Written by Malik Corbett
If blockchain-based cryptonetworks are truly going to rival centralized internet systems than Delegated Proof-of-Stake consensus based networks currently represents the best use case for the scalability needed to gain mass adoption of cryptonetworks.
Delegated Proof-of-Stake or DPoS is a competing consensus protocol to the traditional Proof-of-Works (PoW) consensus algorithm which is implemented by cryptonetworks such as Bitcoin and Ethereum (note: Ethereum plans to upgrade to Proof-of-Stake some time in the future). As I wrote in the past, Proof-of-Work or PoW has severe limitations as it relates to network performance and cost which is prohibitive for scaling a decentralized network.
Although the consensus protocol is an important component of a cryptonetwork, analyzing a network’s consensus algorithm in isolation is myopic and leads to misunderstandings and confusion. First of all, a blockchain-based cryptonetwork is a technology stack which is configurable to meet the needs and purpose of the network. For example, EOS main-net is a general purpose, smart contract cryptonetwork that can be viewed as an in-memory database where the native token provides access to network resources so that account holders can use the EOS network.
The EOS DPoS model is very interesting because it opens up a whole new world of possibilities as it relates to integrating technology with new business models. One of the aspects that makes EOS so innovative is that the value of the network token is directly linked to real computing resources that can be valued. In EOS the token provides access to a portion of the network’s bandwidth (amount of data that can be transmitted from one point to another) and NET (compute speed to process code). Furthermore, the token is used to purchase a third critical resource known as Random Access Memory or RAM. However in the EOS network, RAM is purchased from an on-chain Decentralized Exchange or DEX powered by the Bancor market maker algorithm.
What’s even more interesting is that EOS resources represent a new tradable asset class. This is quite unique from other cryptonetworks. Unlike many assets in the cryptocurrency space, EOS resources have fundamental value. This links the price of EOS fundamentally to how much it would cost to buy these computing resources in the private off-chain market e.g. AWS. For example, staking EOS entitles the user access to a minimum level of the network’s total computational resources in perpetuity.
We are already seeing innovations in EOS such as the Resource Exchange or REX. The REX market is critical for the growth of EOS because it allows token holders to lend portions of their CPU and Network resources to developers in need of computational power to build applications on top of the EOS main chain. Before REX, most tokens staked on the network were not being utilized by developers, effectively locking the network resources out of use. REX provides a mechanism which allows developers to borrow network resources without having to purchase EOS tokens without having to expose their balance sheets to potentially massive price volatility. Instead developers can borrow network resources cheaply, while token holders who stake via the REX market earn passive income.
Dan Larimer (CTO) and the Block.one team have done a clever job of integrating blockchain technology with unique business models to make the platform more scalable.