The Innovation of the EOS Native Token

Written by Malik Corbett

Not all cryptonetworks are built the same; the same goes for the native network token. From a technical standpoint, cryptocurrencies are digital signatures that can prove ownership cryptographically. The signatures allows the cryptonetwork to verify the transactions between two parties. However, each token is unique to the network and has features that differentiate it from other protocol tokens. For example, unlike Bitcoin, the cryptocurrency ZCash implements an innovative cryptographic tool called Zero-Knowledge Proof which hides the transactions of the network users who enable the built-in stealth feature of the token. 

Another example would be EOS.IO crypto network which allows the native token EOS, to represent network resource. All blockchains use resources such as bandwidth, computation power and storage, and they are not cheap. In blockchain based cryptonetworks, block producers maintain the infrastructure of the network; such as making sure there are enough resources for the network to run on, maintaining the decentralized ledger as well as upgrading the software amongst other important things to make sure the network is up and running. Similar to private networks, public cryptonetworks cost money to maintain and these block producers are paid in the native cryptocurrency in order to pay for operational costs.

Some cryptonetworks, such as Ethereum, use a combination of inflation and per transaction fees (i.e. gas) to incentivize the block producers to maintain the network. In the EOS.IO platform, the network implements a type of consensus protocol named Delegate Proof of Stake or dPoS (read more on dPoS). However what makes the EOS native token unique is that a token represents a portion of the networks computational power (CPU) and network bandwidth (NET). In the EOS.IO software each account consumes a percentage of the available network resources that are proportional to the amount of tokens held in a 3-day staking contract. 

Dan Larimer the CTO of Block.One (the developers of EOS.IO) has designed the platform with scalability in mind.  EOS.IO implements the concept of a fractional reserve system for effectively managing network resources, especially during times of network congestion. A fractional reserve system is similar to that used by the banking system.  

In a fractional-reserve banking system banks expand the economy and scale the bank’s business model by making loans or investments using the holdings in reserves from deposits at least equal to the fraction of the bank’s deposit liabilities. Not every depositor will need to withdraw their money at the same time so the monies on deposit are significantly underutilized, banks use the deposits to generate more income for the bank while at the same time expanding the local economy by providing loans to entrepreneurs and businesses.

In the same way, unused CPU time is allocated using a fractional reserve method. Those token holders who stake their EOS tokens for 3 days are given un-utilized CPU time. However, during times of congestion, staked account holders are guaranteed 100 microseconds per day of guaranteed CPU time per 1 EOS staked. So the more tokens an account stakes the more CPU  and network bandwidth is allotted to that account. 

Over the weekend EOS main-net was attacked and caused major congestion. A EOS gaming Dapp named EOSPlay was apparently exploited through a bug in their code which allowed an attacker to steal 30,000 EOS. There was lots of FUD that the system was frozen but the system actually performed as designed. Yes, the hack congested the network but if account holders staked enough tokens in the staking contract to cover their daily usage, then those accounts would not have noticed much difference in network performance. 

Read more about the EOSPlay Hack

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Up ↑

%d bloggers like this: