In 2018, EOS reached its highest point and made it to the list of top 5 cryptocurrencies. Is the Ethereum killer dead or is there still some fuel left in the tank? Read more!
It was considered the next-generation open-source blockchain protocol with industry-leading transaction speed and flexible utility.
Four years on, EOS is not a dead project, but it’s far from killing Ethereum. Moreover, many other platforms have emerged as better competitors of Ethereum, both in terms of scalability and efficiency.
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Why Did EOS Fail to Deliver Its Initial Promise?
Before exploring the issues and the mistakes that EOS went through since its origin, let’s retrace the history of the cryptocurrency and the significant events that led to its troubled present.
Backed by software company Block.one - that developed the open-source EOS.IO platform - like many other ICOs, EOS emerged from a flawless marketing strategy entirely based on the promise that it would become the prime blockchain for decentralized apps. The project was launched by Dan Larimer, who was also the CTO of Block.one at the time and the founder of other successful cryptocurrency projects like Steemit and Bitshares.
Decentralized applications were supposed to be developed, hosted, and run on the blockchain-based platform with zero transaction fees while handling thousands of transactions per second, even millions in the future. Using common languages, like C++, developers would find it easier to build DApps on top of EOS rather than learning an entirely new language like Ethereum’s Solidity.
The hype generated by colossal marketing campaigns, press conferences, and roadshows determined the success of the ICO. It attracted wealthy investors like PayPal co-founder Peter Thiel and hedge fund magnates Alan Howard and Louis Bacon, who allocated billions of dollars to the project. However, the availability of such huge funds was also the root of the main problems that early emerged for the project.
In April 2018, EOS reached its highest point in the top five cryptocurrencies with a $17 billion market cap and a price of $21.5 per coin.
Generally speaking, blockchain governance might be conducted by users, nodes, miners, developers, and investors who have to agree and approve of the main decisions altogether. This model makes the technology decentralized and distributed equally to achieve consensus.
There can be variations in the different blockchains; however, the main principle of decentralization in governance should be observed for the technology to make a difference in the industry.
In addition to 21 BPs who keep the blockchain running, a special authority called EOS Core Arbitration Forum (ECAF) is dedicated to resolving disputes.
Issues with EOS’s governance appeared soon after its launch. Just days after the EOS blockchain released its mainnet in June 2018, EOS block producers who maintain the blockchain froze a total of 34 accounts in two different stages. These wallets were suspected of holding stolen coins; however, no actual reasonable explanation was offered by the BPs at the time. The episode sparked outrage among the cryptocurrency community that viewed the move contrary to blockchain’s decentralized nature, with EOS having no legitimate authority to freeze those accounts.
Apparently, during the frozen account case, the block producers had taken the initiative without informing the ECAF. The incident raised serious questions about the decentralization of the blockchain.
Disagreements and accusations of non-transparency on important decisions might lead to significant issues and failure of projects. In a blockchain framework, it’s crucial to approve resolutions and publish and share them with all involved people.
Block Production Issue
Another issue emerged around decentralization in the early days.
As a consequence, fears of power concentration in the hands of a few wealthy oligarchs intensified. With the network being controlled by several prominent players, smaller node operators are not comfortable being involved.
At the same time, Telos and Wax, which are EOS forks and use the same network, were favored by DApps developers since resources like RAM, GPU, and bandwidth are much cheaper to employ there than on EOS.
Development activity on EOS protocol has witnessed an enormous drop since 2018, with weekly code updates falling by over 90% in Q2 of 2020 and fewer active developers working on the platform.
A study by the Imperial College of London in 2020 found that EOS barely held any relevant economic activity in the network. Close to 95% of transactions on EOS carry zero financial value, which means that even if EOS can provide thousands of transactions per second, the lack of on-chain activity makes the much-hyped scalability feature unnecessary.
Accusations of Fraud and Illegal Selling of Securities
In the wake of that fine, token holders sued Block.one calling the ICO sale a “fraudulent scheme” and claiming that the company infringed security laws by making “false and misleading statements about EOS, which artificially inflated the prices for the EOS securities and damaged unsuspecting investors.”
The fine was relatively modest compared to the amount raised during the ICO. This allowed Block.one to reallocate the remaining funds to other EOS related-projects like the upcoming launch of a subsidiary called Bullish, a cryptocurrency exchange valued at about $9 billion even before its launch.
What the Future Holds for EOS
The release is supposed to attract developers to use the platform for building large-scale applications and maintain them with ease. The move is expected to offer the platform lots of new exposure, with potential increases in the EOS token price.
In May 2021, the EOS price soared 50% on the news that Block.one had created The cryptocurrency exchange Bullish Global. Prominent investors support the exchange like Peter Thiel, Mike Novogratz, Alan Howard, Christian Angermayer, Louis Bacon, Richard Li, and Nomura and Galaxy Digital.
In light of these new events, many EOS supporters aren’t ready to abandon the project. They perceive what happened in the weeks following the launch as a testing phase with governance and SEC issues. EOS still aims at solving scalability, even though it might be at the expense of decentralization.
EOS is certainly not dead; however, it now ought to compete with other emerging blockchains offering the same attributes that EOS promised in 2018 but never delivered. Additionally, the competing blockchains have learned from EOS mistakes, which gives them the distinct advantage of potentially earning a better reputation.