EOS: A revolution in blockchain?

Table of Contents

EOS: A Revolution in Blockchain 3

EOS.IO Overview

The Problems with Bitcoin 3

New Global Reserve Currency but not a Payment Mechanism

Along Came Ethereum 4

The Ethereum Protocol and its Technical Foundations

Enter the Dragon: The EOS Protocol 5

The Birth of EOS

Winning the Block Chain Development Race 6

dApps will Tell the Story

Summary 7

NOTICE: This is NOT investment advice. Cryptocurrency markets remain in their

infancy and are extremely volatile, high risk investments. Do your own research.

Founder & CIO Max Keiser max@heisenbergcap.com

CEO Stacy Herbert stacy@heisenbergcap.com
Head of Research Daniel Collins dan@heisenbergcap.com

Heisenberg Capital Research. 2 15OCT2018 Copyright @ HC Capital

A Revolution in Blockchain?
The blockchain revolution is in the process of writing
the latest chapter in internet history. Blockchain is a
meta technology challenging the viability of existing
online software technologies.
Blockchain technology promises a new phase in the
evolution of the internet.
The promise is Web3.0: a more decentralized,
permissionless and censorship-resistant internet
with more secure, frictionless and trustless
transactions. Blockchain applications are being
written today that will replace legacy web
applications. The incumbent businesses that cannot
adapt to a more decentralized world built upon this
technology will risk becoming obsolete. Banking,
insurance, retail….no sector will be left unaffected.
In the meantime, however, EOS poses a real threat to
Ethereum’s dominance in the so-called smart contract
sector. The current crop of incumbents are Ethereum,
EOS, Tron, Cardano, Stellar and NEO.
The phenomenal growth of EOS has been seen despite
a major collapse in cryptocurrencies in 2018. Is there a
reason why EOS has gained such a foothold? In this
paper we will explain some of the technical
advantages that have seen EOS gain on Ethereum to
become the plumbing behind the development and
roll-out of blockchain technology going into the
future.
Before we get deep into EOS we must look at a little
background on the consensus protocols against which
EOS was built to compete, namely Bitcoin and
Ethereum.

In this paper, we will take a deep-dive into EOS, one of

The ‘problem’ with Bitcoin
the latest public blockchain projects to launch and
Bitcoin (BTC) has changed the world and has become
that has disrupted the smart contracts sector.
the foundational cryptocurrency. BTC is now
performing amazingly as a ‘Store of Value,’ acting as
Full disclosure: Heisenberg Capital is currently an
the Gold Standard of cryptocurrencies with all other
adviser to BP.fish’s eosfishrocks, one of the 21 block
coins being priced in BTC. Although Bitcoin proved the
producers currently maintaining the EOS network.
first fully functional decentralized blockchain, it, along
with other cryptocurrencies, has faced scaling issues,
For more information and original research
such as high transaction fees and slow confirmations,
please visit us at www.heisenbergcap.com
that have encouraged the proliferation of competitors,
such as EOS.
What is EOSIO?
Bitcoin was originally designed and developed,
according to the white paper published by Satoshi
EOSIO is a blockchain protocol powered by the Nakamoto in October of 2008, to become a peer-to-
cryptocurrency EOS. The EOS mainnet only went live peer cash system. Today, however, despite early
in June 2018 and yet the platform has already seen promise, it clearly has not yet seen mass adoption as a
explosive growth with a market cap of over $5 billion payment mechanism. In fact, several online retailers,
USD making it the #5th ranked cryptocurrency in only including Expedia, Stripe, Reddit and Microsoft, have
a matter of months. While market cap is not stopped accepting BTC as a payment option due to the
necessarily an indicator of the utility of a coin, limits of the network capacity, the sometimes high
liquidity and transaction volumes also suggest a fees for transactions and, most significantly, the
successful launch of the protocol. current lack of demand to pay with the cryptocurrency
due to the better ‘store of value’ properties of bitcoin:
At Heisenberg Capital, we are excited by the growing Why spend your bitcoin when you can ‘hodl’ for
competition in the ‘smart contract’ space, for it can moon?
only bring more needed innovation, talent and capital.
Indeed, the introduction of such smart contract
competition has, for example, spurred on the
race to deliver second layer technologies offering
similar capabilities to Bitcoin.

