What Is EOS?

EOS is a blockchain-based, decentralized system infrastructure that enables the development, hosting, and execution of commercial-scale decentralized applications (dApps) on its platform. No official full form exists for EOS, and the creators have decided not to formally define it themselves. 

Key Takeaways

  • EOS is a blockchain decentralized system infrastructure that enables the development of decentralized applications (dApps).
  • EOS supports secure access and authentication, permissioning, data hosting, usage management, and communication between the dApps and the Internet.
  • The EOS ecosystem has two key elements: the EOS.IO and the EOS tokens.
  • The EOS.IO is the system architecture, and the EOS token is the network's cryptocurrency.
  • EOS has some potential, but Ethereum is its main competitor and is currently more popular.

Understanding EOS

EOS supports all of the required core functionality that allows businesses and individuals to create blockchain-based applications in a way similar to web-based applications. EOS provides secure access and authentication, permissioning, data hosting, usage management, and communication between the dApps and the Internet.

EOS is also supported by a web toolkit for interface development, making it a complete offering for hassle-free app development. It essentially works in a way similar to Google’s Play Store and Apple’s App Store.

The Basics of EOS.IO and EOS Tokens

The EOS ecosystem is composed of two key elements: the EOS.IO and the EOS tokens.

The EOS.IO is akin to the operating system of a computer—it manages and controls the EOS blockchain network. EOS.IO uses blockchain architecture for vertical and horizontal scaling of dApp. The EOS token is the cryptocurrency of the EOS network.

A developer simply needs to hold EOS coins, instead of spending them, to use network resources and to build and run dApps. A token holder who is not running any apps can also allocate or rent their bandwidth to other participants who may need it.

Currently owned by the Block.one organization, EOS was launched by Dan Larimer, who is also the founder and creator of established platforms like Bitshares and Steem.

How Is EOS Different from Blockchain Systems?

While there are already a number of blockchain-based networks like Ethereum, which facilitates decentralized applications, EOS focuses on critical pain points of blockchain and attempts to solve the problem of speed, scalability, and flexibility that often become a bottleneck.

With the size of the dApps ecosystem increasing with every passing day on a particular blockchain network, there is often limited availability of resources on the network. They include problems like network constraints due to a large number of false transactions and similar requests, spamming apps, slow execution speeds, and limited computing power availability across the network.

EOS.IO attempts to address these problems by offering more scalability, flexibility, and usability through its unique mechanism.

Characteristics of EOS.IO

EOS.IO claims to be able to support thousands of commercial-scale dApps without hitting performance bottlenecks through the use of parallel execution and asynchronous communication methodology across the network. The efficiency is further boosted by separate modules that are involved in the working of dApps. For example, the authentication process is performed separately from the execution process.

EOS.IO offers flexibility in the development and maintenance of dApps through various features. Its ownership structure promotes free usage by the user. Transaction charges are eliminated as developers can use resources in proportion to their stake instead of the standard pay-per-transaction model. This also makes it easier for app developers to predict hosting costs and monetize strategies.

EOS.IO uses delegated proof-of-stake and a role-based permissions concept for flexibility in instant high-level decisions; for example, rollback, freezing, and bug-fixing broken apps through a majority accord among designated stakeholders.

EOS has key usability features—a web toolkit for interface development, self-describing interfaces, self-describing database schemas, and a declarative permission scheme. All of these make the developer’s job of creating and maintaining the apps easier.

The Democratic Inflation-Based Economy of EOS

The EOS setup does not use the mining concept. Rather, there are only block producers who generate the required number of blocks and are rewarded by the creation of new EOS tokens for each new block they produce.

Block producers have the flexibility to publish a desired figure for their expected pay, and the number of tokens they create is calculated based on the median value of the expected pay published by all block producers.

As block producers would obviously desire higher pay, this feature can easily be misused. To contain this issue, a mechanism caps producer awards tokens so that the total annual hike in token supply will not exceed 5%. Token-holders, who vote on the matter, have the authority to vote out block producers who demand more inflation.

This mechanism functions complementary to EOS storage as all token holders pay for file storage on the EOS network through a portion of annual inflation. As long as they are storing a file on the network, their EOS tokens will be held up and will lose value at the rate of inflation.

The more storage required, the more blocks will be demanded from the block creators who can demand more value for their work through higher pay inflation, which the token holders approve. If storage demand decreases, inflation will be lower, reducing the loss of value from held up EOS tokens.

