market, especially when he has a history of leaving unfinished projects.

We also believe there are flaws in the design of the governance system of EOS, as shown in the Block Producer voting scandal mentioned earlier. This shows that the selection of Block Producers may need to include things other than just voting with EOS tokens. Without a careful design, we believe that DPOS systems are prone to be manipulated.


Additional Resources


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