What is EOS & How Does it Work? - EOS for Beginners

Why Was EOS Invented?

EOS was created in order to develop a decentralised platform for creating dApps at a scale not previously seen. Not only that, but it hopes to scale to a size at which point it will have no rival.

It is similar to Ethereum, however, Larimer and Bloomer believed there were a number of aspects they wanted to improve on and as a result were driven to invent their own coin. Their stated aim was that it would be able to conduct millions of transactions a second, with no fees involved. This is something that Ethereum simply does not offer. It sought to achieve this through a delegated Proof of Stake (DPoS) system to approve transactions.

The variety of dApps available on the EOS network is astounding. They range from games to mindfulness dApps to even some dApps whose aim is to help provide universal healthcare through blockchain technology. 

How Does EOS Work and What Technology Is Behind It?

EOS runs on a DPoS consensus, where 21 people each day are chosen to be validators for transactions. These 21 delegates are voted for by the community. This has a number of advantages. Firstly, delegates are accountable for their actions, as if the community are not pleased with their performance, they can be voted out. Secondly, by having a small pool of validators it takes very little time for transactions to be validated. Any potential problems of having a small group of voters are negated by having them re-elected each day, 

The supply of EOS has a 5% inflation rate, 1% of which goes to the block validators at the end of the year. This incentivises them for their efforts across the year, thus helping to maintain their performance.  

Through the delegated proof of stake protocol, the potential for scalability is vast. No matter how big the community becomes, the small number of daily delegates for validating blocks will allow the speed of transactions to remain incredibly quick. Paying the block validators with a portion of EOS removes the need for transaction fees.

Is EOS Real Money?

Tokens can be used to exchange for other cryptocurrencies or as a store of value. As such, they could be considered as ‘real money’. Their true use, however, is on the network. The more tokens one has, the greater claim one can stake on the network. The tokens can also be used to interact with dApps.

Fees & Expenses

EOS transactions are feeless on the network. Although it should be noted that fees will be incurred when purchasing the tokens through a third party. One can use the world’s largest social investment network eToro, or another cryptocurrency exchange to purchase EOS tokens. The spread on purchasing EOS on eToro is 2.9%.  

EOS Benefits

Infinite scaling – The network has the potential for almost infinite scaling. This is due to the DPOS system being able to facilitate potentially millions of transactions a second, no matter how big the network grows. This is because the pool of validators will continue to remain small and efficient whilst the network grows.

Most popular dApps – dApps built on the EOS blockchain are sometimes more popular, used more frequently, and have a higher transaction volume than its rival Ethereum. This is in part due to the ownership of the network granted to coin holders.

Responsive – The DPoS allows the network to respond to problems such as the DAO attack that occurred on the Ethereum network. If that were to happen to the network, the Block validators could vote to freeze the app until it had been fixed. Thus allowing the network to continue as normal. 

Decentralised OS – The fact that it is a decentralised Operating Software allows for token holders to essentially own part of the network in proportion to how many coins they hold. This negates the need for a transaction fee that networks as Ethereum requires.  

Can It Be Used Anonymously?

Token holders are not anonymous on the network. As such, they cannot be used for their intended purpose anonymously. Even when just kept in a wallet on an exchange, anonymity is not really achievable. This is because any major online exchange will require some form of ID verification process to use their services and purchase the tokens in the first place.

How Safe Is EOS?

The DPOS system, in theory, should make it relatively safe. The system would allow the potential dangers of the Ethereum DAO attack to be negated as the validators could freeze the app. However, others would argue that in order to take control of the network you would only need to control 11 of the 21 validators. Although it should be noted that this would be an unlikely turn of events.  

Towards the end of 2019 however, there were two attacks on the network. One was against a gambling dApp called EOS.win. The attack involved a loophole in the blockchain’s code which allowed the hacker to create a multitude of deferred transactions, which prevented block producers from approving valid transactions.  

The second attack was from a company called EIDOS that airdropped a program onto the blockchain that allowed users to generate EIDOS tokens. All users had to do was send transactions of EOS on the network, which in turn generated EIDOS tokens. This had the effect of drastically slowing down the network with all the new transactions. This second ‘attack’ seems to have been an attempt to draw attention to the limitations of the network.  

What Teams Are Working on EOS?

EOSphere – A company that helps businesses create and develop dApps that run on the EOS network. They hope to inspire confidence in shareholders as well as Dapp developers by helping to integrate blockchain technology with traditional businesses.  

EOS Studio – An easy to use Dapp development software for the network. It has powerful code editing and smart contract inspecting tools. By increasing the accessibility of Dapp development they hope to proliferate the number of high-quality dApps on the network.  

What Financial Institutions Use EOS?

Galaxy Digital Assets – Galaxy digital assets is an investment fund that focuses on blockchain technology and has an EOS specific fund. The fund’s purpose is to help support and develop the network whilst also investing in teams and businesses that are looking to adopt the EOS blockchain software. 

Fin Lab – Fin Lab is a German company that uses technology and expertise to help build and develop other companies. They specialise in supporting FinTech start-ups and the EOS blockchain is one of the many methods at their disposal to slipstream and improve a company’s processes.  

EOS Mining

It is not mined. Instead every year the supply inflates by 5%. From this, 1% is used to compensate the block producers from that past year. As such, if one were to become a block producer it is possible to ‘earn’ EOS in a fashion that is similar to mining.  

EOS Wallet

EOS tokens can be kept in the majority of normal cryptocurrency wallets. These range from online ‘hot’ wallets to hardware wallets. Different types of EOS wallets offer different perks from increased security to easier portability. Here are a few of the conventional types of wallets:

• Ledger Nano S – Hardware wallet

• Trezor – Hardware wallet

• Atomic wallet – Mobile and desktop wallet

• Guarda wallet – Mobile and desktop wallet

• Exodus – Desktop wallet

There are also community-built, EOS-specific wallets that make it simple to store tokens as well as vote for block producers on the network. Here are some examples:

• GreyMass Voter Wallet – Desktop wallet

• Scatter Wallet – Desktop application + chrome extension

• Guarda Wallet – Desktop wallet

Is Eos Worth the Investment?

This is a personal question that only you can answer, after having conducted enough research. If one is interested in developing dApps then purchasing EOS coins is a prerequisite for this, rather than a question of whether it is worth it.  

Out of pure price speculation, since its peak in April 2018, the price of EOS has gradually declined and remained at a low level.  

It should be noted that the prices of cryptocurrency are volatile and subject to large daily changes. Therefore one should always conduct sufficient research before investing in EOS, and never invest more than you can afford to lose.