Among the first cryptocurrencies for market cap, two are the most important for creating smart contracts: Ethereum and EOS. The “smart contracts” are vital for the future of the crypto market, and, in this article, we’ll see how EOS works and what are the main differences compared to Ethereum.
What is eos token used for?
Both Ethereum and EOS were created to serve as platforms for the creation of smart contracts and decentralized applications (Dapps) for a broad range of uses. Ethereum was born as a system in which Dapps are built using Ethereum to access memory (by storing data in the Ethereum blockchain) and basic logic (a native protocol on which smart contracts are implemented). ETH users need to execute transactions to move their tokens and use Dapps. EOS was born with a different system. Using Dapps on EOS doesn’t charge any fees, but it requires three resources: CPU, RAM, and Network (NET). RAM and CPU can be obtained through staking (i.e., “blocking” EOS token for a certain period, see below), and NET can be purchased on the marketplace. In this way, EOS is not only a platform for Dapp but a decentralized system that you can access according to the amount of tokens you hold.
Mining and governance of EOS
Originally, mining in Ethereum was regulated by proof-of-work, a system in which several individuals (miners) compete through their computational power to confirm the blocks in which transactions are stored. This tends to guarantee a high degree of decentralization. Miners are paid with users’ commissions and generating new ETHs at each block. Ethereum is also planning its transition to POS, where the validation of the blocks is based on the vote of the users who hold the tokens. EOS adopts a third system, the Dpos. Simplifying, with DPOS (delegated proof-of-stake) users who own EOS tokens can “block” them and obtain (in addition to RAM and CPU) a voting power on the discovery of new blocks, in proportion to the number of tokens they own (the so-called “staking power”). Votes are used to select the “block producers” (BP): these are 21 individuals who alternate in producing the blocks during “cycles” lasting two minutes (a block is produced every 0.5 seconds). New producers are elected every two minutes. You can find more informations about EOS algorithm here.
The Centralization of EOS
Compared to Ethereum, EOS can process more transactions, which are confirmed faster, and can provide a more complete ecosystem for the development of applications. It is better at scaling (find more about the scaling topic) This, however, has a huge cost in terms of centralization. The 21 BP can (with a majority of 15/21) freeze individual accounts and rewrite the code of smart contracts created on EOS. Moreover, in EOS the reward (1% per year) is distributed only to the block producers, who can increase their voting power. In a nutshell, Ethereum has chosen decentralization at the cost of efficiency, while EOS opted to be a structure that can currently process thousands of transactions per second (although, at the moment, there are far fewer users compared to Ethereum, so most of the capacity is unused) but it is highly centralized: the entire EOS ecosystem is in the hands of the 21 BP.
Inflation rate and market price
A positive aspect of the comparison to Ethereum is the inflation rate: to date, 2 new ETHs are issued at each block for a total of 4.745 million ETHs per year: the annual inflation rate, to date, is about 4.3% and should fall below 2% with the introduction of Casper. Conversely, EOS, as already mentioned, has an annual inflation rate of 3%. In general, to date, Ethereum is much more used than EOS, and represents the reference point for smart contracts on the market – except for a few temporary drops, in recent years, Ethereum has remained firmly in the top 3 while EOS has oscillated between various rankings, almost always remaining in the top 10: all other factors being equal, EOS has, at least in theory, a higher growth potential at the cost of high market risk.
In short, the comparison between EOS and Ethereum brings back the old debate within the crypto market between efficiency and scalability. One of the two elements must be sacrificed unless you want to give up the security of the system – as they say in these cases, there are no “free meals”. itWhich of the two approaches do you prefer? Let us know in the comments!