A Framework: EOSIO Principles Evaluation

Below are some of the frameworks point we discussed in the previous 4 months on our Discord

CORE ISSUES WITH BLOCKCHAINS:

  • Usability
  • Latency which leads back to 1! Proof in pudding: Lack of dapps on ETH
  • Energy consumption. Proof in pudding: Bitcoin energy charts
  • Governance. No recourse which is impractical for companies that need to provide a good user experience. Proof in pudding: DAO
  • Use-case for full-decentralization has yet to emerge … finding solutions for non-existant problems.
  • Fragmented nature of industry creates many chains running separately without interconnectedness

Ethereum – The Wrong Premises:

Ethereum has taught us many valuable lessons how not to achieve mainstream adoption and move blockchains forward. Here are some takeaways:

  • A superzone / root layer such as Ethereum is a single point of failure and always has to maintain consensus across thousands of nodes. It can’t innovate like sister chains on EOS already do that launch their own self-governed chains
  • Ethereum cant be deployed at scale as launching sidechains is too involved
  • Ethereum runs atop a single governance system which is crucially flawed and was exposed during the DAO attack. Having a root layer means all chains below it are always exposed to that risk
  • Ethereum is prone to social attacks, DDoS attacks due to wrong allocation of resources to a single pool, is prone to censorship because all node IPs are known, is prone to IP collection and exploitation where nodes will be held legally liable as seen in previous P2P systems such as Bittorrent before it (here reasoning by analogy makes sense, that’s when to use it)
  • The highly involved development process makes dapp development tedious and unlikely to gain traction which is why both Tron and EOS have surpassed Ethereum as a dappchain despite having a 4 year headstart..
  • DPoS is more censorship resistant as rewards and block production are separated (BPs receive their payment independent of transaction processing and are incentivized to provide the best most reliable service at all times rather than charging more when demand is high), meaning it will be more difficult to bribe people into censorship
  • The grave fluctuations in dapp deployment and maintenance costs make running a business unpredictable. In fact this is one of the top 10 reasons why startups move away from Ethereum. How can this ever become a world settlement layer when we already have a much more elegant system like Bitcoin?
  • Value will migrate towards real dappchains because that is where the users are. Ethereum is unlikely to become a dappchain as it has to validate everything across a thousand nodes and offchain scaling via layer2 is too complex and involved making deployment unnecessarily difficult when blockchains finally hit mainstream. An operating system is needed.
  • Poor economic design of ETH makes it a poor store of value and bad cryptomoney people will not hold onto
  • PoS keeps the misallocated capital stuck in Ethereum. When the market realizes Ethereum cannot deliver, everyone will be heading for the exits at the same time leading to a potentially fatal crash in prices that will destroy any trust left & a potential fork away from the root layer

Reasoning by analogy that Ethereum will be a foundational protocol like TCPIP is flawed thinking and does not account for the points above and completely neglects how blockchains are being deployed in real world applications

Binance CEO Golden Call: There will be a million different blockchains!

Why Interchain Communication: Makes Decentralization Stronger Not Weaker As Sharding Does!

ELI5:

Interchain communication means multiple parallel EOS blockchains can communicate and work in tandem, as another means of scaling. So there’d be one chain for financial dapps, one for social media dapps, etc. – this has the added advantage that you can introduce a different governance into each system & decentralize block production across independent entities making them fully autonomous from the main blockchain (the root layer in Ethereum is a centralized single point of attack).

Sharding re-centralizes a blockchain as fewer validators now secure different parts of the blockchain and makes the blockchain prone to social attacks which EOSIO could easily prevent due to proper governance layers but which you can’t prevent in Ethereum at scale.

Economic Premises

  • 1 If there are two competing technologies, and both provide for the same need, the one that best addresses a need and costs less will win out
  • 2 If one does not provide for a critical need, it will be left in the dust. Often that “need” is as simple as being faster or easier to operate, but it can also include specific functions.

