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The EOS community will be launching the EOS.io mainnet when the clock hits 6pm EST on Saturday, June 2nd. This is an intriguing point in time for the blockchain community, during which Ethereum will be faced with its first legitimate competitor in the space. The smart contract war begins.

Competition drives innovation, and competition between smart contract platforms has the ability to push the boundaries on scalability – fostering a solution which may or may not be either EOS or Ethereum – and with the requirements needed for mainstream consumer-grade blockchain adoption.

What is EOS and how does it differ from Ethereum?

EOS is a blockchain and a smart contract platform that will directly compete with Ethereum. It is advertised as an “operating system” for decentralized applications. The platform uses a delegated proof of stake (DPoS) consensus mechanism, which makes a fundamental tradeoff to become more centralized (having 21 block producers rather than an infinite number of miners in a proof of work model) in exchange for a faster, more scalable network.

The platform, announced at Consensus 2017, is full stack and there are no transaction fees, which makes it a viable Ethereum competitor.

I see the smart contract platform wars being similar to the operating system (OS) wars in the early days of the Internet where Mac and Windows ultimately won – it’s unlikely there will be a defined winner in the end, and it’s likely that there will be a few dominant platforms that offer fundamentally different tradeoffs to differentiate themselves from one another. Major players at this stage are: Ethereum, EOS, Tron, Cardano, Stellar, and NEO.

Ethereum uses a proof of work (PoW) consensus model and has first mover advantage in the smart contract and decentralized app (dApp) platform space. The platform, as the second highest valued blockchain project right now, is criticized for its high transaction costs (high gas prices in bearish market conditions), lack of scalability in low transaction throughput (approximately 15 transactions per second) and latency in transaction finality (6 minutes to finalize a transaction), and the low ratio of transactions on the network that come from applications.

Ethereum has not allowed developers to build consumer-grade applications that scale, which is a huge problem for the blockchain industry. The big actors in the public blockchain space right now are speculators, miners, and crooks – which are zero or negative sum activities. There is no meaningful application, commerce, or value creation happening right now.

Ethereum’s main use case is supposed to be supporting applications, but less than 10% of the total transactions on the network are coming from the top 100 applications built on Ethereum. The other 90% of transactions are coming from ICOs and payments. The next few months will be a pivotal point for smart contracting platforms, and specifically Ethereum, because major applications such as Augur, Golem, and Mana (Decentraland) are launching on their platform, and if Ethereum cannot support the transaction throughput for these applications, which have combined valuations greater than $1.2B USD, they will be forced to build on top of a more scalable platform.

EOS.io is launching tomorrow, and they already have high profile dApps that are building on their platform, such as Everipedia. It is expected that the mainnet will be able to handle between 1,000-6,000 transactions per second shortly after launch, and the software has made economic and performance tradeoffs that acknowledge the fact that every single transaction in a global scale dApp being validated by a large network of computers around the globe is unnecessary and unrealistic – your average consumer cares more about performance than they do sovereign censorship resistance.

The EOS ICO

Block.One, a company that builds open source software, announced that they would be building EOS.io and releasing the software to the community. To mitigate the risk of EOS being deemed a security, the ICO funds were advertised as being direct revenue to Block.One, and that they would not be used directly to build EOS.io.

Block.One orchestrated the longest token sale of any project to date, where they had an initial 5-day crowd sale, which raised $185M USD, followed by a 355 day crowdsale. The team is expected to surpass $4.2B USD raised in total, which makes them the most capitalized blockchain project by far. They currently have the broadest pre-launch distribution of any public blockchain to date.

Block.One will not be launching the EOS mainnet, and they will just release the open-source software. It is up to the community to launch the main chain, and hopeful block producers have formed a community allegiance to ensure a smooth launch. Speculators and skeptics have argued that there is a risk that multiple main chains will be launched using the software, which is a possibility, but highly unlikely. There is a minimum adoption threshold to release the software built in the protocol level, and Dan Larimer, Block.One’s CTO, has silently announced that they will use their voting shares (which is 10% of the total supply of EOS tokens) to ensure the launch goes as intended if needed.

