Oct 14, 2017
We will be writing an update on EOS in the near future given some further research indicating that this is no longer a credible investment at this stage.
July 9, 2017
Here is how the EOS technical white paper begins:
“The EOS.IO software introduces a new blockchain architecture designed to enable vertical and horizontal scaling of decentralised applications. This is achieved by creating an operating system-like construct upon which applications can be built…The resulting technology is a blockchain architecture that scales to millions of transactions per second, eliminates user fees, and allows for quick and easy deployment of decentralised applications.”
Let’s break that down into what this really means.
“…vertical and horizontal scaling…”
The key differentiator here is horizontal scaling, basically increasing capacity by adding more blockchains into your pool of resources, whereas vertical scaling means that you scale by adding more power to an existing blockchain.
What that means is that other blockchains like Bitcoin, Ethereum, Bitshares and Steem can run on EOS.
“…operating system-like construct upon which applications can be built…”
This is massive. EOS is looking to be the Windows / Linux / Mac OS of blockchains. Think back to the 1980s; computers were not popularised until user-friendly operating systems came into play. It was the onset of Windows 2 in 1987 when you could finally see the widespread adoption of computer technology in corporations everywhere. EOS’s goal is to bring blockchain into the mainstream.
The current situation for blockchain is that it is very fragmented. Bitcoin is a pure currency; Ethereum is used for smart contracts, banks are adopting Ripple. Solving the convergence of all these diverse factors is what EOS could do as a general-purpose computer blockchain operating system.
“…millions of transactions per second…”
One of the major challenges that popular blockchains face is that they do not meet the requirements of real world business applications today. For example, credit card networks need to be able to process 20,000 transactions per second. The financial industry processes 100,000 transactions per second. Facebook processes 52,000 likes per second, and that doesn’t include actual posts and other activity.
In contrast, Bitcoin is currently limited to around 3 transactions per second because of block size and Ethereum is limited to around 30 transactions per second due to gas restrictions.
EOS’s vertical and horizontal scaling solves this issue with the capacity to process millions of transactions per second.
“…eliminates user fees…”
One of the reasons why EOS is termed the ‘Ethereum killer’ is the fact that it will be cheaper to run. Applications that run on the Ethereum blockchain require ‘gas’ (i.e. a fee). EOS, on the other hand, is free to run after you’ve bought the token. Say for example that you have bought 1% of the network, this means that you have 1% of the network’s capacity to run your applications. It is then up to you how you might want to monetise that ownership.
This makes sense from a business perspective. Users of a social media application for example, shouldn’t need to pay for access and ongoing usage. Making it free facilitates widespread adoption.
“…quick and easy deployment of decentralised applications…”
This is probably one of the most powerful statements. If you look at the blockchain industry, everyone wants to build smart businesses and in the process, developers build decentralised computers from the ground up that can run their smart apps.
This is not efficient.
EOS aims to provide the operating system that provides all the core functions that app developers can use to allow them to focus on just the business logic that makes their apps unique.
Furthermore, apps require updates from time to time. So far, the only way to do that it is to create a hard fork in the blockchain. This is what we saw with the DAO incident on Ethereum back in 2016 when the whole network had to be shut down. As EOS uses delegated proof-of-stake technology, if an app is broken or fails, elected block producers can freeze the app until the bug is fixed without affecting the rest of the apps running on EOS.
This shows the flexibility of EOS. If you are running an exchange, you don’t have to run social media apps, and you can configure your local node to process only the data you care about. Not every node needs to run and maintain the full state of the blockchain.
That just seems like common sense!
Implications for the investor
If you are looking to invest in EOS, there are a few considerations:
EOS is still a concept. However, there is a high probability of success given that it is based on incremental improvements to existing blockchain technologies such as Graphene and Steem, which took less than 6 months to become fully functional.
EOS tokens are being distributed incrementally over the year. 2 million tokens will be issued on a daily basis over the next 350 days so that by the end of the distribution, there will be 1 billion tokens in circulation. What’s the reason for this? First, it solves the fairness problem. Previous ICOs have been monopolised by cryptocurrency whales purchasing the tokens on a pre-sale basis thereby saturating the market. Secondly, it incentivises EOS developers to prove out their model over the course of the year. Other ICOs can take the money and run if they so choose.
EOS was launched at an initial price of $1 and it increased by 400% in the first few days, which emptybucket has profited from. However, it has since fallen dramatically, following the bearish trend faced by the other altcoins. Furthermore, the ongoing token distribution may place pressure on the price from rising too much too soon given that the supply may increase at a faster pace vs. demand. However, given EOS’s goal of widespread adoption, good news will have a significantly positive impact on price. Investors will definitely need to be in it for the long run to reap the full benefits.
Ethereum is not out of the game. By far. Despite its setbacks in terms of transaction capacity, there is definitely still scope for that to be fixed as it moves to a proof-of-stake model.
Bitcoin introduced us to the concept of a virtual currency and a general ledger on a verifiable protocol layer. Ethereum created the idea of a ‘smart contract’ – the ability to transact on the distributed ledger. Now, EOS will make the blockchain scalable.