What is EOS?
Updated: Apr 15, 2021
Just like iOS is a platform for Apple Apps and Android for Apps on other smartphones and Windows for PC Apps, there is a need for platforms to run blockchain-based dApps (Decentralised Apps) Currently, the leading blockchain to execute dApps is Ethereum. However, Ethereum suffers from serious capacity constraints and users are constantly complaining of clogged networks and high gas prices. EOS is an alternate blockchain platform for running dApps that is giving legitimate competition to Ethereum and hence is often called the Ethereum Killer. It aims to do what Ethereum does, but only better.
Funding - Funding does not appear to be a roadblock for EOS in its competition with Ethereum. EOS ICO made headlines when it raised US$4bn in the longest ICO ever stretching for 350 days. It has emerged from the ICO boom of 2017 relatively unscathed by paying a penalty of $24mn to the SEC for conducting an unregistered ICO. 2 features of EOS that make it an exciting proposition are: 1. Free transactions 2. Scalability
1. Free transactions - One of the reasons that Blockchain Technology is having a tough time replacing Traditional Finance is the “Friction for the User” Consumers believe there is something inherently unfair about having to pay for certain transactions. Armed with this insight, traditional platforms have designed their products in such a manner that platform costs are borne by the seller and not the consumer. For example, when you pay in a clothing store, the 2-3% credit card fees is borne by the merchant and not you. When you order dinner in a food app like Deliveroo, the 25-30% platform fee is borne by the restaurant and not you. When you order freelance work on Fiverr, the 20% platform fee is borne by the freelancer and not you. The product design makes the consumer feel like the platform is free. The fee is charged to the seller who is more inclined to bear the cost. On the blockchain, it's a totally different story. Every transaction requires the customer to pay. Every purchase, every sale, every transfer, and every update on Ethereum involves a gas price that is borne by the consumer. EOS takes a lesson from traditional platforms and charges the developers instead of the users. But this still sounds unfair. Why are the poor developers being made to pay? This looks like the evils of traditional finance are being imported into blockchain It isn’t that bad for the developers. Developers pay through inflation and not an actual payment. Say What? EOS works on an Ownership rather than a Rental model. Developers aren’t required to pay for every transaction. Instead, they stake EOS tokens and are entitled to use a proportion of resources, equivalent to their stake. Once their transaction is executed, they can remove their stake. So if Users don’t pay and if Developers don’t pay then who pays the Block Producers? Block Producers are paid through inflation. That sounds like jumbo-jumbo. What does that even mean? New tokens are created at a fixed rate annually automatically by the protocol and distributed among Block Producers. This is not a new concept. In the case of Bitcoin for example, miners are allocated 6.25 bitcoins for every block added to the chain. One can argue that these are created out of thin air. Earlier, the inflation rate at EOS was set at 5%. The community later voted to reduce the inflation rate to 1%. This means that the supply of EOS tokens increases by 1% every year and this new supply is distributed among Block Producers. 2. Scalability - Ethereum’s current capacity is 15 transactions per second. It is accepted that for Bitcoin (which is purely a currency) to become mainstream, it must match Visa’s capacity of 1700 transactions per second. Ethereum (which aims to be a global computer) must have even greater capacity. EOS aims to reach millions of transactions per second. EOS’ plans for reaching this goal is helped by certain design choices which increase throughput and reduce resource utilization in processing transactions:
A. Consensus Protocol - EOS uses a consensus mechanism called Delegated-Proof-of-Stake (DPoS). Bitcoin and Ethereum use Proof-of-Work (PoW) where miners solve complex math problems to win a chance to verify transactions and earn fees. Ethereum is likely to move to Proof-of-Stake (PoS) where validators stake their Ether to win a chance to verify transactions and earn fees. In DPoS, token holders vote for Block Producers who are authorized to verify transactions and earn fees in proportion to the votes they receive. Bad behavior like not generating a block when selected can be penalized through removal. => The jury is out on which is the best mechanism but DPoS is clearly the fastest, most efficient, and least energy-consuming. B. Parallel Transaction Processing - The current popular blockchains work sequentially. All transactions line up in a queue and are processed one after the other. At times of high traffic, the waiting time ends up being longer. EOS allows parallel processing i.e. multiple transactions can be processed simultaneously instead of waiting for their turn.
C. Interoperability - While working on increasing the capacity of its own chain, EOS is preparing for a multi-blockchain world by simultaneously developing horizontal scaling through developing ways to communicate with other blockchains.
Developer friendliness- EOS is serious about making life easier for developers. It claims to have the most feature-rich development kit to help developers build dApps. The recently released EOS 2.0 development kit apparently has features reducing the barriers to entry for developers. Importantly, EOS uses already established programming languages like Java, C++, and Python vs Ethereum which uses Solidity.
Enterprise friendliness - EOS provides tools to maintain regulatory compliance, implements enterprise-level security, and uses high-performance consensus algorithms. All of which help enterprise adoption
Governance - EOS Constitution codifies the rules between eos.io participants- token holders, block producers, developers, and users. EOS token holders can vote on proposals to make changes to the constitution. Block Producers enjoy powers like the ability to freeze funds with a 15/21 vote. This could have helped prevent a MakerDAO debacle type scenario where the funds would have been locked and dealt with separately instead of resulting in a hard fork. Ethereum fights back- Ethereum 2.0 is poised to solve for the scaling problems in Ethereum through (a) the move to Proof-of-Stake and (b) Sharding. According to Ethereum co-founder, Vitalik Buterin, Ethereum will be able to process 100k transactions per second with Ethereum 2.0. While the move to PoS may happen soon, sharding will not be a reality until at least a couple of years. Criticism -
* The biggest criticism of EOS is its centralization. There’s a concentration of tokens in the hands of a few. The DPoS only allows for 21 Block Producers.
* Currently, there are 300+ dApps on the EOS Blockchain. These include gambling, games and exchanges. Some of these have thousands of users and high volumes. However, there are over 9x as many dApps on Ethereum with much higher user engagement. EOS has a lot of catching up to do.
(One can look up dApps on EOS here)
Final verdict- While Ethereum and EOS continue to compete for the title of largest Blockchain for Smart Contracts, both are likely to coexist. Maybe EOS will be known for its enterprise-level dApps and Ethereum for less network capacity guzzling dApps