Objective comparison: EOS is cheaper, faster and provides the same functions that are needed at bare minimum.

Economic Laws Governing Blockchains & Organizations

Pareto

  • Power law: Distribution of supply will follow Pareto principles with SEVERE implication for PoS-based protocol.
  • At scale, nodes have to be in datacenters. Proof: Bitcoin > 50%, ETH node costs skyrocketing
  • At scale, nodes will cluster into pools, either mining or staking pools
  • Transaction fees will gravitate to 0 over time. With that in mind: Data (IPFS) and relays will be more expensive protocols!
  • Decentralization does not require thousands of nodes, quite the contrary. Sirer: A quorum of 20 BPs is more decentralized
  • We are living in a corporate world dominated by large conglomerates. Hierarchy still plays a critical role in achieving results. Decentralizing organizations in their workflow is not how you get things done.
  • It is now generally accepted that even other blockchains want to introduce dPoS on layer2. Getting traction for layer2 on layer1 is so difficult because the coding process is so involved! It is unlikely to find wide appeal.

Decentralization & Censorship Resistance

  • Censorship resistance in a system where public endpoints differ from actual node IPs is higher than a true P2P system
  • If nation-states choose to go after block producers, then these nodes will be set up in more free jurisdictions.
  • The number of network validators is just one possible way of quantifying decentralization, and even then it’s not a great one. It is obvious that having 1,000 validators all located in China is a lot more centralized than having 21 validators located in various jurisdictions throughout the globe.
  • The need for verification reintroduces the need for a trusted intermediary.
  • We outlined how EOS is more decentralized through multiple (thousands) of implementations rather than one big implementation with different layers on top and pool centralization

Investment-Related (Aggregation Theory)

  • Projects like Cosmos, Polkadot and Blockstack are already virtualizing the blockchain by providing interoperability. This would further commoditize the processing layer, and in turn these interoperability layers could try and extract value by becoming the aggregator.
  • According to aggregation theory, correctly designed application layer protocols should aggregate in their respective verticals. Furthermore, if these different verticals are adopted (because they are a killer use case of blockchain), then the value of transactions in the application protocol economy should exceed fees based off transactional volumes.
  • Aggregation theory could imply that value silos will form on top of blockchains wherever application layers aggregate users en masse (Fat Application Theory)
  • Blockchains with thousands of implementations according to aggregate theory could stand to benefit from decentralizing the application layer itself and allowing value to flow between applications (EOS use case #1?)
  • Economic clustering might become a reality, leading to tokens that can move between clusters to achieve the highest value of all blockchains
  • PoS should drive costs down and reduce income of the network leading to a decrease in overall network worth – There is a case to be made that Ethereum is currently so valuable because it deploys PoW

Usability

  • As items become tokenized, chains require account recovery features which many chains currently lack as they are not optimized for the most important blockchain metric: Usability
  • Blockchains with subpar latency will not be able to adapt to the reality of interchains, enterprise chains, consortium chains, supply chains and the general flow of value across chains
  • Not hardware is able to scale blockchains, but advances in software tradeoffs to achieve optimal efficiency, latency, decentralization and removing a single point of failure
  • Enterprise chains as well as applications that can benefit from blockchain technology need to be tweaked and often require their own blockchain. Golden call: Binance CEO => We will see millions of blockchains

Governance

  • Voter apathy can be countered with incentives like REX and voter-rebates, thus would remove any concerns about cartel-formation => democracy works
  • Offchain governance leads to centralized development that does not take into account wishes of the community and leads to exclusion. Proof: EIPs in ETH; Parity exploit, DAO fiasco
  • Incentivizing voting can lead to a workable onchain democracy!
  • All PoS-based systems that implement onchain governance can be gamed
  • Onchain governance is a novel thought-experiment if proven in real markets can capture additional value as a way to participate in political will
  • A blockchain operating system is required to serve all custom use-cases

First Mover Fallacy!

