With an upsurge of interest in blockchain technology, the market capitalization of EOS has surpassed a thousand billion before its implementation. A variety of competitors have confirmed their participation in the upcoming EOS Block Producer candidates, and the public craziness in the election gives rise to endless opportunistic lectures. This vitality of the newborn concept may let us wonder: why are people so fanatic about EOS?

Before a discussion about EOS, we should first understand blockchain technology.

Blockchain technology is composed of several parts, including transaction signature, miner verification, consensus, distributed ledger, smart contract, and token economy. Among those, the token economy and consensus are the cornerstones of blockchain technology.

Token Economy

Though a number of people consider a distributed database without a token as blockchain technology, it is in fact of low efficiency and low value for the following reasons:

1.Tokens provide with a simple, convenient incentive mechanism;

2.The transactions of tokens equip the secondary market with fluidity, thereby simplifying the process of value realization;

3.The price of a token can continuously collect idle information flows all around the society.

The third point was made by F. A. Hayek in 1945, and yet has been largely ignored when it comes to blockchain economy today. No further explanation about it here.

Consensus

Consensus is another crucial component of blockchain. A desirable consensus should ensure, in addition to high efficiency and execution speed, that records and transaction validations are never controlled by a minor group of people.

The first instance of consensus is Proof-of-work (POW) from Bitcoin. This concept was invented in a 1993 journal article by Cynthia Dwork and Moni Naor, and was applied to practice in the consensus of Bitcoin by Satoshi Nakamoto in 2009.

•About POW

POW works as follows: After a mining node receives numerous transactions, it will first verify that they are valid; after verifications, the node will put these transactions into a block in the form of a Merkle tree together with a random integer and calculate the quasi-random hash value; if the value is lower than a predefined hash difficulty, the miner node will gain the block reward; otherwise, it will keep calculating with other random numbers until the condition on hash difficulty is met.

As a result of this particular goal, the block will be stored on the chain by the first one to meet the hash difficulty condition. Then, DDoS attack is prevented, for nobody can be sure who will be the next miner. Also, 51% attack is prevented as long as computing power is sufficiently distributed. This type of consensus has proven to be reliable. Currently, POW works for BTC, BTH, ETH, and LTC.

But why has blockchain technology not yet occupied the world if POW is so perfect? Well, it is not as perfect as it may seem to be.

Despite its high-level security, it has a fatal defect: extremely low execution speed. Now Bitcoin can only process seven transections per second. Besides, the invention of ASIC chips leads to the centralization of computing power in a small number of people or organizations. For example, Bitmain controls about 40% of computing power and makes the holding amount of Bitcoin terribly centralized.

Another problem with POW is: it consumes an enormous amount of energy. The energy consumption of mining Bitcoin approaches to that of Denmark.

•About POS

To solve these problems of POW, Sunny King coined another consensus concept — Proof of Stake (POS) — and used it in Peercoin (in regards to the age of crypto coins). POS requires each miner to mortgage his/her crypto coins which will be confiscated if the miner is found dishonest. As the mining difficulty is inversely proportional to the holding amount of coins, the more coins there are, the more likely the miner succeeds in mining. This asynchrony in difficulty improves the execution speed together with certain unpredictability.

However, POS increases the speed at the expense of security. Since there is a noticeable chance to predict which node is likely to mine for the next block, hackers may launch DDoS attack against this sort of nodes. Also, a miner will work on two chains simultaneously when there is a branch and cause a situation as Nothing At Stake.

NXT is using POS, and ETH will shift to POS in June 2018.

•About DPOS

In 2013, BM (Daniel Larimer) offered Delegated Proof of Stake (DPOS) consensus. It discards decentralization and verifies transactions via delegates, where the delegates are elected one-coin-one-vote by all nodes on the chain. As one of its advantages, the speed of DPOS supposedly can be up to 300tps. DPOS also saves a lot of energy consumption in mining. BM has devised BTS and STEEMIT based on DPOS, and the famous EOS is designed based on DPOS as well.

Yet DPOS has problems too. In spite of its high speed, DPOS gives up decentralization. Thus, the 11 super nodes of BTS were basically under the control of BM at its early stage, and even now the 21 nodes of EOS can easily breed corruption in this small group.

Blockchain technology requires a certain scenario for its application. From the perspective of data analysis, centralization is of the highest efficiency. Blockchain has its advantages with decentralization because of the weaknesses of the centralized organizations: Centralization creates information asymmetry and/or moral risks. It is true that centralization has its territories where blockchain technology, along with POW and DPOS, is not necessary. But in the places where decentralization is demanded, blockchain works better and hence POW or POS works better than DPOS (which discards decentralization).

Then, where does DPOS come to the stage?

DPOS needs to find its place where neither centralization nor decentralization works ideally, but that kind of situation is rather rare.

Additionally, hackers can easily attack the 21 nodes. The 21 nodes of DPOS may be suitable for a side chain or a child chain, but it is too insecure for being a public chain.

Last, BM had an excessively strong desire for control and did not end up well — he was kicked out from BTS.

Why is EOS so hot today?

So we have seen that the DPOS EOS uses has a lot of problems, but why is EOS still so hot today?

The reason is that, after ten years of development of blockchain technology, there is still no application of great significance except for speculations of cryptocurrency, and everyone is looking forward for one. The bottleneck of blockchain today is that its speed, energy consumption, and application scale are incapable of supporting an application. EOS claims that it has solved the speed problem and makes that its selling proposition and the unknowing audience gets high for that advertisement. Therefore, although DPOS is, from the perspective of creativity, worse than POW, POS, Algorand, or RPOW, it still successfully gives birth to the famous cryptocurrencies — BTS, STEEMIT, and EOS.

Meanwhile, BM is good at marketing and makes news through arguing against Satoshi Nakamoto or Vitalk Buterin. The election mechanism of DPOS attracts people with no legal franchise in their countries by increasing community involvement. It is pretty similar to Super Girl where the ranking of the singers is decided by voting and thereby makes the show famous in a lot of communities.

Finally, because a number of stamp exchanges and artwork exchanges are closed in China, most people affected by that find a mental consolation in the MLM-like advertisement of EOS. Consequently, EOS collects a lot of fans from China, and most of the participants in its block producer candidates are Chinese. Despite of the hotness, this election is merely are Super Girl farce.

EOS cannot break the bottleneck of blockchain — low speed, high energy consumption, and small scale — but its popularity in some way reveals the community’s urgent demand for a high-performance public chain.

We should pay attention to the following directions:

Theoretically, POW/POS generates nonce based on computing power and the holding amount of coins, but we may also use verifiable random functions. Attempts in this direction include Algorand in pseudonymous chains and Usechain in identified chains.

Another attention-worth technology is the Directed Acyclic Graph (DAG), such as Hashgraph. It can go up to a thousand tps in tests, but whether it is standardizable is still up for discussion.