Unique Year-Long Token Distribution

EOS took a novel approach with a year-long initial coin offering (ICO) period. According to EOSCollective, EOS token distribution spread tokens far and wide throughout the whole ecosystem at realistic market prices without giving undue advantage to a select few during a short ICO period. The distribution was as follows:

  • 200 million (20%) of tokens were initially distributed during a five-day period from June 26, 2016 to July 1, 2017.
  • 700 million (70%) of tokens are currently being distributed on an ongoing basis of 2 million per day for 350 days.
  • 100 million (10%) are being held in escrow for block.one to keep their incentives in line with that of the EOS community. Block.one's tokens will vest over a 10-year period at 10 million tokens a year.

EOS tokens can be kept in multiple wallets that include Ethereum Wallet, MyEtherWallet, and MetaMask, and the tokens can be traded on exchanges like Bitfinex and YoBit.

EOS faces criticisms concerning its centralized block producers. The system is reportedly supporting large token holders, or whales, in China.

EOS Developments

In September 2019, one of the small companies instrumental in the initial development EOS stepped away saying that it was focusing on other blockchain and EOSIO software implementation.  According to Coindesk, the real reason was that the support of EOS whales—those with large token holdings—was needed to make money, and those whales were supporting block producers in China. This did not bold well for EOS.

EOS faces skepticism in other ways too. Shortly after its launch, block producers froze seven accounts that held stolen tokens, but EOS had no legitimized authority to do so. This move illustrates the current controversy surrounding EOS, which is that it lacks an effective governance process.

In June 2019, Brock Pierce, an early member of the Block.One team, made news when he suggested that EOS is now governed by a “Chinese oligarchy.” Although, it is true that a majority of the block producers are based in China, the concern has more to do with the risks that this centralization poses. The main complaints about the current block produders are that they don’t prioritize building new dApps that will attract other users to the blockchain.

Regarding governance, EOS has since settled on a system in place to run a vote across all EOS holders, but EOS New York said that it is “simply a way of gauging the interest of holders.”

In May 2021, the EOS price climbed 50% after the news that Block.one had created a new subsidiary called Bullish Global. The price then fell just as sharply toward the end of the month. Bullish Global intends to create a new blockchain-based cryptocurrency exchange. Prominent investors in Bullish Global are Peter Thiel, Mike Novogratz, Alan Howard, Christian Angermayer, Louis Bacon, Richard Li, and the institutions Nomura and Galaxy Digital.

EOS made little news in 2020 because Bitcoin dominated the market's attention. However, developers at Block.one recently announced the EOS Resource Model proposal and that a review of its code by various organizations would be forthcoming.

Another highlight is that Spielworks built a rewards and loyalty platform for gamers using EOS.IO. Also, the company added new features to its Training and Certification segment of the blockchain. EOS is continuing to attract people to develop new decentralized finance (DeFi) projects on its network, although Ethereum is still the most popular network in that space.

EOS Crypto FAQs

The price of EOS is not expected to increase dramatically over the next five years. Ethereum continues to be the preferred decentralized, open-source blockchain.

EOS Crypto FAQs

What Does EOS Stand For in Crypto?

EOS stands for Electro-Optical System. EOS is a decentralized operating system based on blockchain technology.

What Is the Purpose of EOS?

The EOS system was designed to support decentralized applications on a commercial scale. EOS provides the core functionalities for businesses to build blockchain applications in a way that is similar to web-based applications.

Can EOS Go to $1,000?

Early in 2021, EOS was bearish with a price of $2.63, but the price surged up to $12 by May. Still, few pundits see the EOS price at $1,000 any time soon.

CoinPedia predicts that the price will reach $18 to $24 by the end of 2021, and perhaps $45 by 2022. With potential startup collaborations to bolster its blockchain infrastructure and transaction speeds, CoinPedia suggests that EOS might reach as high as $160 by the end of the next five years.

WalletInvestor thinks the price of EOS will not go above $14 by the end of 2025, Digitalcoin sees the price reaching around $19 to $24 by 2025, and Longforecast sees a price of around $45 by mid-2025.

The Bottom Line

There does seem to be potential for EOS as a blockchain-based network, but it is still in a nascent stage. Some doubt the bold claims of transaction speeds of 100,000 per second, and the requirement that users must hold EOS tokens to complete a transaction may detract from EOS's appeal. As with all cryptocurrency blockchains, this space will continue to fascinate and mesmerize many investors over the next few years.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author did not own cryptocurrency.