EOS Tokens Defined: The Basics and Examples

What Is EOS?

EOS is a blockchain-based, decentralized platform used to develop, host, and run business applications, or dApps.

EOS launched In June 2018 after an initial coin offering that raised $4.1 billion in crypto for Block.one, the company that developed the open-source software called EOS.IO that is used on the platform.

EOS cryptocurrency tokens are used as a payment system on the network.

Key Takeaways

• EOS is a blockchain-based platform that enables the development of business applications, or DApps.
• EOS supports secure access and authentication, permissioning, data hosting, usage management, and communication between the DApps and the Internet.
• EOS.IO is the system architecture.
• The EOS token is the network’s cryptocurrency.
• Its main competitor is the better-established Ethereum platform.

Understanding EOS

EOS supports core functionality that allows businesses and individuals to create blockchain-based applications in a way that is similar to web-based applications. EOS provides secure access and authentication, permissions, data hosting, usage management, and communication between dApps and the Internet.

EOS is supported by a web toolkit store that aims at hassle-free app development.

The Basics of EOS.IO and EOS Tokens

The EOS ecosystem is composed of two key elements: the EOS.IO software and EOS tokens:

• EOS.IO is akin to the operating system of a computer. It manages and controls the EOS blockchain network. The software uses blockchain architecture for vertical and horizontal scaling of DApps.
• The EOS token is the cryptocurrency of the EOS network.

A developer needs only to hold EOS coins, rather than spending them, to use network resources and to build and run DApps. Token holders who are not running any apps can allocate or rent their bandwidth to other participants who need it.

Currently owned by the block.one company, EOS was launched by Dan Larimer, who is also the founder and creator of established platforms including Bitshares and Steem.

How EOS Is Different

EOS is seen as a direct competitor to Ethereum, with ambitions to be bigger, better, and faster. Especially faster: while Ethereum reportedly can handle 15 transactions per second, EOS is aiming for millions of transactions per second. Note that this is a goal, not a reality.

With the size of the DApps ecosystem increasing every day on the blockchain networks, the limited availability of resources is a major issue. EOS.IO attempts to address these problems by offering more scalability, flexibility, and usability through its unique mechanism.

Characteristics of EOS.IO

EOS.IO claims to be able to support thousands of commercial-scale DApps without hitting performance bottlenecks through its use of parallel execution and asynchronous communication methodology across the network.

The efficiency is further boosted by separate modules that are involved in the working of DApps. For example, the authentication process is performed separately from the execution process.

EOS has key usability features—including a web toolkit for interface development, self-describing interfaces, self-describing database schemas, and a declarative permission scheme. All of these make the developer’s job of creating and maintaining the apps easier.

The Economy of EOS

The EOS setup does not use the now-familiar mining concept used by Bitcoin. Rather, block producers generate the required number of blocks and are rewarded by the creation of new EOS tokens for each block they produce.

Block producers can publish a desired figure for payment, and the number of tokens they create is calculated based on the median value of the expected pay published by all block producers.

As block producers obviously desire higher pay, this feature can easily be misused. To counter this, a mechanism caps producer awards tokens so that the total annual hike in token supply will not exceed 5%. Token-holders, who vote on the matter, have the authority to vote out block producers who demand more.

This mechanism functions in a way that is complementary to EOS storage as all token holders pay for file storage on the EOS network through a portion of annual inflation. As long as they are storing a file on the network, their EOS tokens will be held up and will lose value at the rate of inflation.

The more storage required, the more blocks will be demanded from the block creators, who can demand more value for their work through higher pay inflation, which the token holders approve. If storage demand decreases, inflation will be lower, reducing the loss of value from stored EOS tokens.

EOS tokens can be kept in multiple wallets including Ethereum Wallet, MyEtherWallet, and MetaMask. The tokens can be traded on exchanges including Bitfinex and YoBit.

EOS faces criticism concerning its centralized block producers. The system is reportedly supporting large token holders, or whales, in China.

EOS in the News

In September 2019, one of the small companies instrumental in the initial development EOS stepped away saying that it was focusing on other blockchain and EOS.IO software implementation.  According to Coindesk, the real reason was that the support of EOS whales—those with large token holdings—was needed to make money, and those whales were supporting block producers in China. This did not bold well for EOS.

Governance Issues

EOS faces skepticism in other ways. Shortly after its launch, block producers froze seven accounts that held stolen tokens, but EOS had no legitimized authority to do so. This move illustrates another controversy surrounding EOS, which is that it lacks an effective governance process.

In June 2019, Brock Pierce, an early member of the Block.one team, made news when he suggested that EOS is now governed by a “Chinese oligarchy.” Although it is true that a majority of the block producers are based in China, the concern has more to do with the risks that centralization poses. The main complaints about the current block producers are that they don’t prioritize building new DApps that will attract other users to the blockchain.

Regarding governance, EOS has since settled on a system in place to run a vote across all EOS holders, but EOS New York said that it is “simply a way of gauging the interest of holders.”

Bullish Global

In May 2021, the EOS price climbed 50% after the news that Block.one had created a subsidiary called Bullish Global. (The price fell just as sharply toward the end of the month.) Bullish Global intends to create a new blockchain-based cryptocurrency exchange. Prominent investors in Bullish Global are Peter Thiel, Mike Novogratz, Alan Howard, Christian Angermayer, Louis Bacon, Richard Li, and the institutions Nomura and Galaxy Digital.

EOS is ranked 29th among cryptocurrencies by Coin Market Cap. It closed at $4.46 on Aug. 6, 2021.

EOS Crypto FAQs

What Does EOS Stand for in Crypto?

EOS is an acronym for Electro-Optical System. EOS is a decentralized operating system based on blockchain technology.

What Is the Purpose of EOS?

The EOS system was designed to support decentralized applications, commonly called dApps, on a commercial scale. EOS provides the core functionality for businesses to build blockchain applications in a way that is similar to building web apps.

Can EOS Go to $1,000?

Doubtful.

Early in 2021, EOS was bearish with a price of $2.63, but the price surged up to $12 by May. Like all cryptocurrencies, EOS is volatile. Still, few pundits see the EOS price at $1,000 any time soon.

CoinPedia predicts that the price will reach $18 to $24 by the end of 2021, and perhaps $45 by 2022. With potential startup collaborations to bolster its blockchain infrastructure and transaction speeds, CoinPedia suggests that EOS might reach as high as $160 in five years.

WalletInvestor thinks the price of EOS will not go above $14 by the end of 2025. Digitalcoin sees the price reaching around $19 to $24 by 2025. Longforecast sees a price of around $45 by mid-2025.

The Bottom Line

There seems to be some potential for EOS as a blockchain-based network, but it is still in a nascent stage. Some doubt the bold claims of transaction speeds of 100,000 per second, and the requirement that users must hold EOS tokens to complete a transaction may detract from EOS’s appeal.

As with all cryptocurrency blockchains, this space will continue to fascinate and mesmerize many investors over the next few years.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author did not own cryptocurrency.