What is EOS? | The Ultimate Beginner’s Guide
Described as an operating system for decentralized applications (dapps) and smart contracts, EOS was among 2017’s hottest news stories in the cryptocurrency community. EOS is currently in development by the company block.one and claims to be faster and more scalable than competing dapp platforms.
The EOS project launched its crowd funding campaign on June 26, 2017 with a 241 day Initial Coin Offering (ICO), which has raised close to $700 million. The ICO will continue until EOS’s open-source software is scheduled to launch on June 1, 2018.
Upon release, EOS hopes to fulfill Ethereum’s as-yet unmanifest promise of becoming the backbone of a world-wide supercomputer network — making up a decentralized economy of online businesses, individuals, and applications.
In this article we’ll explore more about what this means, how EOS stacks up against its competitors, and the project’s current status by looking at the following topics:
- What is EOS?
- The Technology Behind EOS
- EOS Advantages
- EOS Disadvantages
- How to Buy EOS
- How to Store EOS: Best Wallets
EOS was started by Dan Larimer — creator of Steem and Bitshares — and is based on a white paper published in June of 2017. As mentioned, the platform is designed as an operating system for dapps. Just as MS Windows, Linux and Mac OSX are used as the basis for building and running computer applications (on or off networks), EOS is designed to build and run web applications across a blockchain network. EOS smart contracts and governance systems can also be used to set up Decentralized Autonomous Organizations (DAOs).
One interesting element of EOS is that the platform will not be providing its own blockchain for the network but will instead rely on its community to make their own chains (more on that later). Also unique for a cryptocurrency is the fact that EOS will have one billion total tokens, a fairly large number compared to most other coins (Bitcoin for example has a cap of 21 million).
The EOS project first gained recognition in the cryptocurrency community when it raised a record $150 million in just 5 days during its ICO and then went on to complete an unprecedented year long ICO campaign (most are only 2 to 4 weeks) to reach its final tally of $700 million. After its trading debut on the Bitfinex exchange on June 25, 2017, the price jumped by 200 percent in the first two hours of being listed.
The project doesn’t yet have a working product, but it’s clear that there’s a huge demand for what EOS is planning to offer. The platform reached an important milestone on November 29, 2017, by releasing EOS STAT — an application “test net” for developers to “evaluate, build, and test their dapps” prior to the launch of the EOS.IO platform.
Let’s take a closer look at the technology and history that spawned EOS to get an idea of what the completed network will look like.
EOS aims to solve many of the speed and scalability issues suffered by first and second generation blockchains.
Many argue that Bitcoin and its kin are simply too slow to scale for mainstream adoption (though Bitcoin is working to address this problem with the as-yet unproven Lightning Network). Similarly, Ethereum, which brought slightly-improved transaction speeds over its predecessors, is not yet up to the challenge of scaling to power a large economy (Ethereum can process only 20 transactions per second as of writing, although its developers are working on a possible solution to increase this speed).
EOS, on the other hand, is being built from the ground up to perform millions of transactions per second, making it more suitable for a complex dapp ecosystem and decentralized, tokenized economy.
EOS is also attempting to make dapp development easier and more efficient. As it stands now, developers for existing dapp platforms have to repeatedly solve many of the same issues for every dapp: account creation and recovery, multi-signature accounts, messaging, role-based permissions, etc. EOS intends to solve this problem by providing many of these common features for their developers instead of requiring developers to build these features themselves. This will allow software designers to spend less time coding the generic, and focus more of their energy on building the unique aspects of their dapps.
As mentioned, what block.one will not supply is the blockchain itself. Instead, EOS is depending on people and groups to build their own blockchains and then use those blockchains to host the EOS.IO software.
In the beginning, there will likely be more than one blockchain, but it is theorized that eventually only one of the chains will get the majority of support from the community of token holders and block producers. This is because the most popular chain will have the most valuable token which will motivate the community to use that chain.