Heisenberg Capital Research. 3 15OCT2018 Copyright @ HC Capital

The ‘problem’ with Bitcoin……
Furthermore, the on-chain processing transaction time
of Bitcoin is a 10 minute block time which constrains
the network’s throughput. The transaction processing
capacity maximum for Bitcoin is estimated between 3.3
and 7 transactions per second. For comparison, the
current standard payment mechanism in the U.S. is the
credit card system. The VisaNet, for example, is capable
of processing more than 56,000 transaction messages
per second. If second layer technologies like Lightning
Network do not scale or catch on with the consumer,
then Bitcoin can only compete with VisaNet’s
transaction speed by significantly increasing the
blocksize, which would radically reduce security while
enormously increasing the size of the blockchain.
Bitcoin has also had major issues with high transaction
fees which, at one point, reached over $50 USD per
transaction in June 2018. Many argue that these high
fees were the result of the internecine warfare in the
bitcoin community which led to some hostile parties,
allegedly, spamming the bitcoin network. Since the
launch of Bitcoin Cash, however, and the reduction in
tensions between developers, miners and some early
bitcoin whales, bitcoin transaction fees have come
down to just pennies for even very large sums. This fee,
however, still limits the majority of use-cases for Bitcoin
for micropayments and high velocity retail trade.
Bitcoin is also a Proof-of-Work system (PoW) which is
unbeatable for purposes of security and, thus, store of
value but which may be replaced by Proof-of-Stake
(PoS) for purposes of commerce which we will discuss
later.
In summary, the current Bitcoin consensus network
protocol has proven peer-to-peer blockchain technology
but it is not applicable today for a real-world payment
mechanism. Development teams in the Bitcoin
community are working on solutions to mitigate issues
with the Bitcoin protocol but at this stage we continue
to see Bitcoin operating not as a POS, or Point-of-Sale,
currency but instead operating as the Gold standard of
cryptocurrencies and functioning as hard money with
only 21 million Bitcoin to ever be produced, and with a
significant percentage of that essentially ‘burned’
through lost private keys.
1 Bitcoin vs. Ethereum: Stacking Up a Currency Against a Supercomputer; https://blog.sfox.com/bitcoin-vs-ethereum-stacking-up-a-
currency-against-a-supercomputer-be5b9c00764c
Heisenberg Capital Research
At Heisenberg Capital, we expect Bitcoin will continue
to function as the core holding for investors, to operate
as the reserve currency on crypto exchanges and to see
continued mainstream adoption in the traditional finance
space. ETF’s as well as other financial investment products
will continue to be written and launched around the
protocol. Finally, Bitcoin may one day fill the role of global
trade unit of account and so there is a strong incentive for
investors in this space to ‘hodl.’
Along Came Ethereum
While Bitcoin has grabbed most of the headlines and
imagination in the Crypto space, an entirely different
blockchain, Ethereum, has been delivering the transactions.
While Ethereum does not compete with Bitcoin as a store
of value, it has certainly been powering over three times as
many actual transactions per second as Bitcoin. On a per
second basis, Ethereum sees an average of 9.48 transactions
versus 2.51 for Bitcoin. On value transacted, however,
Bitcoin is transmitting far larger values with the median
1
transaction valued at $537.13 versus $0.369 for Ethereum.
Ethereum is an open-source, public blockchain based Turing-
complete distributed virtual computing platform which has
popularized smart contracts. Smart contracts allow
applications to be built to digitally facilitate, verify, or
enforce performance of a contract. Imagine a blockchain
built for the ‘Internet of Things’ where devices are
communicating between themselves and contracts are
being filled automatically on the blockchain.
Whilst the Ethereum software platform was designed
to support such applications, in reality, nearly 90% of
transactions are coming from ICOs and payments.
The platform is merely being used to issue more tokens.
Much of this money printing has gone up in smoke as
very few projects have ever got past the ‘when Lambo’
phase and onto actually building the product stage.
The Ethereum blockchain has its own cryptocurrency called
‘Ether,’ which can be transferred between accounts or used
as compensation for the mining nodes in its Proof-of-Work
system. There are currently just over 100 million tokens in
circulation. Ethereum was first proposed in late 2013 by
Vitalik Buterin, an early bitcoin adopter and co-founder of
Bitcoin Magazine.
In addition, to becoming the second largest platform, Ethereum
also supports decentralized exchanges which are gaining in
popularity with continuing improvements in performance.
4 15OCT2018 Copyright @ HC Capital
Why is ETH crashing?
Ethereum's currency, ETH, reached an all-time high market
capitalization of $137 billion and a price of $1,412 USD by
January 2018. At the time of this publication, however,
Ethereum is now trading at $212 USD which is an 85%
reduction in the currency. Aside from the general collapse
in prices for all cryptocurrencies in 2018, there are likely
four issues related specifically to ETH which may have
contributed to the massive price correction.
The first issue is that people are calling into question the
scalability of the Ethereum blockchain. Scalability refers to
how well a network can handle many transactions at one
time. Ethereum has proven to be able to handle only 15-20
transactions per second with a six minute transaction
finality. The Visa credit card system on the other hand can
handle upwards of 50,000 transactions per second.
The new competitor to Ethereum, EOS, will theoretically
be able handle 1 million or more transactions per second
when built out but at this time is only achieving closer to
3,000-6,000 transactions per second with sub-second
finality.
It is important to remember that the most successful Proof-of-stake (PoS) is a very large change in
blockchain will be the one that can scale.
The table below shows a quick comparison of ETH and EOS.
The second issue for Ethereum is transaction fees. The Ethereum their entire seed-funding evaporating and also ran
network requires users to burn ‘gas’ to transact on the network for the exits.
and the cost of this gas varies according to the price at which
miners demand.
2“Is Ethereum’s Casper Proof-of-Stake Decentralized?,” https://blog.sfox.com/is-ethereums-casper-proof-of-stake-
decentralized-9e40a7cba70f
Heisenberg Capital Research.
Currently, transaction fees are higher on
Ethereum than they are on Bitcoin. While fees are
still low at a median of $0.369 per transaction,
they are not ‘free’ as in EOS where inflation hides
the cost to the consumer. When Ethereum first
launched it was possible to verify a transaction at
less than one cent but as more people used the
network transaction costs climbed to over $4 USD.
These Ethereum transaction costs discourage
consumer-grade retail deployment of applications
on the Ethereum network.
The third issue that may have caused ETH to crash
in 2018 is the planned movement to Casper proof-
of-stake (PoS) from the current proof-of-work
model (PoW).2 Bitcoin and Ethereum currencies
operate on PoW model where miners are
compensated for maintaining the blockchain.
These companies in the case of Bitcoin use capital
intensive specialized ASIC miners that are
extremely energy intensive. ETH is mined on
GPU’s and are somewhat less energy intensive yet
still very capital intensive. Ethereum moving to a
the protocol. This could have Ethereum investors
worried.
The fourth issue for ETH in 2018 is the mass-
selling out of China. It’s rumored a company in
China, acquired more than four million ETH tokens
back when they were trading near $1 USD per
token. As of January 2018, the company sold their
entire holdings. That sell-off alone would have
represented 4% of outstanding ETH tokens in the
market by one company alone. This sell-off begat
more sell-off because most token offerings had
been funded in ETH. These token issuers have
real-world software development costs and
Lambo payments to make and so panicked about
5 15OCT2018 Copyright @ HC Capital

