EOS – Part 3 Scalability and Token Distribution

Scalability has become one of the main issues that cryptocurrencies such as Bitcoin need and blockchain networks such as Ethereum need to solve in order to gain mass adoption and keep growing.

The issue with Bitcoin is that Satoshi Nakamoto has programmed the Bitcoin network to create a block of Bitcoin blockchain every ten minutes. A block of the Bitcoin blockchain is 1 megabyte in size. In practical terms, the limitations of ten minutes and 1 megabyte mean that the Bitcoin network can process between 3 and 7 transactions per second versus over 20,000 transactions that a conventional fiat currency network such as Visa can process.

The creators of the Bitcoin Lightning Network argue that in order to grow, the Bitcoin network will need to start processing transactions of the main blockchain. The reasoning for it is very simple: if one blockchain were to include all the world’s transactions in one ledger, the size of the ledger would prevent the network from staying decentralized and would have requirements for storage and computational power that only a small number of members of the network would be able to meet. Those who oppose the introduction of the Lightning Network say that the network acts as a third party and the existence of the network contradicts the original idea behind Bitcoin being a “peer-to-peer electronic cash system,” the phrase in quotes literally being the title of the original whitepaper by Satoshi Nakamoto in which he introduced Bitcoin and technology behind it.  Developers of Bitcoin Cash tried to solve the scalability issue by increasing the size of the block of the blockchain, yet events that followed have shown that a simple block size increase will not solve the issue. One of such events was SatoshiDice, a blockchain-based betting game, switching to Bitcoin Cash. Soon after the switch, SatoshiDice started accounting for about 5-6% of the block space of the Bitcoin Cash blockchain. This means that if Bitcoin Cash were to keep becoming more popular, with only twenty more games it would start facing the block size issue again. If it were to keep increasing the size of the blocks, the blockchain would grow too big in size for regular home computers to be able to act as Bitcoin Cash nodes, which would lead to centralization of power on the network.

The same issues exist on the Ethereum network, too. As of the beginning of 2018, the Ethereum network can process up to 13 transactions per second, which is a limit imposed by the performance of single thread of a Central Processing Unit (CPU) of one computer. This capacity cuts in about in half for Ether tokens because roughly 50% of this computing power goes to processing Gas, which is Ether’s currency that pays to run code and transactions on the Ether network.

In the past, both the Ethereum and the Bitcoin Network have been overloaded and have at times rejected all but the transactions with the highest fees. For example, on December 22, 2017, the average transaction fee on the Bitcoin network was USD$55.16. This means that if you wanted to send your friend an equivalent of USD$3 in bitcoins for a cup of coffee, you would need to include a fee of USD$55 for your equivalent of USD$3 to be included on the Bitcoin blockchain.

The creators of EOS network plan to solve the scalability issue by using asynchronous communication and parallel processing of information.

The goal of the EOS network is to allow two members of the network communicate with each other without having to wait for three seconds for the EOS network blockchain to create a block. The EOS network will accomplish this goal by dividing blocks of the blockchain into cycles. Each cycle will have multiple threads. Each thread will consist of a list of transactions and each list of transactions will include messages that need to be delivered. This structure is similar to a tree structure that can process information in a parallel and in a sequential manner at the same time.

A cycle or a block of the EOS blockchain will have access to transactions from the previous blocks and cycles.

The developers of the EOS network stress the importance of the fact that next-generation blockchain networks will have to be modular, meaning that not everyone on the network has to run everything in the way things occur on the Bitcoin network.


EOS token distribution

Block.one, the developer of the EOS.IO Software, launched the distribution of one billion of EOS Tokens on June 26, 2017. The company created a schedule, according to which it distributed 200 million tokens between June 26 and July 1 of 2017. Another 70% of the tokens, or 700 million EOS tokens, were given out in 350 consecutive periods each consisting of 23 hours and containing 2 million tokens. Finally, the founders of the project will receive 100 million tokens that were reserved for the company block.one.  The founders chose to reserve the tokens for the company based on the feedback from the cryptocurrency community to ensure that the interests of the founders, of the block.one project and the future EOS network are aligned. The smart contract that governs the distribution of the tokens does allow the founders or block.one to transfer, trade or exchange their tokens. Once block.one launches the EOS network, a smart contract would release 10% of the tokens one year after the launch and will keep releasing 10% annually over a period of 10 years until it releases the entire amount of tokens released for the founders.