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What is EOS and is it a Good Investment?

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What is EOS and is it a Good Investment?

Following the success of Ethereum as a blockchain platform for developing decentralized applications (DApps), a substantial number of similar platforms have emerged in the blockchain space since. EOS is one of them. EOS has managed to attract substantial interest from the cryptocurrency community due to its perceived improvements over other blockchain platforms.

An Introduction to EOS

The EOS team has developed a software that makes it possible for DApps to scale both horizontally and vertically. While blockchain technology is its underlying basis, EOS has designed its software to function similar to an operating system. The project provides a way through which the potential that the blockchain holds can be realized, especially in the context of business, thereby facilitating widespread use of the technology, even to those who may not understand how it works.  

The software is developed by Cayman Islands-based company Block One, a company that aims to create decentralized market systems through blockchain technology. The company is led by chief executive officer (CEO) Brendan Blumer and chief technical officer (CTO) Dan Larimer. Larimer is best known for developing blockchain-powered social media site Steemit as well as the decentralized exchange Bitshares.

In a paper titled “EOS: An Introduction,” Ian Grigg, a partner at Block One, writes: “The direct users of a blockchain such as EOS are the entrepreneurs and developers who write contracts to implement distributed applications or DApps. Their users are the routine customers in retail, finance, logistics, media. Those latter customers do not need to know what a blockchain is.”

As numerous parties within the blockchain space draw parallels between EOS and Ethereum, the former is keen to differentiate itself. EOS seeks to position itself as a kind of blockchain-powered operating system as opposed to Ethereum’s decentralized supercomputer design. A further difference is that the software behind EOS that is being used to create applications does not require users to pay with every transaction, opening the door to ‘freemium’ applications.

EOS explains: “This is achieved by creating an operating system-like construct upon which applications can be built. The software provides accounts, authentication, databases, asynchronous communication and the scheduling of applications across multiple CPU cores and/or clusters. The resulting technology is a blockchain architecture that has the potential to scale to millions of transactions per second, eliminates user fees and allows for quick and easy deployment of decentralized applications.”

The Technology Underlying EOS

In its whitepaper, EOS explains the features that a blockchain application must possess in order to effectively function, especially if the application is designed for widespread use. The application should be able to support a large number of users, free and any issues should be easily fixable without much disruption to the user. Moreover, users should be able to have access to quick response times from the application. For this to happen seamlessly, parallel performance is imperative.

Delegated Proof of Stake

EOS uses the Delegated Proof-Of-Stake (DPOS) consensus mechanism. DPOS works similarly to Proof-of-Stake (POS), though it involves the approval of the block validator through a voting system. Any person who participates in the EOS blockchain and holds EOS tokens is able to vote for a validator.

Due to the fact that there are no “miners” involved, participants in the EOS blockchain do not have to pay transaction fees that go towards the incentivization mechanism needed to keep the blockchain functional. Grigg, further explains: “DPOS avoids the tax of mining, releasing that substantial value back to stakeholders. Value from block rewards would be initially captured entirely by the producers. However, because they are elected by the community, they are incentivized to share the rewards by a scheme that producers agree on amongst themselves, and promote to the community.”

As a result of the use DPOS, EOS claims to be able to be able to handle a significantly higher number of transactions per second in comparison to other notable blockchains, such as Bitcoin’s or Ethereum’s. Furthermore, since there are no fees needed for the blockchain to keep functioning, applications that are built on EOS’ blockchain are able to decide whether to offer their services for free or whether to charge their users. The possibility of the ‘freemium’ model is important as it allows developers to be able to build on EOS without the need for any fees.

How The Tokens Are Distributed

While ICOs have become commonplace, EOS’ token sale stands out because of its length. Starting in June 2017, the token sale is slated to last about a year, specifically 350 days. The sale has been set this way in order to allow for fair distribution of the tokens, reducing the frenzy that has come to be associated with ICOs. Moreover, Block One believes that more people will participate in the sale as they come to understand the software.

