EOS vs Ethereum – Which one to invest in?

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EOS vs Ethereum – Which one to invest in?

Ethereum is, without a doubt, the best-known system which supports the creation and execution of smart contracts. Based on Blockchain technology, Ethereum is unlike most other cryptocurrencies, such as Bitcoin or Litecoin. Whilst you’ve most probably heard of Ethereum, you might not have heard of its smart contract rival, EOS. The EOS vs Ethereum debate has raged on since the birth of both cryptocurrencies. The purpose of this guide is not to choose a winner, but to provide you with the necessary information to make an informed decision.

What is EOS?

eos blockchain

In order for you to understand what EOS is and how it works, it is a good idea to first read the differences between Ethereum and Ethereum Classic.

EOS was launched in 2017 by a company called Block.one which is based in the Cayman Islands. It exists within a Blockchain which was built from scratch. The project is led by Daniel Larimer, a successful developer who was part of various billion-dollar projects, including Steem and BitShares. 

EOS gained popularity as a result of a successful Initial Coin Offering (ICO) which saw it raise over $2.5 billion, making it the biggest ICO ever. EOS is powered, just like Ethereum, by a cryptocurrency. In Ethereum’s case, the cryptocurrency is Ether, even though many platforms use the names Ether and Ethereum interchangeably. In EOS’ case, the cryptocurrency shares the same name as the platform.

The primary mission of EOS is to become the leading smart contract platform. Naturally, this means directly challenging Ethereum, which means EOS must be faster, cheaper and more scalable in order to have a shot at succeeding in its mission. 

As with most cryptocurrencies, the EOS Blockchain is decentralised, meaning that no single entity has control over it. EOS transactions are checked and updated by a community of users. For a period of time, EOS tokens were built upon the Ethereum Blockchain, but following the Main-Net launch in 2018, official coins built upon the EOS Blockchain began being distributed.

While, at first glance, EOS and Ethereum sound very much alike, they do have several key differences which set them apart.

EOS vs Ethereum: Their Working Philosophies

The working philosophies of EOS vs Ethereum reflect one of the primary differences between the two smart contract platforms. On the one hand, Ethereum utilises a rental model for its developers, whereas EOS uses an ownership model.

Ethereum’s Rental Model

When Satoshi Nakamoto created Bitcoin and Blockchain technology as a truly decentralised point-to-point payment system, many wondered whether the system could be used for other processes as well. Ethereum’s creator, Vitalik Buterin certainly believed so and went on to create the world’s first smart contract platform.

Ethereum’s basic premise is to create a supercomputer and rent out its computational power to developers spread across the globe. Buterin names this power gas. Every stage of the smart contract’s execution requires a certain amount of gas. A portion of this gas goes towards rewarding community machines which are verifying, validating and updating the transactions.

Gas is an important element of the Ethereum ecosystem, as without it no miner would be incentivised to allocate machine to keep the Blockchain running and secure

Gas is normally measured in wei, where 1 gas unit is equal to 1 wei. It is the miners themselves that determine the equivalent Ether price for each wei (or gas), but the average value is 0.02 micro Ether = 1 gas. When a developer uploads a smart contract onto the Blockchain an amount of gas is specified by him/her and miners only execute the contract until this limit has been reached.

A simple analogy is a pre-paid mobile phone top-up, once your credit runs out you stop making calls. You are only renting Ethereum’s miners as long as you keep paying them.

EOS’ Ownership Model

Unlike Ethereum, EOS does not intend to become a decentralised supercomputer, but rather, a decentralised operating system. With EOS, the developer owns the necessary resources and doesn’t need to rent them out. As a simple analogy, image a coin-operated toll booth. Your EOS tokens open the barrier, allowing you to access RAM, bandwidth and other resources. You can then use these resources to develop your own decentralised application (DAPP).

Another difference refers to how long you can keep hold of your EOS. In designing their platform constitution, Block.one decided that EOS members who don’t use their digital coins within three years would lose access to their account. This is a significant term that discourages individuals from HODL EOS cryptocurrency.

Whenever you stake or lock up EOS tokens you receive an amount of resources equivalent to your stake. RAM, however, is an exception. This limited resource is sold separately through the RAM marketplace. Every RAM trade comes with a 1% transaction fee split between the buyer and seller. This system encourages users to sell their RAM whilst discouraging any speculative trades.

Moreover, the internal RAM marketplace ensures that there is always a steady availability of the resource. It is possible to buy RAM based on the system price, but this fluctuates based on supply and demand.

