EOS: Ethereum Killer or Outright Scam?

EOS is probably the most polarizing project in crypto. Some supporters are convinced it’s an Ethereum killer, while others deride it as an outright scam. So who’s right? Without taking a firm stance either way, this article will outline both the bull and bear cases for EOS’s long-term success.

EOS vs Ethereum

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Photo by Richard Lee / Unsplash

EOS is the most successful ICO launched through Ethereum and switched to its own mainnet on June 2, 2018. While most ICOs set a hardcap for the amount of Ethereum the project could raise, EOS was uncapped, and raised funds equivalent to anywhere between $1.5 and $4 billion. With a Satis Group report estimating that around 80% of ICOs launched over the Ethereum network in 2017 were outright scams, detractors consider EOS the most egregious example of an ICO generating an enormous amount from investors and offering nothing but empty promises in return. The bull case for EOS has it that EOS is a project which now possesses an enormous war-chest for stimulating dApp development. Between these two extremes is a cautionary centrist position: EOS may be a completely legitimate project with the best intentions behind it, but that is no guarantee of success. This centrist POV can support its opinion with reference to the major winners and losers of the dotcom boom. Firms like Amazon, Facebook, and Google have flourished with access to far less start-up capital than many of the mega-hyped projects from the ‘90’s bubble that collapsed and disappeared when the bubble burst.

EOS has been positioned as a platform with many similarities to Ethereum, along with several crucial differences. Both aim to be a platform through which ICOs can be launched and dApps can be deployed. At the height of 2017’s manic crypto bull-run, CryptoKitties became the first Ethereum dApp to gain traction and generate headlines. In the process, CryptoKitties exposed enormous flaws in Ethereum’s suitability to be a truly scalable dApp platform. Its popularity caused massive gridlock on the Ethereum network, with transaction times and costs soaring to the point that the network basically became briefly unusable.

Network congestion and high transaction fees remain a major barrier to Ethereum becoming the universal dApp platform its biggest supporters have envisioned it as. While solutions such as sharding and plasma may help Ethereum move beyond these early teething troubles, EOS’s biggest supporters think this alternative platform has already crafted the perfect solution.

DPoS: Delegated Proof of Stake

Transactions are currently broadcast to the Ethereum network in a similar way to transactions broadcast to the Bitcoin network - through a consensus mechanism called Proof of Work (PoW). Computers solve complex mathematical problems through a process typically referred to as mining. Each new transaction pays a fee to these miners to become verified and then broadcast to the network.

EOS works differently, instead using a consensus mechanism called Delegated Proof of Stake (DPoS). Every wallet containing EOS tokens is able to vote for a representative, with the number of tokens held determining the weight of each wallet’s vote. In the same way that Bitcoin or Ethereum miners are rewarded with transaction fees in the PoW model, representatives in the DPoS model receive rewards for each transaction they verify.

DPoS was pioneered by EOS’s Dan Larimer and produced a predictable backlash from miners who’d done extremely well out of the PoW model, as explained quite succinctly by self-confessed EOS & Larimer fangirl Katie Roman here. Supporters would argue that DPoS is massively superior to PoW as it allows for feeless transactions and completely eliminates the high transaction fees and slow transaction times associated with heavy usage of the Bitcoin and Ethereum networks. An additional advantage is that it does away with the heavy ecological cost of energy-intensive crypto mining that has seen Bitcoin’s carbon footprint equal that of entire developed nations.

However, within days of the EOS mainnet launch, the DPoS model ran into problems of its own. Elected representative block producers were accused of spam attacks, and consequently frozen out of the EOS network. As well as suggesting fundamental flaws in the DPoS consensus mechanism, the freezing of wallets associated with misbehavior on the network seriously harmed EOS’s claims to be supportive of true decentralization.

It’s easy to understand why bears and bulls conversely tout DPoS as EOS’s killer app and its Achilles’ heel. The question of which consensus method is superior still rages on, and it's worth pointing out that PoW and DPoS are far from the only options available. NEM utilizes Proof of Importance, VeChain opts for Proof of Authority, and there are many others beside. A decent primer can be found at the following link, but the main takeaway is that we are far from reaching consensus on the best consensus mechanism. Each consensus mechanism has distinct advantages and disadvantages, with some being more suited to particular use cases than others. You may already have a strong opinion on this, and if you do, that probably greatly informs your opinion of EOS. If you don’t, it’s one more factor to bear in mind when weighing up the bear and bull cases for EOS’s future success.

dApps

To labour a pun, surely the killer app of any dApp platform will be the dApps deployed through its network. Right now, EOS is holding its own against Ethereum, but both are falling way short of the world-changing Internet 4.0 predictions being flung around at the height of the 2017 crypto bull run.

