Can Ethereum Keep Up?

tculia (32)in #eos • 6 years ago (edited)

Can you imagine getting into Ethereum before it reached $10? We witnessed an interesting thing happen this previous spring. A coin that has existed since 2014 went from not being recognized to reaching a whopping $420 in a span of fewer than 3 months. Let’s dive into why Ethereum exploded, and why this wasn’t the last chance to stumble upon an opportunity like it.

Smart Contracts & Major Institutional Adoption

On February 2017, Ethereum made a remarkable move that caused a huge uprising in their popularity and the overall cryptocurrency market. They partnered up with Microsoft and other major tech companies to advance the adoption of the Ethereum blockchain, known as the Enterprise Ethereum Alliance. This move exposed many investors to the Smart Contract functionality that Ethereum had to offer.

In short, smart contracts define a set of obligations and penalties that are required in an agreement, similar to traditional contracts, but smart contracts prevent anyone from altering the strictly written rules for malicious reasons. These contracts allow businesses to be built on top of Ethereum’s secure decentralized network.

The introduction of this tech led Ethereum prices through the roof, which led into an ICO boom, similar to the .com boom of the ‘90s. Hundreds of ICO’s were produced on a monthly basis, each offering their own value propositions. Fundraising for ICO’s even surpassed traditional Venture Capital funding (see below).

With billions of dollars invested in ICOs and the crypto market overall today, this development has created a domino effect, causing even wider adoption of cryptocurrencies in general; even government bodies and major exchanges such as the Nasdaq and CME are getting on board.

Scaling

Now that we’ve witnessed Bitcoin hit $10k per token and Ethereum $500 per token, it’s obvious that this market is gaining more traction daily. With a greater volume of individuals getting into cryptocurrencies in a time of economic uncertainty, one flaw remains with Ethereum, and that is the inability to process transactions fast enough to keep up with an ever-growing market.

Vitalik Buterin (Ethereum Co-Founder) openly expressed, at a recent meetup in Taipei, that the only way for Ethereum to scale transactions would be a transition into a hybrid Proof-of-Work (PoW) and Proof-of-Stake (PoS) consensus mechanism model. The PoS model allows token holders to get paid to verify the network by staking their tokens, creating frictionless transaction processing. No energy intensive work is being done, rather a continuous voting system is actively choosing the next available token holder to verify transactions on the network. He claims that this development would take a few years to accomplish, which is forever in a rapidly growing market.

Currently, Ethereum operates under a Proof-of-Work consensus mechanism model to secure their distributed network, where miners get paid to verify transactions on the network using computational resources and large amounts of electricity. Many investors believe this is unsustainable because of the amount of resources that are wasted, and it also causes friction during transaction processing as miners all over the world are competing to verify transactions on the network. As a result, Ethereum can only handle 15-25 transactions per second (VISA averages 24 - 45 thousand transactions per second). If Ethereum can’t keep up with this growing market, who will?

12,000 Times Faster, You say?

Think about this for a sec: what if there existed a Blockchain project that was capable of withstanding over three hundred thousand transactions per second and also had smart contract capabilities? Which project do you think Mastercard or VISA would use? The limited Ethereum or this other efficient blockchain?

Allow me to introduce you to EOS. Here’s a very short video of the project leaders giving advice to future developers. This should describe some of what these guys value and what they want to provide. Their core values and goals include: User-friendliness, transparency, and security.

So before I go explaining in further detail who they are and what they will provide, you’ll also want to see this video first.

Dan Larimer (EOS CTO) realized early on that in order for cryptocurrencies to become widely adopted, they needed to be able to handle high volumes of transactions and be user-friendly. After having created the successful technology behind both Bitshares and Steem, Dan figured he would create a blockchain with the tools needed to enable anyone to build scalable and secure applications on a blockchain, for the first time ever. This blockchain project is EOS. Let’s dive into some of what makes these guys different from Ethereum.

Delegated Proof of Stake

Unlike Ethereum, EOS will operate under a Delegated Proof of Stake (DPoS) consensus mechanism. Bitshares was the first to incorporate DPoS into its platform. This is currently the fastest and most decentralized way to verify transactions onto a blockchain. Under this mechanism, investors with a certain proportion of tokens are elected to validate the network with their stake and are in turn rewarded with newly minted coins for doing so. This is similar to the Proof-of-Stake model mentioned previously, which reduces the usage of resources and creates faster processing speeds.

The difference with EOS’s DPoS model is that consensus on who verifies the network relies upon witnesses. These witnesses are put in place by stakeholders to secure blocks onto the blockchain. Witnesses are paid to secure the network. If a witness fails to secure the next block, they don’t get paid and the slot is skipped to the next witness.

The network parameters are also tuned by witnesses. For example, they provide changes to transaction fees and block sizes. I should add that the EOS token represents a piece of the network’s computation, bandwidth, and storage. So if you own 1% of all EOS tokens then you own 1% of the network. This governance model ensures a fair and democratic approach for users of EOS.

EOS will be capable of processing more than 300k+ transactions per second (and Dan projects as much as over a million by this coming summer) while Ethereum is again, only really capable of 15-25 per second. Let’s not forget how many transactions VISA can handle per second on average (25-45k per second). So, while Vitalik Buterin says it’ll take years for them to transition into a PoW/PoS consensus mechanism model, the EOS team is already projected to produce their product by Summer 2018 and maybe earlier.

Decentralized Autonomous Companies

Rather than having to worry about implementing intense cryptography or communicating with the EOS blockchain, EOS provides developers with user-friendly tools so they can focus on the specific business logic for their application. Some of these features would include providing databases, authentication, account permissions, scheduling, and internet-application communication to app developers. These capabilities, along with significantly higher processing speeds, allow for applications/businesses built on top of the EOS network to handle high volumes of transactions without having to worry about the kinds of transaction backups we’ve seen in both Bitcoin and Ethereum over the last few weeks.

Conclusion

EOS

Market Cap - $6,664,796,862
Circulating Supply - 669,377,421 EOS

Ethereum

Market Cap - $90,020,975,320
Circulating Supply - 97,618,316 ETH

Let’s take a moment to consider the difference in market cap. As you can see, Ethereum is hovering around $64 billion, while EOS is just under $4.5 billion at the time of writing. If EOS even reaches a quarter of the market cap of ETH (ex. $16 billion), then the price would be $28 per coin. Right now it’s just https://coinmarketcap.com/currencies/eos/ per coin. Just take a second to think about that… You can do the calculation to determine what market cap value EOS has to reach to get to $28 a coin. Just divide the Market Cap with the Circulating Supply and that’ll give you the price of a coin. Now imagine that EOS replaces Ethereum, or even Bitcoin!

P.S. - Bitfinex, the sixth largest exchange in the world by volume, just announced that they will be building a scalable, decentralized exchange on top of the EOS.IO technology. That’s quite a bit of volume right there.