the Complete Guide to Understanding What is EOS Blockchain and How it Works
You’ve probably heard the buzz around the EOS blockchain and now want to find out more?
If so, you came to the right place! Today I am going to explain everything you need to know about EOS in the simplest way possible. So, whether you’re an advanced user or just beginning to learn more about crypto, this guide will be suitable for you.
This guide will cover everything from how the project started to how the technology works, I might even use some real-world examples.
EOS goal is to build a network capable of processing millions of transactions per second. Its ICO (initial coin offering) has been very interesting for a couple of reasons.
Firstly, the EOS ICO started on June 26th, 2017 and ran until June 1st, 2018. That’s a total of 350 days, making it the longest ICO of all time! The EOS team did this to make sure everybody got a chance to get involved and purchase some EOS.
Secondly, although the ICO is still going, it has already raised the equivalent to over $1 billion, making it one of the most successful ICO’s of all time! Once completed, the ICO released 700 million tokens, which is 70% of the total supply.
EOS has some really experienced team members, including Daniel Larimer, who was also a co-founder at both BitShares and Steem. Larimer’s cryptocurrency projects are now worth billions of dollars!
The company behind the EOS software is called Block. It is also involved in lots of different blockchain and business projects.
So now that you know the story behind EOS, let’s move on to the next part of this “What is EOS?” guide.
What is EOS?
Before I explain what the project actually is, it is important to remember that EOS hasn’t finished building their product yet. At this stage, everything is just theoretical. So, let’s hope they are able to stick to their word and produce what they say they will.
UPDATE 2020: EOS is successfully operating, the company managed to fulfill all of its major goals and even more.
The aim of EOS is to build a decentralized blockchain that can process fast and free transactions. It will also allow smart contracts to be built on top of it, which will allow developers to release dApps. Not only this, but EOS wants to build a platform that functions like an operating system, which will make it really easy to use!
Another aim of EOS is to be able to process millions of transactions per second. This would solve a big problem, as other blockchains can recognize smart contracts, none of them can perform that quickly! For example, even though Ethereum is the most popular smart contract blockchain, it can only handle 15 transactions per second!
Why is this such a major issue? Well, let me give you a few examples:
- More than 52,000 Facebook likes happen per second and every single one of those likes is a separate transaction that you don’t ever see.
- Then you have the financial industry which needs to process more than 100,000 transactions per second.
So, you can clearly see the need for millions of transactions per second, making EOS perfect for these types of industries!
Another solution that EOS is looking to solve is the issue of usability. For example, both Steem and BitShares can process around 100,000 transactions per second and use smart contract technology. However, it is really difficult for developers to insert basic functions such as account recovery and task scheduling.
By using an operating system protocol, EOS will have all of these core functions built-in, allowing developers to do what they do best.
If you want to buy EOS, you should always choose reliable cryptocurrency exchanges, such as Coinbase, or pick the easiest way and purchase EOS using your credit card via Simplex – secure payment processing.
Also, keep your cryptocurrencies in cold wallets as they’re the most secure. Ledger Nano S and Trezor Model T are among the most popular options.
How will EOS work?
EOS (like many other smart contract blockchains) is often referred to as the “Ethereum Killer”. What this means is that it can do everything that Ethereum can, and even more! So, I thought it would be a good idea to compare the two…
Firstly, as we have already established that both Ethereum and EOS are capable of hosting dApps, which are supported by smart contracts. However, the key difference is the amount that each network can process at any given time.
This is called “Scalability” which is one of the most important things to consider when analyzing the potential of a blockchain.
Ethereum is still only able to process about 15 transactions every second, which is far too little for it to achieve global adoption. However, although it hasn’t been built yet, EOS is hoping to increase this number to over a million!
Well, going back to Ethereum, the reason it is unable to process lots of transactions is because of the way it manages data — each block can only store a certain amount of information. To understand this, think about an empty shipping container that can only store 1000 boxes. Because of its size, it can’t store any more than its maximum capacity!
Not only can each container (or block) carry only 15 transactions, it also takes a while for it to reach its destination!
The technology supporting this data process is called Proof-of-Work (PoW), which is known to be really slow, expensive and bad for the environment!
The Ethereum team are trying lots of different things to solve this issue — such as sharding or off-chain transactions. However, they are yet to implement a solution!
