Monday, 22 July 2019

Is EOS the Crypto Ecosystem to Watch?

The fraud of crypto tribalism is only just beginning.

With multiple delays in Ethereum’s upgrade and the advent of a ‘crypto winter’ the biggest winner of ICOs, EOS, appears to be the dApp ecosystem to watch in 2019.

EOS however is not without controversy. It’s been called not a real blockchain to the future of Dapps and the “Ethereum killer”. According to a report from Dapp.com, dApps had about 1.5 million users over the course of 2018, the first full year they were measured. These aren’t exactly bullish figures to go by for the future of public blockchains.

Controversy around dApp Adoption Rates

As of October, 2018 according to data from DappRadar, Ethereum and EOS dApp users reached an all-time record high of just 65,000 daily active users. While these ecosystems are attractive developers’ and blockchain startups, they are certainly still in nascent phases of their development.

That EOS even exists is a crypto miracle. EOS managed to raise $4 Billion without even a live product. It’s like the Star Citizen of crypto. Star Citizen is a video game that was able to raise millions via crowdfunding before ICOs even became a thing. EOS is the biggest and most ambitious ecosystem from the heights of Bitcoin mania and savage crypto hype that culminated in December, 2017 when Bitcoin reached its highest price over over $20,000 per BTC.

The Success of Good Timing

It’s hard to believe EOS was only founded in 2017. An EOS coin is worth $2.50 and it’s now ranked 5th on coinmarketcap with a valuation of over $2 Billion. EOS of course is yet another alternative to smart contract platforms such as Ethereum and instead of using Proof-of-Work employs a delegated proof-of-stake.

DPoS is a consensus mechanism invented by Dan Larimer as a consensus framework for Bitshares and has been applied to numerous other platforms including Lisk, Steem, and EOS. Steem itself has since laid off 70% of its staff as the crypto winter began to impact how blockchain startups go lean.

DPoS Too Good to be True?

DPoS represents itself as a liquid, representative democracy-style consensus format. However, EOS has the ability even to reverse transactions as they did in November, 2018 which, critics have lamented, means the system is highly centralized. EOS has just 21 block producing controlling entities which gives rise to the notion of crypto cartels and back-room deals.

Due to EOS having a constantly changing group of just 21 Block Producers, it cannot be considered a decentralized ecosystem.

The evidence that EOS isn’t even an actual blockchain is quite compelling. According to benchmarking firm Whiteblock the EOS token (and its RAM market) is essentially a cloud service for computation — and is built on an entirely centralized premise. It’s important to point out however that this was commissioned by ConsenSys, a competitor.

Is EOS really a threat to Ethereum?

Is EOS a threat to Ethereum? One of the best indicators of the size of a community are actually platforms that have a greater peer-to-peer aspect like Reddit. Ethereum’s subreddit is about 7x bigger than that of EOS. If Ethereum was proposed in 2013 we have to admit it has around a four year headstart on ecosystems like EOS and Tron.

EOS bills itself as “the most powerful infrastructure for decentralized applications”. EOS might actually be the flagship indication of the “corrupt governance” model in crypto that led to the decline of Initial Coin Offerings as a whole in 2018.

While its timeline is relatively short we know that the EOS.io platform was only officially launched in June 2018 as open source software. However its first test nets and the original whitepaper emerged earlier, in 2017. A major indication for decentralization advocates that EOS is fraudulent is that the platform was developed by block.one, a startup registered in the Cayman Islands and led by Daniel Larimer and Brendan Blumer.

On Mr. Blumer’s LinkedIn he states, “Block.one is a publisher of Decentralized Autonomous Corporations (DAC), a concept introduced by Block.one CTO Daniel Larimer in 2014 that empowers open source communities to disrupt existing centralized business models.” If you are a skeptical person like I am, Block.one appears to be using terms that don’t correlate with what we know about EOS’s actual functioning. This is a major red flag for regulators like the SEC, and not just independent journalists like myself.

Crypto Fluff or Crypto Fraud?

Another major red flag is that when you dig into how EOS works there are very few serious articles on it. When you look at the professional history of Larimer (including his YouTube material) and Blumer’s history as a founder, you have to conclude that EOS is potentially a very deceptive company.

There appears to be major inconsistencies that refute their claim that Delegated Proof of Stake functions like a ‘technological democracy’. EOS also has a laundry list of repeated hacks, where its security is also brought into question. As a prospective investor this is not the next generation dApp ecosystem I’d be anxious to invest in. It would also be absurd to assume that the SEC won’t crack down on EOS, likely before 2021.

The very fact that block.one has its HQ in the Cayman Islands is very suspicious. This isn’t Malta, folks, this is literally in the middle of nowhere, near Cuba. If the highest record earning ICO project turns out to be an elaborate scam or fraud, certainly this would be the stake in the heart of crypto tribalism. You want dApp ecosystems to flourish, but in the right way.


EOS has allegations of Collusion and Corrupt Governance

EOS has one sixth the market cap of Ethereum, and if any allegations against it are true, this would mean we have all been duped. If around 70% of EOS daily active dApp users are involved in online gambling, what does that honestly say about the future of EOS as a smart contract solution?

From the moment EOS announced they would launch their ICO where raising funds would occur over a period of a whole year, there were indications and speculation over the possibility of its fraudulent nature. To make matters worse, when EOS has faced allegations of collusion they haven’t responded appropriately. The Huobi collusion incident was a case in point in late 2018.

That dPoS incentivizes collusion among main block producers devalidates it among serious blockchain entrepreneurs. The problem however is it’s likely a criminal misuse of such a technology. Regulation in crypto has been slow, yet in the high-churn rate of the ICO market, exit scams became only too common. EOS might be the worst “decentralization pretender” of them all.

Is EOS the “ICO Killer”?

A Wall Street Journal report once called EOS “a software startup that doesn’t plan to sell any software”. The startup might have turned into something far worse, the ICO killer. Fraud on such a large scale cannot be the culmination of what cryptocurrencies and dApps are about. In the grand scheme of things EOS differs from Ethereum and Bitcoin in lots of ways, but especially in how it decides who should be the ones to validate blocks and reap the rewards for doing so.

EOS raised funds by leveraging the values of decentralization when crypto investors were losing faith in centralization and when Bitcoin was booming. It was exceedingly good timing. This kind of opportunism by young blockchain entrepreneurs points to an immaturity in the crypto community and its failure to truly innovate.

If you’ve spent any time in the Bitcoin rabbit hole, you have some projects that inspire you with their technology and leaders, EOS, I’m afraid, is likely not among them. EOS strongly claims to be decentralized but the fact of having just 21 supernode bps that verify blocks in EOS’s delegated proof-of-stake (dPoS) is extremely offensive to our intelligence.

EOS is a Security

EOS is the very definition of a crypto security. In legal terms the majority of ICOs are securities. It’s only a matter of time until legal realities catch up with EOS, just as scalability has caught up with Ethereum in 2019.

Ethereum has been careful to remain decentralized and cover their bases here on a legal basis. The same cannot be said about EOS. In June, 2018 the SEC stated that Ethereum is not a security. This is perhaps the major and final death-strike against EOS. Block.one is the very definition of a “third party” behind EOS, manipulating the entire ecosystem.

In this article we’ve reviewed some of the facts and recent history of EOS, and have drawn our own conclusions. The author does not own ETH or EOS or any other crypto at the time of writing this article. This is purely an op-ed and is not meant to represent any opinion other that of the author.


By Michael K. Spencer
source: medium.com
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