Evaluating The EOS ICO

Almost a year long, it was the longest initial coin offering (ICO) in the world. The ICO by EOS, a blockchain that is building an alternative to ethereum’s smart contracts, finally finished this past week. Launch of its mainnet is still in progress.

One billion tokens were offered during the ICO. Those tokens garnered $4 billion in funding from investors, according to Block.one, the largest development firm contributing to the EOS blockchain. The tokens will be distributed between 163,930 addresses upon launch. According to analysis by BitcoinPrivacy, the 10 wealthiest addresses on EOS’ blockchain hold 49.67% of its total token supply. Block.one itself holds approximately 10% of total supply.

At first glance, the token distribution may seem skewed. But it will undergo a significant change in the future. This is because cryptocurrency exchanges have frozen transactions relating to EOS whilst the mainnet is being launched. According to users on Reddit, addresses with a large number of EOS-related transactions on ethereum’s blockchain may be cryptocurrency exchanges, where transactions involving purchase and sale of cryptocurrencies drives up the overall volume number. Once that freeze is lifted, the distribution numbers might alter. For example, exchanges might move their tokens away from exchanges onto third-party wallets or the main blockchain of EOS.

Points To Note About The EOS ICO

Perhaps the most striking thing about the EOS ICO is that it occurred without a product in place. The blockchain’s Github repository is still being updated with documentation and other details. The launch of a cryptocurrency without a product is not an uncommon occurrence; but the amount raised by EOS purely on the basis of a proposed product is.

As I mentioned earlier, EOS has positioned itself as an alternative to ethereum, the world’s most well-known smart contract platform, and NEO, a China-based platform which has found favor with the Chinese government. In the case of EOS, it received a vote of confidence from Multicoin Capital, a fund backed by marquee names such as Marc Andreesen.

“Betting on EOS is a recognition that there is a huge market for decentralized apps that simply need to be hosted on a neutral, global database that offers platform-grade censorship resistance and has high-level throughput, speed, and finality,” the firm wrote in a report about EOS recently. “EOS recognizes that for global scale dApps having each and every transaction validated by a large network of consumer grade computers all over the globe is both unrealistic and unnecessary.” In simple words, those two sentences mean that EOS is betting that speed will trump iron-clad security for transactions in decentralized applications.

The blockchain claims to have a block confirmation time of 0.5 seconds. (Bitcoin has a block confirmation time of 10 minutes). The rapid confirmation of blocks is made possible by user-delegated Proof of Stake (PoS), in which a set of 21 super nodes are responsible for confirming transactions. This is in contrast to bitcoin, where the entire network is responsible for confirming transactions. The selection of EOS nodes is conducted in a round robin fashion and is based on votes garnered from the mining pools. The idea is fairly similar to the governance models at other cryptocurrencies, such as Cardano, which use a rotating selection of nodes for confirmation of transactions.

Making transactions faster is one aspect of the blockchain. The other one relates to utility. A blockchain platform is only as good as the applications on it. “The idea of a general purpose blockchain is to provide things that all decentralized applications have in common, so that it reduces or makes easy to launch one of these businesses,” says Brendan Blumer, CEO of Block.one. “The idea of EOS is that if you are able to build a website, you should be able to build a decentralized business.”

To that end, Block.one states that it plans to invest $1 billion to develop applications on the EOS blockchain. It has partnered with well-known firms in cryptocurrency, such as Mike Novogratz’s Galaxy Capital, for this venture. It also plans to create libraries of code for common tasks that can be reused for developing applications quickly on its blockchain. The libraries will help standardize user-interface elements on its chain. Besides this, the blockchain also offers developers the option of using popular programming languages, such as C++, on its platform. Ethereum, its competitor, requires developers to learn a new native programming language – Solidity – for its platform.

Problems With The ICO

Even as the ICO was starting, EOS New York announced plans to freeze EOS-related transactions. But trading of EOS tokens has continued on cryptocurrency exchanges, driving up the value of EOS tokens. Since the completion of its ICO on June 2nd, the price of EOS reached a high of $15.61, an increase of 25% from its price less than 24 hours earlier. At 14:52 UTC on June 5, it is trading at $13.61. Users cannot withdraw their balances, however. This means that there might be a mass withdrawal once the freeze is lifted and traders interested in cashing out begin selling. Already, there are rumblings that the ICO is overpriced for a company which is yet to release its product.

The other problematic aspect of the EOS ICO is the absence of a timeline. The mainnet launch depends on block producers, whose actions and decisions are shielded by silence. It is impossible for users to establish a timeframe for trading their EOS tokens until further instructions from the block producers.

Then there’s the fork. Even before the EOS code is released, the cryptocurrency has announced a fork in EOS Classic. According to its whitepaper, there are two problems with existing EOS tokens. The first one is the complexity in getting the EOS airdrop coin and the second one is the “security and centralization issue” due to the delegated proof of stake being utilized by the coin. EOS classic, which uses bitcoin’s Proof of Work algorithm, was forked to solve these problems. (Of course, PoW has its own set of problems, from governance to long transaction settlement times). Forking brings its own set of benefits to the cryptocurrency ecosystem. The number and value of coins in circulation doubles with minimal effort. For example, EOS Classic claims to offer 1:1 airdrop for every EOS coin, thereby doubling the number of EOS tokens in existence. Forks were estimated to have brought in an estimated $44 billion to the cryptocurrency ecosystem last year.