🤔 What is EOS ?
EOS is a smart contract blockchain that uses delegated proof of stake consensus mechanism to solve blockchain scalability trilemma.
Scalability trilemma was first described by Vitalik Buterin, the co-founder of Ethereum. It states that it is very difficult to develop a blockchain that has all three features:
A developer can choose a maximum of 2 of the desired qualities.
EOS blockchain aims to solve the scalability trilemma by becoming secure, decentralized and scalable.
💡 What role does EOS token play ?
EOS is the native cryptocurrency of EOS blockchain. It is used for:
- Staking: EOS is a delegated proof of stake blockchain. Validators have to stake EOS tokens to participate in the process of adding new blocks to the blockchain.
- Delegation: Users can delegate their tokens with validators to participate in the process of validating blocks.
- Incentive mechanism: Validators receive EOS for adding new blocks to EOS blockchain. Their staked EOS is slashed if validators do not behave honestly. This mechanism keeps the validators honest.
- Blockchain usage: Unlike other blockchains, there is no transaction fees for adding transactions to EOS blockchain. EOS token holders get to use EOS blockchain resources in proportion to the EOS they are holding. For example, EOS holder can use up to 1% of the total network resources if he holds 1% of the total EOS supply.
📝 Origin of EOS
Based on a white paper published in 2017, the EOS platform was developed by the private company Block One and released as open-source software on June 1, 2018.
One billion EOS tokens were distributed as ERC-20 tokens by Block One raising over $4 billion.
The original test net, Dawn 1.0, was released on September 3, 2017, with test net versions Dawn 2.0 released on December 4 2017, Dawn 3.0 on January 25 2018 and Dawn 4.0 on May 7, 2018.
In September 2019, The U.S. Securities and Exchange Commission (SEC) charged Block One with conducting an unregistered securities offering related to the multi-billion EOS token sale. The SEC order found that Block One violated the registration provisions of the federal securities law by failing to register its token sale as a securities offering or seek proper exemptions. Block One consented to the order without admitting or denying its findings and paid a $24 million civil penalty.
👴🏻 Dan Larimer- Founder
Daniel Larimer was born in Colorado and lived in Virginia and Florida. Dan’s father, Stan Larimer, worked for Boeing and later formed a blockchain consulting firm, Cryptonomex Inc.
Larimer earned bachelor’s degree in engineering from Virginia Polytechnic University in 2003.
After launching a virtual reality startup that failed, he worked in the defense, robotics and automation industries. His interest in blockchains began in 2009.
In 2013, Larimer started BitShares, a crypto-exchange managed by a community instead of a single authority. BitShares was originally named ProtoShares and intended to function as shares of virtual companies. It has since been described as a cryptocurrency platform, a digital currency and a digital exchange.
In 2016 Larimer left BitShares to co-found Steem blockchain and the application Steemit, a social network that uses blockchain technology to reward users for their content. After co-founding Steemit together with Ned Scott, Larimer was CTO of the platform until March 14, 2017.
In June 2017, Dan Larimer founded and became Director of Technology at EOS.
😌 What problems does it solve ?
- Proof-of-stake vs Proof-of-work: EOS uses delegated proof of stake, variation of proof-of-stake which has several advantages over proof-of-work:
- It is much more energy-efficient.
- Governments cannot ban miners, unlike proof-of-stake in which governments can trace miners depending on excessive energy usage and seize their hardware.
- It has been observed that proof-of-stake systems get more decentralized over time(Initially Bill Gates had more than 90% of the Microsoft shares, today he has less than 5% Microsoft shares.Whereas proof-of-work systems get more and more centralized over time around hardware, cheap electricity, favorable jurisdictions, etc.
- Proof of work miners are not stakeholders. They can use their existing hardware to mine whichever cryptocurrency is most profitable at the moment.
- No downtime: Thousands of node operators running 24 X 7 ensure the network is always online.
- Efficient: EOS is much more scalable, fast and cheap as compared to traditional blockchains like Bitcoin and Etherium.
- No trusted third party: Users do not have to trust EOS team. The code is open source, anyone can see and verify how the code works.
- Efficiency gains: Projects building on EOS do not have to run servers and hire an army of developers.
🤖How does it work ?
- At the start of every round EOS holders vote to choose 20 block producers for the next round.
- 1 Block producer is randomly chosen.
- Each block producer is randomly assigned a time slot in which it will create the block.
- A block is created every 3 seconds.
- Each block producer produces the block in the assigned time slot whereas all the other nodes check and verify the block.
- The block producer earns block reward for adding a new block. However, if the block is not valid the block producer’s stake is slashed.
- The same process of selecting block producers and adding new blocks repeat after every 21 time slots.
⚙️ Working Demo
Many interesting projects are being built on EOS:
😨 Risks and challenges
- Founder abandoned the project: Larimer, who co-founded the company and had served as its chief technical officer since April 2017 left the project in Jan 2021.
- Token burn: EOS community decided to burn $132 million worth of EOS tokens in EOS savings. This could be good for short-term price action of EOS, however, the funds could have been much better used to fund future developments.
- Expensive: Although EOS does not have transaction fee but the users have to acquire large quantity of EOS tokens to use EOS network resources. This makes it difficult for small players and hobbyists to use the network.
- Limited nodes: There are 21 nodes that create blocks, whereas Etherium has thousands of nodes.
- Government regulations: In 2019, the U.S. Securities and Exchange Commission fined Block.one, the company behind EOS, $24 million for failing to register the ICO.
- Competition: There are many layer 1 smart contract blockchains that are direct competitors to EOS.
Block.one began the EOS token sale on June 26, 2017, selling:
- 200 million tokens over a five-day period, raising a total of $172 million.
- Over the next 350 days, 2 million tokens were sold per day raising a total of $4.02 billion.
- The final 100 million EOS tokens were reserved for Block.one. This allocation is set to be released linearly to Block.one every second over a period of 10 years starting from the Genesis Block on June 6, 2019.
The tokens will be released as follows:
Network’s current inflation rate is 1%, split between the Block Producers (BPs) and Standby Producers, receiving 0.25% and 0.75% of the annual inflation rate respectively.
While BPs must share a smaller piece of the total reward pool, there are only 21 BPs; thus, they receive more daily EOS rewards on average than their counterparts.
Token’s price increases due to demand pressure.
Demand pressure on EOS will come from:
- Conducting transactions: Users and developers will acquire EOS tokens to include their transactions on EOS blockchain.
- Staking and delegation: Users will also acquire EOS tokens to participate in the process of block validation.
- Speculators: They will acquire ALGO tokens for future price appreciation.
🧐 Indicators to watch out for
- Total value locked:
- Twitter following is growing: