EOS centralization problem

To quote Geraldo from Bitcointalk

EOS is another centralized clusterfuck

At first sight, it may seem like EOS is quite a good project:

  • No Fees
  • Can scale to millions of transactions per second
  • Instant transactions
  • Dapp heaven

But all of that comes at a high cost.

EOS runs on only 21 nodes that check and validate new transactions. Every 126 blocks 21 new nodes get elected by the stakeholders, which means every round an elected node ‘mines’ 6 new blocks. Blocks get produced every 0.5s, which makes 1 round last ~63s.

But it gets even worse. Every year there is a maximal inflation of 5% to pay the block producers, which equals at the current price of EOS $332,476,257! All of this money goes directly into the pockets of the (probably not much changing) 21 block producers and grants them with even more power and stake in the network.

Let me repeat that one more time to make it clear: A hand full of block producers get elected by the stakeholders (who to a large part will probably be the producers themselves) to run a block producer node, which should cost no more than a fast internet connection + maybe 300Tb of storage and a GTX1080Ti. They get paid 300-30 Million USD annually to cover their cost of a one-time payment of 20–22K (hardware) + $200 a month for a badass internet connection.

But wait! EOS is way more decentralized than Bitcoin or Ethereum

No it isn’t.

I saw this argument quite a lot of times and I think it’s really stupid. How can you argue a coin is decentralized if there are only 21 block producers in the network? Of course, Bitcoin and Ethereum have their own centralization problems with 3–5 pool controlling >50% of the hashpower, but saying Bitcoin would be more centralized just shows that you have no clue what you are talking about.

Just to clarify because I think there is general misunderstanding in the term centralized: Being centralized doesn’t mean that you’re an easy target for an attack (yes, you are more vulnerable but that’s only part of the equation). Being centralized is about a central authority or a handful of people having control over the network, either by controlling the technical side of it (block producers or mining pool) or the financial (who gets paid and your stake in the network).

Now both EOS and Bitcoin/Ethereum are guilty of that. But instead of working on fixing the pool/block producer problem, as Bitcoin is trying to do, EOS isn’t even thinking about it, because it’s their main business model. Yes, I said business model. Why? Well, let’s look at the financial side of things: It’s pretty bad for both sides but I think EOS has the lead here. Because of their one year long ICO they have a pretty wide distribution in coins, while >90% of all Btc belongs to just ~4% of all of the addresses.

EDIT: As it turned out only 0.323% of the EOS addresses own >70% of the tokens (excluding the top 2 addresses) and the following top 98 own more than 50% of all the tokens (two of which are exchange wallets). In Bitcoin, the top 115 wallets own ~20% of all of the Btc (with 7 exchange wallets in the top 100).

So from the financial standpoint EOS isn’t as centralized as Bitcoin. Well, not quite. Remember the block producers that get paid up to $330,000,000 annually? Would you call that distributing the coins equally to the community? Or paying maybe 150 already rich block producers to get an even larger stake in the network and therefore more financial centralization. I need to admit that Bitcoin is also pretty bad in distributing mining rewards. Every year block rewards of about $5.46B (at current price) get distributed to the miners, which is not better than EOS in any way, but a necessary evil to pay the PoW and secure the network.

Of course those are just numbers, so let’s do the math behind the mining rewards. While having ~4.4% of Bitcoins market cap, EOS distributes ~6% worth of mining rewards (Even with 1B coin supply it’s just ~5.5% of Btc mc). While most miners need to sell most of their fresh mined Btc to cover electricity bills, EOS block producers don’t really need to do that and nearly 100% of their rewards go into getting more (voting) power in the network. Furthermore, as the Platform grows, more and more Whales will buy into EOS which will probably lead to the same outcome as in Btc or any other mayor cryptocurrency.

Conclusion

The EOS project tries to solve the problem of scaling and instant/feeless transactions not by using real innovation but rather centralizing the whole network to ensure everything runs smoothly. The giant market cap just shows that most of the people in crypto don’t really care about the tech. Yay decentralization is great and so on, but when it comes to an investment people stop caring start just shilling the coin everywhere. I think education plays a big role in helping people understand what they are actually investing in (what I’m trying to do).

I’m not hating on the project or trying to spread any FUD, I just think it misses the whole point of crypto, which is building a decentralized network that doesn’t rely on a central authority but it’s users to secure it and validate transactions. In that sense, it’s not much better than Ripple (XRP).

-Crypto Peter Griffin

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PS: Some fun math

Let’s assume there’s a 5% inflation in the first year which happens not to be a leap-year. The 1B token distributed in the ICO will result in a 50M inflation. With 31,622,400s per year and an average Blocktime of 0.5s you get paid ~0.79EOS per block or 4.74EOS for 3s of work in one round. If that was your 9–5 job you’d get paid ~11.8M coins or nearly 90M in USD.

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