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Block One CEO Brendan Blumer stated: “We felt an approximately year-long token distribution was the best method to ensure people receive fair market value for EOS Tokens. We anticipate that strong interest will continue throughout the year as the community continues to learn about the EOS.IO software and the benefits it can bring to their business.”  

The EOS tokens are ERC20 tokens created specifically for the purpose of the ICO. In the first five days of the sale, approximately $185 million was raised in ether, which amounts to 651,902 ether (ETH) for 200 million EOS tokens.

In addition to the 200 million sold, the team plans to sell a further 700 million EOS tokens per distribution period. Each distribution period lasts for 23 hours. The price of the tokens is not fixed but rather depends on the amount of ether that is contributed during each funding period. The number of EOS tokens shared amongst contributors is directly proportional to the amount invested per person. Because of this setup, it is not possible to know exactly how much the EOS tokens go for per funding round, though it is possible to make an informed guess, using the EOS website, through the number of ether tokens collected. 100 million EOS tokens will be reserved for the Block One team though they are not allowed to sell them during the crowdfunding period.

EOS tokens are released to each investor at the end of the funding round in which they participated. It is important to note that the tokens are not supported on all wallets. tTherefore, it is crucial to conduct adequate research in order to find compatible wallets. Currently, the EOS tokens are supported by MetaMask as well as MyEtherWallet.

Acquiring EOS

While the token sale is still ongoing, EOS tokens are already available on several exchanges. Due to this fact, some speculate that it may be cheaper to acquire the tokens on exchanges as opposed to through the ICO or vice versa, which creates a potential opportunity for arbitrage. Having said that, due to the nature of how the token distribution is set up, the opportunities for arbitrage are rather limited unless you make a very large investment but as you do not know the final price you pay during the daily token distribution that is a risky affair.

Once the token sale is completed, it will not be possible to sell the ERC20 tokens on any exchange. “EOS Tokens will become fixed (non-transferable) on the Ethereum blockchain within 23 hours after the end of the final EOS Token distribution period which will occur on June 1, 2018, at 22:59:59 UTC.” This is because EOS plans to use the ERC20 tokens on users wallet to award user with its native cryptographic tokens.

To receive the cryptographic tokens, investors must register their ETH wallet, containing the ERC20 EOS tokens, on the EOS blockchain. This move will also aid developers who wish to create applications on the EOS platform. “At this point, the EOS Token distribution process will be complete, and any person who wishes to launch an EOS Platform adopting the EOS.IO Software will be able to generate a JSON file mapping EOS public keys to the fixed balances of the EOS Tokens from the state of the Ethereum blockchain.”

EOS’ Future Plans

Following the creation of an EOS VC program, Block One has recently announced strategic partnerships with blockchain players in order to encourage innovative use of the EOS software. The partnerships are with venture capital firm Tomorrow Blockchain as well as with Galaxy Digital, the first digital assets merchant bank.

The CEO of Galaxy Digital, Mike Novogratz explained the bank’s belief in EOS stating: “EOS.IO is designed to enable new community-driven business models capable of disrupting the world’s largest technology incumbents. This milestone represents Galaxy Digital and Block.one’s joint commitment to investing in that future.”

Should You Add EOS To Your Portfolio?

The value of EOS, the native token, is directly linked to the success of EOS, the blockchain platform. The investment case for EOS is, therefore, straightforward. If you believe that EOS can position itself as one of the leading go-to blockchain platforms for corporations and SMEs, then the value of its digital currency will substantially increase in value. If, however, EOS does not succeed in this venture, then its cryptocurrency will eventually degrade towards near worthlessness.

EOS is in a highly competitive space within the blockchain industry as it is competing with the likes of Ethereum, Lisk, and NEO – just to name a few – who all offer similar features for the development of decentralized applications and smart contracts. It will thus be a long uphill battle for EOS to position itself in a leadership position among competing platforms. Hence, investing in EOS is very much a high risk/high return affair and investors are advised to only invest a small amount of their overall digital asset portfolio into this altcoin.  

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