Coin Report #1: EOS

Summary

EOS is a Decentralized App (DApp) platform. EOS is a scalable and feeless protocol designed to host enterprise grade decentralized applications on a public blockchain infrastructure.

Technology

Consensus Algorithm

EOS uses DPOS (Delegated Proof-of-Stake). The implementation of DPOS in EOS uses 21 block producers which are selected by the community in a continuous on-chain voting process. EOS token holders can vote for block producers by staking their tokens. The weight of a vote is directly correlated to the number of tokens staked. Block producers are paid with tokens generated by EOS’ inflation. EOS only requires one third of block producers to be honest in order to maintain Byzantine Fault Tolerance. EOS DPOS reaches irreversible consensus in under a second (transactions become irreversibly confirmed in under a second).

Scalability

DPOS has already proven itself to be highly scalable. Currently the two blockchains with the highest average throughput are Steemit and Bitshares, both of which implement graphene DPOS and both of which were created by Dan Larimer. Current estimates put EOS at 5000 to 10,000 TPS at launch, but theoretical TPS could be in the millions if other scaling solutions like plasma, raiden, sharding, state channels, and context free actions are adopted. Inter-blockchain communication will allow for any side chains running EOS software to share resources and also enables communication between non-EOS chains. Currently the highest throughput EOS has achieved is over 600 TPS. Because the network has been up for less than a month we won’t really know if EOS can handle thousands of transactions of second until there is actually that much activity on the network.

Development

EOS.IO is being developed by Block.one. The 1.0 version of the software was released on June 1, 2018. EOS is open source. Changes to the protocol can be voted on by block producers. EOS 1.0 was released with support for single threaded execution but contains the necessary frameworks for parallel execution of applications in future releases. Parallel execution is currently scheduled for release in the Fall of 2018.

Development Language

EOS is written in WebAssembly. This allows apps to built in C, C++, or Rust, and then compiled to WebAssembly. Future support for other languages, including Solidity, is under active development. Although Solidity is not hard to learn, from polling developers that have experience using both Solidity and C++, I learned that developers believe C++ has an advantage because it is already a widely taught and widely used language. C++ also has a wealth of libraries available that can be implemented in EOS DApps.

Transactions

EOS does not have transaction fees in the traditional sense. In order for users to use apps on the EOS network they must own (or rent) EOS tokens. The EOS tokens in a user’s possession represent the amount of network power allocated to them. If a user owns 5% of EOS tokens in circulation, then they have access to 5% of EOS’ network power at all time. Using the network does not consume tokens; users are not charged per-transaction. The number of tokens a user needs to own in order to simply use the network and interact with DApps is marginal, only those wishing to deploy DApps will have to think about how many tokens they need to get the required amount of resources for their DApp.

Token Utility

  • Governance: Tokens are used in the POS voting system to elect block producers.
  • Airdrops: Projects can distribute their tokens to existing EOS token holders.
  • Network usage: Users must have EOS tokens in order to use the network. EOS tokens give users access to EOS Bandwidth and Log Storage (Disk), Computation and Computational Backlog (CPU), and State Storage (Ram), proportional to the percentage of EOS tokens they hold. Users can buy, rent, and lease tokens.

Differentiating Features

  • Stolen-key recovery: Using a combination of phone, email, and designated account recovery partners (a trusted third party such as a family member), account ownership can be recovered in the event of it being compromised.
  • Delayed Actions: Certain payments can be marked as unconfirmed until a specified amount of time has passed since they were included in a block. At any time within that period the transaction may be cancelled.
  • Usernames: EOS supports custom 12 character usernames for easy readability and safer transacting.
  • Parallel processing: EOS will support parallel execution of processes on the blockchain to allow for increased scalability.
  • Apple Secure Enclave: EOS supports Apple’s Secure Enclave, which is a hardware-based key manager included in recent generation Apple devices. This allows your Apple device to function as a hardware wallet just like a Ledger Nano or Trezor. Block.one is currently building a wallet that uses Apple’s Secure Enclave.

Ecosystem

Use cases

Consumer: Regular consumers can interact with DApps without worrying about fees or network delays. Using the EOS network will simply require users to own a marginal amount of EOS, but no fees will ever have to be paid for transactions.

I would recommend watching Cypherglass’ video on the subject for further explanation.

Business: Companies can build enterprise grade distributed applications on top the EOS blockchain. High transactional throughput means that applications built on the EOS blockchain (theoretically) will not suffer from a slowdown in service during times of high network activity. EOS is a platform for building DApps, the possibilities are endless.

You can use EOS New York’s very well done Resource Planner to estimate how much EOS you need for x amount of resources.

Governance

Power to produce blocks, freeze accounts, and propose hard-forks to change the underlying protocol, is delegated to the block producers. Block producers are voted in, or out, by token holders. Block producers have a financial incentive to listen to token holders because they are paid by the 5% annual EOS inflation. Current estimates put annual revenues of a single block producer at around $20 Million at a token price of $20.

Implementations of the EOS.IO software are designed to work with a constitution drafted by the community. The current implementation of EOS has a constitution. This constitution will likely be updated as needed as the EOS project matures. The constitution is not necessarily enforceable by any smart contracts, instead it is a set of guidelines which the community must use to select block producers that will adhere to the constitution.

Projects In Development

There are over 30 known projects being developed on EOS with more expected to be announced in the near future.

Over one billion dollars of capital has been committed by Block.one to fund development of projects on EOS.

