Should you Believe the EOS Hype?

[mattipikos]

EOS, a smart-contract platform developed by Steem and Bitshares founder Dan Larimer, has received a lot of attention in the run-up to its mainnet launch in June.

This attention is directly reflected in the project’s unusual market activity. $EOS, with a market capitalization of close to $13bn, is now almost valued higher than both Litecoin and Cardano combined. $EOS’ daily volume is more than double that of the third largest crypto asset, Ripple ($XRP); and $EOS’s price has continued to trade actively against both market leaders Bitcoin ($BTC) and $ETH.

Before definitively declaring EOS the next Ethereum-killer, it is worth taking a look at this 3rd generation blockchain’s design principles and how they relate to the fundamental value provided by blockchain technology.


Scalability Trilemma

To understand EOS’ design principles, it is essential to understand the fundamental scalability trilemma at the heart of blockchain design.

As initially proposed by Vitalik Buterin and further explored by Multicoin, blockchains suffer from a trilemma in that they can currently only simultaneously achieve two of the following three properties:

Scalability — a high number of transactions per second.

Decentralization — a large number of actors participating in block production and validation process.

Security — making it expensive to gain majority control over the network.

For some context, Bitcoin and Ethereum’s current consensus mechanism, Proof of Work (PoW), (theoretically) favors decentralization and security over scalability. BTC and ETH are permissionless, so anyone can participate in mining or run a node, and the security of the network is protected by the price of energy/hardware needed to produce the accumulated hash power.

Ethereum’s proposed Proof of Stake consensus mechanism may arguably be better than PoW in that stakers will not be required to purchase expensive hardware to contribute to the block production process. As a result, the distribution of block producers should be more varied and thus the network further decentralized.

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