In a year long ICO, Dan Larimer raised hundreds of million to build a scalable smart contract platform with Proof of Stake consensus called EOS. Another ambitious altcoin aiming to dethrone Ethereum, while saying all the right buzz words. Is this just another pump and dump gone to far? Or does EOS have a future ahead of it disrupting a industry worth hundreds of billions?
What Is EOS?
EOS is currently an ERC20 token that was released by a company called Block.one. On June 26, 2017, EOS ran a 365 day long ICO to distribute the coins. $750 million were raised. Now with a war chest of nearly 1 billion dollars, EOS investors wait patiently for Dan Larimer, chief developer and founder of EOS to release the promised delegated proof of stake main net.
EOS’s wants to be a decentralised app platform. To achieve this the network needs a fast throughput rate. While untested at real world volumes, on the varying hardware that builds a decentralised network, EOS claims that their delegated proof of stake technology will average a 1.5 second transaction time and 3 second block time.
EOS Delegated Proof of Stake
In EOS’s delegated proof of stake blockchain there are no miners. “The development process (or proof of stake) involves heavy exploration of both economic and game-theoretic considerations and Byzantine-fault-tolerant protocols, trying to create a protocol that satisfies one of several constraints simultaneously.” – Vitalik Buterin
How does The EOS network’s delegated proof of stake differ from regular proof of stake?
The biggest difference is that there are only 21 block producers/witnesses, who can add blocks to the network. Members of the network vote on delegates, and if they have enough support they earn the right to add transactions to the blocks through a prepare and commit voting function.
20 of the nodes are chosen from larger pool of nodes pseudo-randomly, and the last producer is chosen proportional to their number of votes relative to other witnesses.
Revisiting the trilemma. See how to achieve faster transactions EOS had to sacrifice some decentralisation? There is always trade off with blockchain technology. More nodes means slower transactions, because every node in the network needs a copy of the ledger. Delegated proof of stake limits access to the network, which makes it faster.
The last witness is chosen differently because it prevents the same 21 identities making each block each cycle. It ensures that there is some fluidity between the block producers – new or aspiring block producers can prove they can handle the work in order to try to get into the delegated top 20. Basically it helps maintain decentralisation despite the delegated aspect of DPOS.
Producers on the EOS blockchain are rewarded with EOS coins. Most POS cryptocurrencies, reward stakers with transaction fees. EOS doesn’t have transaction fees so the staking rewards are from the 5% annual emission rate of new coins.
The voting for witnesses is a continuous process. This brings competition to the witnesses who need to maintain their standard or they will lose their right to stake on the network.
In addition to witnesses there are also what are known as delegates. Delegates are responsible for maintaining the network and can even propose changes to the network. Changes such as: Block sizes, the amount that witnesses should be paid and transaction fees, these are all decisions delegates make. Once these changes have been submitted, it is then up to the stakeholders to decide whether or not the proposed changes should be implemented.
How EOS Solves The Nothing at Stake Problem
Producers are rewarded for dishonest contributions to the network. Proof of Stake shows every chain to every validator and asks them to vote on the correct one. If everyone votes honestly the network reaches consensus, and the chain has its longest block. The biggest problem with this is that a mobile phone has the computational power to vote again and again on multiple chains.
Proof of Stake results in a system that encourages malicious nodes to behave dishonestly.
How Ethereum and Lisk are getting around this problem is with a cryptoeconomic solution. If nodes misbehave, they violate the conditions of a smart contract. The smart contract burns all their tokens.
EOS isn’t doing this. The team explained how they believe delegation solves the nothing at stake problem.
Proof of stake is weak because of “nothing at stake” but this only matters when the stake is put to the direct question of a block. Delegation solves that – in DPOS the stake is put to the vote on the Producers, while the block is handled by a direct Producer round. Separation by delegation solves the “nothing at stake” problem.
Some Healthy Criticism
EOS isn’t very decentralised. To rewrite the ledger’s history and double spend on EOS’s delegated proof of stake network, you need control of 2/3rds of all producers. If you already are a producer that is 14 other willing nodes. The selected producers are shuffled using a pseudo-random number derived from the block time. The idea here is that no one can reasonably work out who is going to be chosen, but if a large group of people found a way to work together they could destroy confidence in this network. When the main net is first launched a lot of nodes will probably be developers.
Block.one, the company building, the EOS blockchain is based in the Cayman Island, a little suspicious. EOS have also been criticised for their terms of sale. The law is entirely on Block.one’s side, if they under deliver or create a fraudulent event.
Should I Invest in EOS?
Dan Larimer, the founder of EOS, invented delegated proof of stake. For better or worse, he is at the centre of pretty much EOS conversation. His previous projects in the crypto space haven’t really worked out. There is no denying that he is a brilliant developer. He started Bitshares, and built the Graphene network. And he believes in crypto. He was an early investor in Bitcoin and corresponded with Satoshi on forums about the centralised nature of cryptocurrency exchanges. This was where Bitshares came from. It was probably the first decentralised exchange. Dan Larimer is criticised for never really finishing Bitshares. Depending on your tech savviness, it could take you anywhere from 10 mutes to an eternity to work out how to use the very complicated user interface, and the project was later abandoned by the core developers.
Steemit was much more successful, and while still in Beta, it is successful social network the people actually use. The failure of Bitshares is always held against Dan Larimer, but as Reddit user UniverseSimulation says, “We praise entrepreneurs who fail 6 times and succeed the 7th, but for some reason Dan gets flack for building two fairly successful projects and moving on to #3. It’s because investors only care about the success of their particular project, whereas Dan is literally trying to revolutionise the world.”
As EOS becomes worth more money the fees won’t increase because there are no fees. This is something that both Lisk and Ethereum are struggling with. Lisk are developing a dynamic fee structure, and Ethereum is trying to scale their blockchain, so it doesn’t cost so much gas to have a miner look at your transaction, but EOS will out perform both cryptocurrencies when the main net is launched.
Reddit user A-Weather-Vane put it nicely, “In reality the EOS token directly corresponds to the amount of processing power you can utilize on the EOS network. For example, if you own 1% of the overall EOS tokens, you can use 1% of the network CPU, Storage Capacity, etc.”
Long term the future of EOS depends on the team’s ability to build this blockchain. Short term, they haven’t even finished their token distribution and EOS is already one of the most popular cryptocurrencies. I don’t know if it deserves it, but EOS has incredible amounts of hype and attention. It is worth investing in the EOS cryptocurrency just to ride the bullish waves.
Want to learn more about EOS investment opportunities? Read Coinlist’s EOS investment information now.