I am bullish that EOS has the potential to beat Ethereum.

Ethereum has plans to innovate to become more scalable, including plasma, sharding, and switching to a proof of stake protocol, which are all intriguing options. If, however, Ethereum is unable to accomplish their goals, I am confident that EOS will become the dominant smart contract platform in the medium term for the following reasons:

Scalability: EOS offers one second transaction finality and throughput of up to 6,000 transactions per second. It gives the speed that developers need to build consumer-grade, global applications. Sub-second finality also opens up the door for cross-chain communication, where chains can communicate with each other horizontally. One chain could reference another chain in real time (e.g. the age of someone in an identity blockchain) so that the main chain doesn’t need to be slowed down with extraneous block details.

Fee-less Economic Model: Fees need to be paid somewhere in crypto monetary policy because there is always a cost to secure a network. In the case of Ethereum, ether is converted to pay variable network fees on every transaction, and transactions are paid directly by the transacting party (i.e. the consumer). Fees to secure the network in EOS are paid through inflation, where 1% of yearly inflation is allocated to the block producers. This means that token holders are paying fees through increased supply rather than by the end user.

Imagine a decentralized version of Facebook, where each time you liked, commented, or engaged with a post you, as the consumer, needed to pay a small network fee. Fees are a cognitive burden for users that deter interaction: “free” is hard to bargain with, and is a very marketable trait for EOS.

Another note is that dApps on the network need to own tokens in order to have access to network bandwidth. For example, if my dApp needs 10% of EOS total bandwidth to operate efficiently, then I need to own (or lease) 10% of the total supply of EOS tokens. With that in mind, since token holders are ultimately paying network fees in the form of inflation, the burden of securing the network is put on dApps rather than consumers.

Team: This isn’t Larimer’s first rodeo. Larimer has experience building two other high-throughput, low latency projects: BitShares and Steem . He built radically different blockchain architecture for both of these projects; pioneered the first stable coin; created the first implementation of DPoS; and grew the first dApp to gain widespread adoption. SteemIt processes more transactions than any other blockchain today.

Larimer stated in an appearance on the Epicenter podcast that he wanted to build a scalable platform with the developer tools that he’s needed for the last 10 years. He is a seasoned blockchain entrepreneur and he’s learned how to win through execution, whereas other teams are developing their first project. The Block.One team also understands how to win in the open-source software world, where anyone can copy your code, but it’s much harder to copy your go-to-market strategy because solid execution is rare and the how-to knowledge is tacit.

The blockchain industry in general has operated under a “build it and they will come” philosophy, and that worked for Bitcoin, but that’s not going to work for the smart contract wars. If you want to change the behaviour of 100’s of millions of people you need to have a strong team with a focus on a growth strategy. EOS is capitalized well enough to have a dominant go-to-market strategy, and they’ve already shown solid execution by recruiting high-profile developers and dApps to build on their platform and to be there as soon as the mainnet goes live.

Another area of note is that some of the biggest players in the industry, such as Bitmain (AntPool), Bitfinex and Huobi are running for the block producer election, which gives significant legitimacy to the platform pre-launch.

User Experience: EOS has added several features that consumers expect in a mainstream platform, such as: account/password recovery and human-readable usernames. Ethereum accounts are represented by a string of numbers and letters, which is an unrealistic expectation for your non-technical, average consumer to adopt. Your average consumer also does not accept the concept of a “black hole” where if you send your money to the wrong address, which may by one digit off, your money is gone forever. EOS inherently gives me the option in the protocol layer to make my username @andrewmacdonald and users can send money to that public address rather than a public Ethereum address such as: 0xcFca13050e60a1e4bC3992b76967830F3993ac85.