  • The first-mover (Bitcoin/Ethereum) is destined to be at a disadvantage: Later entrants can avoid mistakes made by the first mover.
  • Later entrants can reverse-engineer new products and make them better or cheaper.
  • Later entrants can identify areas of improvement by the first mover and take advantage of it.
    Before Google, there were search engines such as Yahoo and Infoseek. However, Google was able to customize their search engine to perform more effectively and efficiently. They now control over 65% of the search activity.
  • The-home-base-simplicity-effect: There were a lot of places to buy coffee before the establishment of Starbucks. However, Starbucks was able to establish a strong brand equity by placing an emphasis on making Starbucks the go-to place when you’re not home or at the office.
  • Huboi and Block one are largest corporations in space & Have More Resources

13 Most Important Takeaways:

  • 1) Economies of scale dictate pool centralization with all its consequences such as minimized attack costs making governance CRITICAL
  • 2) Reputation systems are inevitable
  • 3) Politics are inevitable
  • 4) Honest agents force dishonest agents to compete
  • 5) An inefficient chain loses hundreds of millions in annual revenue if latency goes up even just a second
  • 6) IBC + Multi-chain is the future, for that you need TCPIP-like communication channels and interoperability
  • 7) A superzone does not scale both socially (self-governance difficult since not really independent entities) nor technically (Resource pool can never adequately grow if you keep replicating everything across a thousand plus nodes; Sharding may fail => see studies)
  • 8) Liquid PoS and PoS both may have problems removing dishonest agents
  • 9) OS sidechains competing for same memory pool allow social scaling on the same layer without value migrating elsewhere. This is trivial in EOS and Polkadot, not trivial in Ethereum and Tezos (subjective assessment)
  • 10) Blockchains are virtual stack machines and should provide a proper resource model to allocate resources rather than just dump all resources into a pool for everyone to use (and exploit). Better: allocating it to actual stakeholders
  • 11) Accountability is important for enterprise adoption: Legal recourse
  • 12) Mono-cultures are more efficient in industry. For that you need a permissioned consortium chain with an account model that has built-in governance
  • 13) The-home-base-simplicity-effect: There were a lot of places to buy coffee before the establishment of Starbucks. However, Starbucks was able to establish a strong brand equity by placing an emphasis on making Starbucks the go-to place when you’re not home or at the office.
  • Why Ethereum Is More Centralized Than EOS. Definite PROOF

    “Entering the Ethereum: Long-Term Value Potential and Analysis,” published by Delphi Digital, shows that 7500 wallets hold 80% of all circulating ETH.

    Ethereum is governed by a Proof-of-stake protocol which means as of right now (April 8th 2019) 0.0125% of all existing wallets (roughly 60 million) control 80% of the network. These wallets will control everything in Ethereum right down to how it works and is governed. DPoS will always be more decentralized as the validator set is fixed. Sirer: A byzantine quorum is more decentralized in a real-world environment

    Source:

    Core dev censored when he speaks out against Ethereum governance:

    You will notice Rettig quickly recanted after coming out and saying that Ethereum’s decentralized governance had failed. He choose to call it a ‘crisis of confidence’. He was likely pressured to do so by some authority or peer, or combination of both.

    Further reading material that prove centralization in Ethereum to any rational reader:

    Power laws

Risk Factors That Are Higher In Ethereum Than In EOS

Dan recently proposed that morality fails at scale (other person will take care of it) so Ethereum could be taken hostage.

I realized that this also applies to good code. Ethereum has no one dedicated to looking after the chain health. Anyone can just dump code onto the network and no one will really care. That this does not always end well was seen with DAO/Parity.

What I conclude here is that just like morality fails at scale so will proper code reviews unless you have block producers looking after the integrity of the overall chain.

I came to the conclusion that this may be a severe risk factor that many people underestimate

Weekly Discussion & Updates April 8-14 from eos