Partnerships

Currently $675 million has been allocated in the following partnerships

  • Finlab AG — $100M — Europe Focused
  • Galaxy Digital — $325M — Mike Novogratz
  • Tomorrow Blockchain Opportunities — $50M — Derek Rundell, managing partner at Eric Schmidt’s VC firm, Tomorrow Ventures
  • EOS Global — $200M — Asia Focused — Michael Cao, Winnie Liu
  • SVK Crypto — $50M — Social Media, data ownership, supply chain — Hugh Cochrane, Shane Kehoe

A large portion of projects in development are planning to airdrop their tokens to EOS holders. This is a potential value add for holding EOS tokens. Airdrops are not a new concept and have been deployed many times on the Ethereum network, but projects have typically airdropped a small portion of their supply on the Ethereum network. Multiple EOS projects are planning to airdrop their entire supply to the network. This is one potential method to circumvent traditional securities laws. Another very important aspect to take into consideration is that Block.one owns 10% of all EOS tokens, which means they will inevitably get 10% ownership of any projects that decide to airdrop their supply to the network. This is extra incentive for Block.one to fund projects that will contribute positively to the EOS ecosystem as opposed to simply keeping the raised funds as profit.

Community

Telegram: 60K Members

Twitter: 174K Followers

Reddit: 53K Subscribers

Unique Ethereum Addresses with EOS Tokens: 335K Addresses

Competitors

  • Ethereum
  • NEO
  • RChain
  • Cardano
  • Komodo
  • Lisk
  • DFINITY
  • Waves
  • QTUM

Funding

Token Distribution

  • Over 335,000 unique Ethereum Addresses held EOS tokens prior to the mainnet launch. This is the most widely distributed ERC-20 token that was not airdropped.
  • The ICO was held over a period of 341 days.
  • 2 million tokens were auctioned off via Dutch auction each day (70% of supply).
  • 200 million tokens were auctioned off within the first 5 days (30% of supply).
  • 100 million tokens are reserved for Block.one (10% of supply).

Allocation

How exactly Block.one plans to allocate its share of EOS tokens has not been detailed publicly. At the conclusion of the ICO, Block.one had reportedly raised over $4 Billion worth of Ether. A large portion of that Ether has already been sold on Binance and Bitfinex.

Team

Development of the EOS 1.0 software was led by Block.one, however EOS is an open source project and development hasn’t only been by Block.one developers. A number of developers with hundreds of commits to the EOS Github work at Object Computing. EOS.IO and Block.one have contracted out OCI to aid in the development of EOS.

Brendan Blumer (CEO of Block.one)

  • Founder of Gamecliff (Virtual asset marketplace, acquired by IGE)
  • Founder of The Accounts Network (In-game item valuation website)
  • Founder of Okay.com (Online property agency)
  • Founder of ii5

Dan Larimer (CTO of Block.one)

  • Inventor of DPOS
  • Creator of Graphene
  • Creator of Bitshares
  • Creator of STEEM

Ian Grigg (Partner)

  • Inventor of triple entry accounting
  • Inventor of Ricardian Contracts

Legal

EOS conducted their ICO in a very careful manner. In the terms of the token sale it was explicitly stated that sending Ethereum in exchange for EOS ERC-20 tokens would be viewed as a donation. Block.one was not planning on releasing any network and would simply provide software. There was no guarantee that if someone were to take the software and launch an EOS based blockchain that their EOS ERC-20 token balance would be honored. The reason Block.one worded their terms this way was to avoid EOS being classified as a security.

Investment Thesis

There will not be one DApp platform to rule them all. A mature DLT ecosystem will have DApps that are built on multiple networks such as EOS, ETH, and NEO, and can communicate with each other; akin to apps on the Google Play store and the iOS app store being able to communicate with each other despite being coded in different languages. However, similar to today, there will be platforms that see much more widespread adoption and use compared to others. Using our DApp investment framework we can evaluate how well EOS is positioned to succeed.

Scalability

EOS has been built from the ground up to be highly scalable. It was designed to run DApps that can handle millions of users. More details can be found in the tech section near the top of the page.

Reliability & Usability

The reliability of the EOS network cannot yet be determined. The network has not been up for long enough to establish any sort of track record. EOS is built on Graphene which was used to build Steem and BitShares, both of which are very reliable networks. Parts of the EOS code have been reviewed by Vitalik Buterin, who has made suggestions, some of which have been implemented in the code. There is an ongoing bug bounty program, which white hat programmers can use to report vulnerabilities and get paid for doing so. 2/3 of block producers must be malicious and coordinated together in order to compromise the network. Network security is relatively high for a platform which just launched, but in order to truly consider the EOS platform secure it will have to operate without critical issues for a few months.

Community

Distribution: Community is by far EOS’ strongest asset at the moment. Based on token holder statistics we can infer that it is one of the most widely distributed ICOs in terms of unique token holder addresses.

Funding: EOS’ ICO was the largest and most successful ICO of all time, providing Block.one with a $4 billion war chest to support ongoing development and fund projects to be built on the EOS.IO ecosystem for years to come. Block.one has partnered with five VC firms and allocated them a total of $675 Million to fund and direct their own EOS focused projects. The amount of developers is growing each and every day due to the capital Block.one is putting into development and the hackathons they are hosting with generous prize pools.

Multi-language Development Support: EOS is built on WebAssembly which means that applications can be built in C, C++, and Rust. These languages already have large developer communities and a wealth of existing libraries. There is active development to allow other languages to be compiled into WebAssembly, including Solidity.

Conclusion

At EOS’ current valuation of around $9 billion, it sits in fifth place on CoinMarketCap. EOS is certainly not undervalued in terms of the functionality it provides today, but it does have the potential to become one of the leading DApp platforms. With a developer community growing larger each day and a multitude of compelling projects in the pipeline, EOS is one to watch.

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Special thanks to Parker for the feedback.

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