Each chain will use the EOS “genesis block” as its starting place for distributing tokens. The genesis block will contain a copy of the EOS data from the Ethereum blockchain, since EOS hosted its ICO using Ethereum’s platform prior to launching their own. This genesis block will include all information about what addresses have what number of tokens, and thus anyone who has ERC-20 EOS tokens will be able to claim new EOS tokens on any of these initial chains.
Token holders on a given EOS blockchain will vote for 21 “block producers” to create the blocks for that blockchain. Block producers are entities with accounts on the blockchain that validate transactions and supply resources to the network using any number of computers connected to the network. They are rewarded with EOS tokens for validating blocks.
If ever the main blockchain doesn’t have enough computing resources available, it would theoretically incentivize block producers to get better hardware in order to be able to keep their position on the main chain. That being said, there still is the potential for multiple blockchains, especially since EOS allows for interoperability and information exchange between different chains (more on this later).
Besides allowing holders to vote on block producers, EOS tokens will also allow holders to use resources on the blockchain platform, not by spending the tokens, but simply by “staking”, or holding them on a network connected computer.
The bandwidth, computational, and storage capacity of the network is allocated to dapps based on the percentage of EOS staked by that dapp. In this way, users can run dapps without having to own cryptocurrency themselves. That being said, some dapps will no doubt be paid or charge-per-use services while others will be free or “freemium” (partly free with premium services costing money). EOS promises fees will be extremely low for transactions, and it will be up to the enterprises to determine how fees will be handled.
Block producers are voted for on a continual basis by the network of witness nodes, which are comprised of dapp entities that stake their tokens for computing resources. Witness nodes obviously have an interest in having the best block producers possible. Would-be block producers are required to list their available computational resources, and this will no doubt figure largely into who is chosen by the network.
According to the EOS white paper, voting will be handled by a yet-to-be-determined approval process. Block producers will gain an approval rating by the network and most will be chosen automatically every 21 blocks based on this rating. One producer, however, will be chosen based on votes.
Another unique aspect of EOS is that it allows users to create accounts with readable names. This is in contrast to most other blockchain projects in which the only unique identifiers for network participants are long alphanumeric addresses. EOS accounts can also have “namespaces” that offer a sort of sub account name with the format @user.domain — “domain” being the account name, and “user” being the user name. This means accounts can have multiple users.
Accounts can interact with other accounts in various ways, including through messages or information packets that can be used to control dapp functions or smart contract-based payments.
Finally, another important function EOS will offer is the ability for two blockchains to communicate with one another without requiring them to cross-validate everything on each chain. The way EOS achieves this is by making one blockchain a “light client” of the other and then authenticating transactions by using just the headers of blocks on the other chain. Through a “proof of completeness” mechanism, it then validates that it has received all relevant information from the other chain.
This interoperability will enable both public and private blockchains to communicate with each other, which will allow for different types of dapps that might require the use of private information on a separate chain.
Now that you hopefully have a better understanding of some of the technology behind EOS, let’s take a closer look at some of the advantages and challenges of EOS compared to its competitors.
- Less Risk of Hard Forks: During a hack on an Ethereum-based organization called DAO in June, 2016 that led to the theft of tokens, Ethereum’s entire blockchain was temporarily shut down. There was much debate on how to handle the situation and the community ended up splitting in two: one side didn’t want to return lost funds, while the other side did. The result was a hard fork producing two Ethereums (Ethereum and Ethereum Classic). This is not likely to happen with EOS since if a dapp is found to be buggy, it can simply be frozen by block producers until it’s fixed.
- Ease of Use for Developers: EOS incorporates a web toolkit for simplified development of dapps, along with database schemas, role-based permissions, and other built in functions that make creation of dapps easier.
- Governance: EOS has a governance structure based on a constitution of mutually accepted rules that govern the system, along with a process for modifying those rules if needed via voting processes. Many cryptocurrencies have a very difficult time reaching consensus on what to do in a given situation (e.g. the above example with Ethereum), but EOS seems to have an elegant solution to this problem.
