EOS – RAM Trading and DPOS Explained
EOS is a blockchain platform that intends to have DApps, smart contracts, and infrastructure for decentralised autonomous organisations (DAOs) built on top of it – similarly to other blockchain platforms such as Ethereum or ICX. EOS has been spoken about in the crypto media with increased frequency as of late, and we wanted to take a quick look at the state of the current technology in EOS, including how its DPOS algorithm works, and particularly why RAM trading has been a point of contention (and what it even is).
EOS is available for trading on Huobi, paired with USDT, BTC, ETH, and HTi – check it out here. If you prefer an up-to-date video overview you can also check the EOS block producers panel discussion on Huobi Talk here.
Delegated Proof of Stake (DPOS) is the method by which the EOS blockchain finds consensus. Instead of any holder of a coin being able to validate transactions, they instead use their registered coins to vote for a “block producer” on the network, who will be responsible for validating transactions. In some DPOS setups, such as ARK, the delegates will share their reward amongst those who voted for them, but with EOS the money is advised to be reinvested into the infrastructure and community growth, as well as supporting the development of DApps. However, groups buying votes to ensure they become block producers could be a potential worry. A more in-depth read on the system can be found here, and a look at the existing centralisation of coins in terms of whales and their holdings can be seen in the image below.
Other systems work slightly differently; Proof of Stake (POS) attempts to solve the issue of the wastefulness of resources that takes place in POW systems. Any wallet that contains coins of a certain currency can help with validating transactions and earn said currency in return (relative to the amount of coins they have “staked” in their wallet).
Finally, Proof of Work (POW) is the current more common consensus method. So-called “miners” have their computers solve extremely complex mathematical problems. Whenever a computer cracks one of these problems, or contributes their processing power to the solving of one, they are rewarded in the form of some cryptocurrency.
At the time of Bitcoin’s release, as well as the many other currencies that utilise POW, it was deemed one of the smartest solutions to the issue of protecting a blockchain system from outside attack, due to the computational power required to carry out such an attack. However, many people believe there has to be a better solution, primarily due to the massive power draw that running the Bitcoin mining network around the world requires, as well as the worry of increased centralisation as these large mining groups are increasingly the only ones who can afford to run Bitcoin mining operations, which is counter to the core values of Bitcoin.
RAM trading sounds like some Dodge executives found their way onto the EOS network, but it’s actually just about the good old RAM (random access memory) you have inside of your own PC, or in this case, the trading of the RAM that is allocated to the EOS network, held on the servers of the aforementioned block producers.
RAM is used to store information connected to running decentralised applications (DApps), as well as linked account information such as balances, keys, and the state of a contract. Users need to buy a minimum of 4kb of RAM to have an account on the platform – a seemingly tiny amount, but a number that will add up over time as more developers go to work on the platform. There is apparently only 17% of “new” RAM left to be added, bringing the total up to 64GB, and after this is in place, RAM will only be able to be bought from an existing owner. Essentially, as smart contract demand increases, RAM supply will shrink, pushing the price up.
This high demand can be seen in the price movement just over the last few weeks, though it is rather fueled by speculation that necessity at this point. According to Bitbns, where EOS RAM is trading, on June 20th EOS RAM was sitting at roughly 0.01 EOS per kilobyte, having since jumped to its current 0.57 EOS per kilobyte (on July 9th) – quite some growth. However, this also calls into question a potential worry for the system, which it is already facing – what happens when speculators snap up the majority of the RAM and leave little for the actual DApp developers?
The EOS team doesn’t appear to have a quick fix solution at hand, but the community has already thrown some ideas around. Forcibly confiscating RAM from “squatters” who fail to use the RAM within a certain amount of time could be one, or forcing people to sell RAM at the same price they bought it for another – though this could also lead to its own issues as the buyer has no real financial incentive to trade the RAM if they don’t make a profit.
Sidechains have been discussed, which could each possess their own RAM allocations, and should lead to the price normalising. However, this would be a part of the inter blockchain feature of EOS, which likely won’t see the light of day for another year or two, making this a relatively far-off fix.
The easiest fix would appear to be a simple RAM increase, but this needs to first be approved by two-thirds plus one of block producers, or maybe a form of rental for holding onto RAM – though if RAM prices continue to increase for the next year or two this rental cost may easily be negated anyway.
Whichever solution comes to the fore, the battle between RAM hoarders not wanting to sell and developers who want to push the platform forward is a fundamental issue which needs to be addressed, and will be an interesting situation to watch unfold.
One thing that is good for the EOS network as a whole is that currently it appears to be running on a deflationary basis; with RAM trading fees sitting at a cumulative 1% (0.5% to buy and 0.5% to sell – paid in EOS tokens), and RAM trading having exploded over the past weeks, the account responsible for holding the RAM trading fees has taken in almost 1.4 million EOS at the time of writing. With no one allegedly in control of these coins, this equates to a fairly sizeable coin burn – something that will add value to the EOS token long term.
Disclaimer: This article is sponsored by Huobi.