DAppRadar.com currently lists five EOS dApps with more than 500 users in the past 24 hours, as opposed to just three for Ethereum. But before you chalk this up as a major win for EOS, bear in mind than both networks’ dApps currently have a paltry level of usage. Ethereum’s top-ranked dApp is the decentralized exchange IDEX, with 1,381 users; EOS’s is PRA CandyBox, with just over 5,000. PRA CandyBox incentivizes users with returns in EOS and other tokens on its network. Outside this, EOS’s number two dApp is the game EOS Knights, with 1,537 users.

To put that number into any kind of perspective, think of local music venues in your area. What level of band or artist would draw 1000 attendees to their show? But then consider that said band or artist runs a nationwide or worldwide tour, playing to that many people for months at a time. That is how many times more popular that band or artist is than the most popular dApps deployed through EOS or Ethereum. Then consider the Google Play Store and iOS App Store get about 27 billion combined downloads each quarter. It’s clear both platforms - and for that matter, any dApp platform - is still a million miles away from achieving any kind of significant success.

Be Careful....

As mentioned above, EOS’s DPoS consensus model has proved predictably unpopularly with those dependent on the PoW consensus mechanism’s mining model for their income. Whenever you read anything touting either side in the EOS vs Ethereum battle’s good points, or railing against their shortcomings, remember that most people sharing that information have a vested interest in either platform’s success - myself included! In a space as open to manipulation as crypto, take everything you read with a Nusret Gökçe level of salt.

One popular theory surrounding Ethereum’s recent dip to sub-$200 levels is that ICOs are cashing out their ETH windfalls. With up to $4 billion invested in its project in Ethereum - along with a vested interest in overcoming Ethereum to be the first-choice dApp platform - many fingers have been pointed at EOS.

Take a look at recent hacks associated with the EOS network. The EOSBet Casino is the most significant, with some $260,000 worth of users’ funds siphoned off. Some will say this shows EOS is not fit for purpose; others will say this is purely the fault of EOSBet’s programmers and developers, and not an overall reflection of the platform itself. And let’s not forget that Ethereum has been susceptible to many similar problems, the most famous of which led to a forking of the platform and the creation of Ethereum Classic following a hack worth around $50 million.

The Team

“Great team!” became a meme throughout the 2017 crypto bull-run, but honestly, both EOS and Ethereum have two of the most impressive line-ups in crypto.

Ethereum’s crown jewel is Vitalik Buterin - the genius who saw beyond the limitations of Bitcoin, the guy who single-handedly invented smart contracts, dApps, ICOs, and all the other craziness that made crypto explode in 2017.

A quick glance at the Ethereum Foundation page shows Vitalik is undoubtedly the main guy, but 2017’s ICO craze has meant a massive network effect, with the majority of high-end blockchain developers now being au fait with Ethereum’s inner-workings.

Brendan Blumer is EOS’s Vitalik, and the immediate team around him is highly impressive. Dan Larimer is the Vitalik-style visionary behind EOS’s DPoS consensus mechanism. Other gets include the CFO of Australia’s largest bank. EOS is also touting the fact that they’re snatching dApps and ICOs away from Ethereum.

Ethereum Killer or Outright Scam?

Honestly, having assembled this article, I have my doubts about both positions. And given the current complete lack of adoption and penetration for dApps, I think we’re a long way from finding out which projects within the crypto space are long-term winners and losers.

There are also a ton of other competitors within the space, and I think the following analogy is worth bearing in mind: if you’d been offered shares in Google, Ask Jeeves, or AOL at the height of the dotcom boom, Google would’ve been the idiot’s choice. And let’s never forget that Rupert Murdoch spent $500 million on Myspace just before Facebook exploded.

If nothing else, I hope this article helps you better understand the strength of feeling surrounding EOS. Whether the bulls or bears are in the right, EOS is certainly going to be an interesting story to watch unfold.

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EOS: Ethereum Killer or Outright Scam?
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