- Self-Sufficient: EOS blockchains will generate 5% inflation per year, which will be used to reward block producers for confirming transactions, as well as to fund three community-chosen dapp proposals per year.
- Free Transactions: Ethereum and most other blockchains require users to pay fees to send transactions. EOS, on the other hand, uses the aforementioned block-producer model to determine how fees will be paid depending on services offered and charged for by dapp developers.
- Fast Transactions: As already discussed, EOS will use parallel processing that can perform potentially millions of transactions per second, and at least 50,000 out of the gate according to block.one.
- ICO Friendly: Just as with Ethereum and other smart contract platforms, ICOs can be hosted on an EOS blockchain. Given EOS’s focus on user-friendliness, however, EOS will likely offer dapps to streamline ICO smart contracts and tokens.
- Many Competitors: Besides Ethereum, EOS has many other competitors, including NEO, Rootstock RSK and RChain. There may be room for more than one successful platform of this type, or there might not.
- No Guarantee Tokens Will be Honored: Although it is likely the EOS community will strive to implement a blockchain that supports the Ethereum-based EOS token holders in being credited with EOS tokens on the new chains, this is not legally mandated. Since block.one is not launching an initial blockchain, it will be up to the users to ensure this happens.
- Potential Launch Chaos: No one knows what will happen when EOS launches and how blockchains will form and find their footing. Will competition hurt the community, or help it? Will one central chain form, or will many smaller chains form, with none of them having enough resources to make a useful ecosystem? Nothing like this has ever been done, so nobody knows.
- Potentially More Centralized: Some argue that EOS is more centralized in its DPOS consensus protocol than other platforms such as Ethereum. Since it relies on only 21 block producers to confirm all transactions, this concern certainly seems valid, since ultimately, this would likely lead to a few large resource provider data centers running the network. Another point of concern for some is that regular users can’t audit the system unless they plan to personally run a full node. Finally, EOS relies on voting, which historically has resulted in low voter turnout in other systems, which could lead to further centralization with fewer people giving input on the direction of the platform and blockchain(s).
For their part, block.one have argued that EOS blockchains will still be less centralized than Bitcoin and Ethereum, which have only a few major mining pools that confirm the entire blockchains at the moment.
If after reading about EOS you are interested in investing in the token, here’s how:
EOS is available both on the project website (until June 1) and on several online exchanges. The ICO format is unusual in that it’s split into purchasing periods where the amount of tokens you get for your contribution is dependent on how much money was contributed by others during that period.
Although EOS cannot be exchanged directly for fiat in many places, it is possible to get it on Kraken, where you can deposit fiat directly via bank transfer. Otherwise, you’ll have to purchase another cryptocurrency like Bitcoin, Ethereum, or Litecoin elsewhere, such as Coinbase, and then transfer that to another exchange. Trusted exchanges that offer trades for EOS are Binance, Kucoin and Cobinhood.
Learn more in our How to Buy EOS guide.
EOS can currently be stored in any wallet that supports Ethereum ERC-20 tokens. These include hardware devices like the TREZOR or Ledger Nano S, as well as software options like Exodus or Jaxx. For a more comprehensive description of the different types of wallets, check out our guide to the Best Cryptocurrency Wallets of 2018.
It is worth noting that wallet support will likely change once EOS’s own platform goes live. Therefore you will want to stay informed about EOS’s development status to ensure that you protect your investment after the transition off of Ethereum.
With its high transaction speeds, user-friendly development tools, and its proven team, EOS has the potential to help bring blockchain technology to mainstream enterprises. The road toward realizing that goal, however, is a long one, and there is already some significant resistance from the cryptocurrency/blockchain community. But if block.one can prove that EOS is just as decentralized as its competitors while also offering numerous benefits over traditional blockchain technologies, EOS might become a major player in the next evolution of the decentralized economy.