As mentioned, instead of using PoW like Ethereum, the EOS blockchain will use a new consensus model called Delegated-Proof-of-Stake (DPoS). This could fix the current problems that Ethereum is trying to solve!
Trying to explain DPoS can be a difficult task if you don’t have any previous knowledge of blockchain technology. But don’t worry, that doesn’t mean you have to miss out! Here’s DPoS explained in the simplest way possible:
- Imagine that 200 people are needed to help verify each transaction on the blockchain. These people are called “Witnesses”
- As the blockchain is decentralized, EOS investors (rather than a central party) get to vote for who they think should be a Witness!
- However, the strength of your vote is based on how many EOS coins you have. This is called a “stake”. The more coins you stake, the more power your vote has.
- The task of all 200 Witnesses is to keep the network secure. They get paid for doing this.
- There are lots of backup Witnesses available who wait for their turn to help secure the blockchain so that they can make money too.
- If a witness is not doing their job correctly, or they are not securing the network as they should be, they can be voted to be kicked off the network. Which gives the backup Witnesses a chance.
Basically, this creates a more efficient system, allowing cheap, fast and environmentally friendly transactions. In fact, each transaction only takes 3 seconds to process!
Ethereum, however, needs every individual computer (node) that is connected to the network to come to an agreement before a transaction is confirmed. Which is why it can take a while to reach its destination.
Another good addition to the EOS blockchain is that it will be possible to freeze transactions! But why is this important?
Well, have you ever heard of the famous DAO hack? Basically, somebody stole $50 million worth of Ethereum coins back in 2016, which meant that the blockchain had to be forked. If the Ethereum blockchain had DPoS technology like EOS will, then the attack could have been stopped.
So, now that you know how the technology works, the next part of my “What is EOS” guide will explain what the EOS crypto will be used for.
What Is EOS Coin Used For?
Like most blockchains, EOS has its own native cryptocurrency, simply called EOS. It has a couple of different purposes, which I will now talk about further.
When you use the Ethereum blockchain, you have to pay transaction fees. This is called GAS, and as more and more people use the network, it becomes more and more expensive.
This makes it unusable on a global scale because it wouldn’t be worthwhile sending small amounts. This is because of how Ethereum was built. When people need to use the network, they rent Ethereum’s Virtual Machine, which requires a transaction fee.
The EOS model is different though: instead of “renting” computing power, EOS coin holders have ownership of the network.
For example, if you owned a 1% stake in EOS coins, you would essentially own 1% of the network, meaning you would own 1% of the required computing power to process the transaction. This is what makes transactions free!
The EOS coin operates in the same way as any other cryptocurrency — you can send, hold or receive funds between wallets. This makes it an excellent payment system as you can transfer money to anyone in the world for free, in just a few seconds.
So, now that you know what the coin is used for, the next part of my “What is EOS?” guide is going to show you how the technology can sometimes be abused.
How Can EOS Be Abused?
One of the most unique features of cryptocurrency is that it allows people to send and receive transactions anonymously. This is just like paying for cash in the real world. You wouldn’t expect to show identification when you got on the bus or paid for a loaf of bread, would you?
However, this also means that some people can use cryptocurrencies to commit crimes anonymously. Crimes that involve the buying and selling of illegal drugs, weapons and stolen credit cards (to name a few). Bitcoin was also once used to pay for private assassinations too.
EOS does not exclude itself from this anonymous feature.
Also, most blockchain databases (such as Ethereum’s) are public. This means that everyone with an internet connection can view all the transactions that take place on a blockchain, as well as view the account balance of all wallets.
However, according to the EOS founder Daniel Larimer, it will not be possible to hide the address of the sender or receiver, it will be possible to hide the total balance of a user’s wallet.
This could potentially appeal to those hoping to commit tax evasion offenses as it would allow a person to hide their wealth in the same way that an anonymous shell company does. However, the benefit of this is that it adds extra security for wealthy cryptocurrency holders.
An important thing to remember is that all technologies have the potential to be abused, but it is only a small minority that attempts to do it.
What is EOS? – Conclusion
So, that’s the end of the “What is EOS?” guide! You should now have a good idea of what EOS is trying to achieve, how the technology works and why the EOS token is so important.