Scalability and Performance

eos vs ethereum mining

Both platforms face different scalability challenges. At the moment, Ethereum’s Blockchain can handle up to 30 transactions per second. Meanwhile, Ethereum 2.0 holds up to 100,000 transactions per second. The recent updates to the blockchain is an impressive result, especially since Visa can only handle a maximum of 65,000 transactions per second.

EOS’ Blockchain is currently far ahead of Ethereum and can handle up to 1 million transactions per second without any fees.

Cost of Developing

The development costs of both Ethereum and EOS are significant, since both base their success on the number of developers and DAPPs that use their respective Blockchains.

Ethereum developers pay for transactions via smart contracts. In order to execute a contract, a minimum of 32,000 gas is required, in addition to 200 gas per byte of source code. These fees are detailed and set out in Appendix G of Ethereum’s yellow paper.

As a simple calculation, the cost for an Ethereum smart contract to carry out 1,000,000 transactions per year would be around 90 ETH. Depending on the fiat currency equivalent at the time, this works out to around $10,000. Since Ethereum adopts a rental model, developers are not required to cover all these costs upfront. Instead, they pay whenever they interact with the DAPPs and execute transactions.

This means that by using Ethereum smart contracts the user will bear the primary burden of costs. If an application is particularly expensive, the users will simply switch to a cheaper competitor.

EOS smart contracts require developers to stake EOS tokens in order to receive the necessary resources and store the computer code. Separately, RAM would also need to be purchased, with a reasonable price being 59 EOS or $139. This price can fluctuate significantly since it depends on the changing value of three assets or currencies, namely RAM, EOS, and USD.

Consider a DAPP which will be used by 1,000 users. The developer would need around 4 KB RAM per user, and would also need to pay for storage, network bandwidth and a few other resources. A simple calculation gives an average cost of 10,628 EOS, roughly equivalent to $25,500 for 1,000 users.

Transaction Costs

Transaction costs are another significant element that determines whether a Blockchain will be used in the long term or not. Bitcoin, for example, has considerably expensive fees, which is why Bitcoin-rival cryptocurrencies, such as Litecoin, have been built.

Ethereum’s transactions are priced in gas. This cost depends on the network’s current volume and complexity, which means that two identical transactions made at different times could have different costs.

EOS transactions are not charged. Instead, users lease their tokens to obtain the necessary bandwidth to pay for a transaction. It is possible to recover the token coverage when a user decides to stop providing transactions by selling tokens. 

Consensus Mechanisms

Ethereum currently uses the Proof-of-Work consensus mechanism, which is also commonly used by other cryptocurrencies, including Bitcoin and Litecoin. EOS instead uses a delegated Proof-of-Stake (PoS) model, similar to the one which Ethereum aims to adopt.

PoW is considered to be a slow and inefficient mechanism, which limits the scalability of a cryptocurrency. Miners need to be the first to solve cryptographic hash puzzles in order to create new blocks. This requires significant hardware with high computational power which is very expensive to run.

EOS’ PoS model involves circles of 21 nodes which are responsible for block production. Nodes in one circle can be part of another, thus linking circles together as part of the Blockchain. Blocks are created quicker in this manner since only 21 nodes are involved, not PoW 50% + 1 system.

DAPP Stats on EOS vs Ethereum

Putting EOS vs Ethereum in terms of DAPP creation reveals that EOS is dominating the scene. In a random, 24-hour sample, over 75% of the top 5 most popular apps operate on the EOS platform. Even individual Ethereum apps lack the user volume of EOS apps. A similar picture is shown when considering transaction volumes.

Market Capitalisation

eos vs ethereum etoro
Screenshots are shown for illustration purposes only. Actual product may vary.

While it looks like EOS is dominating in DAPP usage, Ethereum is clearly the most popular and valuable amongst traders. Ethereum ranks as the second-largest cryptocurrency, with a market cap of over $20 billion. EOS trails behind in 7th place, with a market cap of just over $3 billion. Similarly, while ETH is trading at around $185, EOS is trading at just $3.40. These values are certainly boosted by traders and speculators, which see Ethereum as a profitable investment.

Whether you are looking to purchase Ethereum or EOS, or whether you just want to speculate on their price movements, the eToro platform allows you to invest in these and other cryptocurrencies with ease. Supporting an extensive range of payment methods, including PayPal, eToro gives you access to all major and most secondary digital tokens through a variety of financial instruments and assets.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

What Does the Future Hold for EOS and Ethereum?

The EOS vs Ethereum debate is sure to continue in the future and it is difficult to predict the ultimate result. Ethereum brought about a game-changing reality, only a few years after Bitcoin’s revolution. Without a doubt, both cryptocurrencies will continue to challenge each other in DAPP creation. Following cryptocurrency news is the best way to learn about updates on EOS, Ethereum, and any other major cryptocurrency.

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