Crypto Currency News
Ethereum Classic

What is EOS Coin and EOS Blockchain? | Guide for 2021

{“menuItems”:[{“label”:”What is EOS?”,”anchorName”:””},{“label”:”Where to get EOS”,”anchorName”:””},{“label”:”How does EOS work?”,”anchorName”:””},{“label”:”EOS democracy and block producers explained”,”anchorName”:””},{“label”:”The EOS constitution”,”anchorName”:””},{“label”:”The advantages of EOS”,”anchorName”:””},{“label”:”What to consider before buying EOS”,”anchorName”:””}]}

EOS is a unique blockchain. It’s a smart contract system like Ethereum, but it also embodies completely different advantages and disadvantages.

Will these differences make it or break it? In this guide you will learn how EOS works, what makes it different and what you should consider before buying.

Disclaimer: This information should not be interpreted as endorsing the cryptocurrency or any particular provider, service or offer. It is not a recommendation to trade.

What is EOS?

EOS (usually pronounced ee-oss) belongs to the category of “blockchains at the protocol level”. EOS is the name of the blockchain itself and the token that powers it.

Blockchains in this category are like foundations on which people can build applications, write smart contracts, and issue other tokens. Ethereum, for example, belongs in the same category.

And similar to Ethereum, the EOS coin itself is used to run applications on the network and is required for people who want to start using the EOS blockchain.

But overall, EOS is very different from Ethereum. While the ultimate goal of Ethereum is to create a fully decentralized, immutable, and tamper-proof foundation, EOS is actively trying to bring in a human element to act as a social blockchain. The EOS blockchain operates as a malleable democracy rather than an immutable framework.

As the argument goes, you can’t completely remove the human element from blockchains anyway, so why not embrace it? This unusual feature is one of the reasons why EOS is a very controversial project.

The founding of EOS was financed by by far the largest Initial Coin Offering (ICO) in history.

EOS parent company raised an estimated $ 4.1 billion to start EOS. The second largest ICO in history (Telegram) brought in less than half of that.

Back to top

Where can I get EOS

How does EOS work?

Imagine being asked to design a house without knowing whether to build it on sand, concrete, stone, or water. Your design would likely end up being a solid block. It wouldn’t be very nice or beautiful to live in, but it would be ready for anything.

Now imagine you are planning a house that you know will have a solid concrete foundation. It’s a lot prettier and more beautiful, of course, but it’s useless if it’s not on that concrete foundation.

This is the difference between EOS and other blockchains like Bitcoin and Ethereum.

Bitcoin, Ethereum and many other blockchains are designed like the first house where you don’t know what to expect, so you have to be prepared for everything. Anyone can join in to start mining blocks and processing transactions, anyone can build applications, and when something goes wrong there is usually no one to fix it. This is what gives them the blockchain properties of being theoretically immutable and tamper-proof.

But EOS is like this second house. To make it even more beautiful – in the form of faster transactions and more flexibility – it was specially designed to stand on this concrete foundation.

Cryptocurrency node icon

At EOS, this concrete foundation takes the form of a democratic electoral system in which people elect 21 “block producers” to control the entire network, with a system called “delegated proof of stake”. These block producers essentially control the entire system. You are responsible for processing transactions and having the final say on network governance matters.

This predictable framework gives EOS the benefit of much higher throughput than other blockchains. It is just a lot easier to design for 21 supposedly trustworthy nodes than to design a network for an unknown, ever-changing number of potentially hostile nodes.

The downside is that you have to give these 21 nodes complete control and have full confidence in these block producers and the democratic system by which they are elected. In this way, the governance mechanisms of EOS and the democratic system by which the block producers are elected are the concrete basis of the entire EOS network.

Hence, understanding EOS is much more about understanding its social dynamics than technical jargon.

EOS democracy and block producers explained

The EOS Foundation is a democracy in which anyone who owns EOS tokens can vote for block producer candidates, with each EOS token counting as one vote.

The coordination is a continuous process. Instead of voting just once, EOS holders put their tokens on the candidates of their choice. Users can vote for up to 30 candidates at the same time.

The idea is that if one of the top 21 block producers misbehaves or stops acting in the network’s best interests, EOS users can quickly withdraw their votes for that candidate and a more reliable candidate will rise from the standby block producers.