This is a monumental step in the protocol layer. Moving to human-readable usernames is akin to moving from typing in the IP address of Facebook to only having to type in the facebook.com URL. Over $1.2 billion worth of Bitcoin and Ether have been stolen or lost in the last decade, and EOS offers a mechanism to recover lost funds.

Another basic consumer expectation is that I will be able to regain access to my email account if I ever forget my password, and EOS is the first application to build in a process for account recovery at the protocol level.

Governance: EOS is the first platform to have a community-written constitution , which has taken a lot of scrutiny , but I will address that in another article. This constitution lays out peer-to-peer terms of service, and a hash of the constitution in every transaction that is enforceable by the community. This is a social experiment that has never been done before, so yes – it could fail. Nonetheless it is a novel approach to regulating Internet behaviour.

Major critiques are that Block.One drafted the original constitution, which makes it centralized; it is legislation without enforcement; the arbitration model will not scale; and that code is no longer law. To refute those: any change in the constitution can be made with a 15/21 vote from the block producers (and if poor changes are voted for – block producers can be voted out in minutes), enforcement is done by the community (for example, if someone accepts payment for their vote it is in the best interest of the community to report them, and they risk losing their tokens), there are projects such as Sagewise that are aiming to automate on-chain arbitration to scale cases, and “code being law” is not accepted by your mainstream consumer yet, as discussed above.

Token Model: In my article on Ripple I criticized the XRP token for being subject to the velocity problem. As a market analyst, I like to invest in tokens that have a reason to hold them other than speculation. In existing smart contract platforms, such as Ethereum, your token is used to pay network fees, and this is subject to the velocity problem, which means token value will not appreciate linearly with network adoption.

With EOS, tokens are a representation of network ownership and access to network resources. A user that owns 1% of token supply is entitled to 1% of network ram, compute, bandwidth and storage. This is ownership of digital, fungible real estate because it is a scarce resource with governance and ownership rights. As an owner of EOS tokens, I can lend my tokens to a dApp and receive interest payments. Users don’t pay transaction fees – instead they must own or rent EOS tokens to transact. Economically, demand for the token should grow linearly with network adoption.

Storage: Blockchain-based, peer-to-peer storage is a problem that some of the industry’s highest profile projects are tackling, such as Sia, Filecoin, Storj, and LBRY. Filecoin, in Sept 2017, was the largest ICO ever at more than $250 million USD . EOS brings a different model than all of these projects where you can have perpetual storage by staking your EOS tokens – and it is built directly into the protocol rather than through a 3rd party where you need to own a utility token for payment. Token ownership gives you access to storage rights. Temporarily staking tokens for storage reduces supply, and perpetually staking tokens for storage effectively burns supply.

Is EOS too centralized?

This common criticism depends on your definition of centralized. 21 block producers located in China is centralized, and is not censorship resistant. 21 block producers spread around the world with campaign platforms that cater to diverse topics such as education, hardware and community adoption is much more decentralized.

The decision to choose the 21 block producers is up to the community, and at least the amount of centralization is transparent. We know who the block producers are – they are not anonymous. The community can monitor their behaviour and vote out a nefarious actor in a matter of minutes. If you compare this to hashrate distribution in proof of work models, a mining pool such as AntPool can influence almost 20% of Bitcoin transactions, and the identity of miners is much more opaque. This isn’t a direct democracy, and it’s not claiming to be.

EOS has a long way to go, and I am not claiming that they will take over Ethereum overnight.

But if Ethereum fails to innovate, EOS is a platform that makes fundamental tradeoffs that allow for entrepreneurs and small business owners to innovate on a blockchain, and create consumer-grade applications that we cannot yet imagine are possible

In which case, there’s a clear winner in the smart contract war – and it’s not the granddaddy of the ICO market.

Disclaimer: The author of this article is invested in EOS and ETH, which are mentioned in this article.