Lessons learnt and questions raised from the EOS mainnet launch

EOS is a blockchain-based operating system that has been developed by software company Block.One. The company is composed of notable names within the cryptocurrency space including Dan Larimer, the creator of Bitshares and Steemit, who also invented the Delegated Proof-Of-Stake consensus algorithm.

Due to its accomplished team and its promise of a highly scalable blockchain platform through which developers can build decentralized applications, its year-long token sale managed to amass over four billion dollars. This is the largest amount ever raised via an ICO and signaled a significant amount of interest and faith in the project.

Where does the money go?

The large amount of funds raised for the EOS project raises concerns over the validity of ICOs as a fundraising method. ICOs are the most common method of raising capital within the cryptocurrency space but they have come under criticism recently due to several shortcomings.

Reports estimate that about ten percent of funds raised in ICOs are lost through theft or hacking. Additionally, there is the fact that many projects hold an ICO without a product.— EOS was one of these. Moreover, Block.One was fairly vague with its plans for the money raised.

Last Week Tonight – no laughing matter for EOS co-founder Brock Pierce

These concerns reached a fever pitch, eventually gaining mainstream recognition with popular TV host John Oliver referencing the project in a monologue on Last Week Tonight about the dangers of investing in crypto projects that are yet to create a minimum viable product (MVP). The EOS team issued a tongue-in-cheek response to Oliver, which was worded to agree with the safety-promoting essence of the TV hosts’ sentiment.

However, they did ensure to explain why they are a safe bet for investors. The reasons included a change in Block.One leadership (co-founder Brock Pierce left after the John Oliver segment ) as well as the utmost focus on security.

Security flaws

Only two days before its scheduled mainnet launch, a Chinese infosec company reported it had found a number of vulnerabilities in the EOS software. In a report released on May 29, Chinese cybersecurity company Qihoo 360 explained how bugs could be exploited to serious consequences for the EOS ecosystem. These included the creation of new tokens, theft of existing tokens as well as a total system takeover. Additionally, 360 stated it had revealed these bugs to the EOS team, which had then allegedly committed to postponing the release of the mainnet until the issues were resolved.

Following media coverage of the report, the EOS team clarified their position stating: “Media has incorrectly reported a potential delay in the release of EOSIO V1 due to software vulnerabilities. Our team has already fixed most and is hard at work with the remaining ones. EOSIO V1 is on schedule; please stay tuned to our EOSIO channels for official information.”

This announcement did little to allay fears with an additional blow coming when EOS announced its bug bounty program on May 31. The timing of the announcement worried a section of the cryptocurrency space and was seen as a last-ditch effort by some.

Additionally, Larimer had tweeted a $10,000 reward for any bugs found in the code. Seeing as vulnerabilities in the software of a project like EOS is likely to result in losses greater than this amount, this raised questions as to how motivated developers will be to participate in a program like this. While many will still participate in such programs, these are valid concerns for the incentivization mechanism for bug hunters in an open-source economy.

Lastly, the fact that hackers were able to gain access to a Block.ONE email client and use it to distribute a fake email that resulted in the theft of users’ money through misdirected funds further highlights the importance of security in the cryptocurrency space.

Governance in a decentralized community

One of the most discussed aspects of the EOS launch was its governance structure. The project was designed in such a way that all decisions were to be governed by its constitution. Concerns have ranged from the wording and ambiguity of the document as well as a lack of adherence to the protocols contained therein.

For instance, one clause states that no member can control more than 10 percent of the token supply. Due to the fact that Block.One holds about ten percent of the EOS token, this is seen as an attempt to assert undue control over the project. Additionally, there are concerns about how much power block producers have over the blockchain. As evidenced in leaked minutes, the block producers have an immense amount of influence, going as far as to create new tokens. There was a public outcry over this state of affairs.

While decentralization is an important aspect of the free economy that Block.One claims to support, as well as the cryptocurrency space in general, the governance structure that the project is aiming to have raises questions about how governance works in a decentralized economy. Larimer explains that while the structure is likely to have growing pains, in the beginning, the end goal is “over time the community will formalize arbitration processes, constitutional amendments, division of power, and limitations of liability. In the meantime, the community is using the tools it has today to enforce its contracts and combat the blatant fraud & theft so prevalent in the cryptocurrency industry.”

Why is a mainnet transition so hard?

EOS is not the only project that has faced challenges in the buildup to and after its mainnet launch. This can be attributed to the to the fact that blockchain technology is still in its infant stage. As Qihoo 360 stated, due to the age of the industry, many vulnerabilities are likely to be revealed in this current epoch. While this may be a concerning development, it is better in the long run.

Moreover, the potential that the cryptocurrency space and the technologies surrounding it carries lend themselves to a significant amount of over-enthusiasm and speculation, which can be witnessed by EOS’ current valuation. This creates a scenario where it is easy to over promise and under deliver. While the technology is revolutionary, it is important to note that there are many moving parts that can affect how a project performs and that growing pains will be an inevitable part of every new blockchain venture.

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