The 21 candidates with the most votes at any given time will become the block producers. The advantages of a block producer are:

  • Control over decision-making power in the network
  • A constant stream of income

The block producers ‘income stream comes from EOS’ inflation rate of 1% per year. Assuming EOS prices of $ 3 as of September 2019, this equates to 1% per year of $ 28 million.

This $ 28 million per year is distributed daily, broken down as follows:

  • 25% goes directly to the 21 best candidates for EOS block producers, proportional to the number of blocks they produce.
  • 75% will be distributed to the block producers in proportion to the number of their votes. If someone does not have enough votes to receive 100 EOS tokens per day from rewards, they will not receive any.

Assuming a reward of $ 28 million a year, and using the September 2019 vote distribution, you have a situation where the top 21 block producers get about $ 20 million a year in EOS while the rest get about 8 Millions of dollars in EOS shares between them.

Here’s how the block producers’ earnings and the number of votes they have can be visualized as such:

EOS Authority: Delivered

Source: EOS authority

The different colored lines in the graphic above show how the voice balance has changed over time. The green and yellow lines are before August 2019 while the black and blue lines are August and September 2019.

As you can see, the votes among the top 21 positions are consolidating quickly.

This is a natural consequence of the design of EOS democracy. It’s built as a system where voting power is tied directly to wealth, but most of the revenue from the system goes to the people who already have the most wealth and the most votes

The EOS Constitution

However, EOS democracy is not completely free – in theory.

It was originally regulated by the EOS Core Arbitration Forum (ECAF), which was founded after a majority of 15 out of 21 votes from the then block producers. Decisions would be made before the ECAF, the block producers would vote on them and the will of the ECAF would be carried out.

Although it designed itself as a kind of digital justice system, it was much more like EOS customer service. It was quickly paralyzed with indecision and block producers just started to ignore it.

The EOS constitution suffered a similar fate. It’s a non-binding, illegitimate document that cannot be enforced by anyone but the block producers, so they just started ignoring it. Nowadays, voting agreements are the norm at EOS.

As a former block producer explains, the voting purchase agreement is mostly a simple swap agreement based on the fact that you can vote with your full token inventory to up to 30 different block producers at the same time.

So a group of 30 entities comes together and everyone agrees to vote for one another. If each person in this arrangement has a million EOS tokens, that gives each of them 30 million votes for free.

This system offers a tremendous benefit to block producers buying and selling votes, and it means that the only way to climb the ranks of block producers is to start buying and selling votes yourself.

It also helps cement power among the top 30 token holders even further as they can create a lucrative voting block that is constantly reinforcing itself by earning the lion’s share of EOS mining rewards.

Today, cryptocurrency exchanges make up an oversized chunk of the top 30 voting blocks as they have an added advantage in being able to vote against their clients’ EOS holdings

EOS developers are trying to resolve the issue of vote buying, but these efforts are hampered by the fact that changes can only be made if approved by block producers and the limitations of the democratic framework on which EOS is built. Up

The advantages of EOS

Despite its problems, EOS still has some advantages and advantages.

  • It can offer users fast, inexpensive transactions as long as the network is not too congested.
  • Many other platforms have similar governance issues, and EOS’s issues are not unique.
  • Despite sustained price reductions, the EOS token has managed to remain constantly overvalued relative to the actual functionality of its blockchain.

What to consider before buying EOS

Some of the things to consider before buying EOS are:

  • Its blockchain is not immutable, which limits its uses.
  • Its flexible governance model is based on block producer collusion and commercial profits rather than the best interests of the EOS community.
  • The voting rights balance in the EOS ecosystem has strengthened significantly among the richest block producers.
  • Leading EOS block producers have shown little interest in solving the problems the blockchain is facing.
  • Between its lack of immutability and its flawed flexible governance model, the EOS blockchain serves no practical purpose.

Back to top

Disclosure: At the time of writing, the author holds BTC, BNB.

Disclaimer: Cryptocurrencies are speculative, complex and involve considerable risks – they are very volatile and sensitive to secondary activities. Performance is unpredictable and past performance is no guarantee of future performance. Take into account your own circumstances and seek your own advice before relying on this information. You should also review the nature of a product or service (including its legal status and relevant regulatory requirements) and check the websites of the relevant regulators before making a decision. The finder or the author may have holdings of the discussed cryptocurrencies.

Comments are closed.