Enter the Dragon, the EOSIO
Protocol
As mentioned previously, the EOSIO protocol was
created to compete directly with Ethereum as an
operating system for decentralized applications.
Block.one managed to raise over $4b in an ICO
after which it then released the open source EOSIO
software code for the community to launch the
mainnet.
The EOS protocol promises a powerful set of tools
with no transaction fees to end users, millions of
transactions per second, sub-second transaction
finality and a ‘green model’ in terms of proof-of-
stake as well as a a radical new type of open,
transparent governance model with its Block
Producer and governance model which we will
cover more in detail later.
So what are the main technical
features of EOS?
The EOS.IO website describes EOS as “a software
that introduces a blockchain architecture designed
to enable vertical and horizontal scaling of
decentralized applications.
The software provides accounts, authentication,
databases, asynchronous communication and
scheduling of applications across multiple CPU
cores and/or clusters.” The result is a blockchain
architecture that has the potential to scale to
millions of transactions per second, eliminate
user fees, and that allows for quick and easy
deployment of decentralized applications.
The EOSIO protocol operates as a smart contract
platform and decentralized operating system.
3 “EOS Vs Ethereum: Predicting The Winner Of The Smart Contract War” https://cryptobriefing.com/eos-ethereum-smart-contract-war-winner/
4 “EOS Vs Ethereum: Predicting The Winner Of The Smart Contract War” https://cryptobriefing.com/eos-ethereum-smart-contract-war-winner
Heisenberg Capital Research.
The native token, EOS, is a utility token that provides
bandwidth and storage on the blockchain in
proportion to holdings of the tokens. The EOS tokens
also allow owners to participate in the governance of
the EOS blockchain. EOS operates a new governance
model with EOS token holders voting for Block
Producers. The top 21 block producers generate and
validate blocks within a 5 ms block time. The 21 Block
Producers are voted on by the community of EOS
token holders and are compensated in EOS tokens for
maintaining the EOS network. This compensation is
not paid for by fees, as with Ethereum, but by inflation
of 1% per year in the EOS supply.
This new delegated proof-of-stake (DPoS) model
swaps some centralization in exchange for the
scalability of the fastest, most efficient and most
flexible consensus mechanism currently available.
DPoS leverages the power of stakeholder governance
to resolve consensus issues in a transparent and
democratic way. All network parameters, from fee
schedules to block intervals and transactions sizes,
can be modified via elected delegates.
Regarding this token model, Andrew Macdonald 3
described it well when he wrote in CryptoBriefing:
“With EOS, tokens are a representation of network
ownership and access to network resources. A user
that owns 1% of token supply is entitled to 1% of
network ram, compute, bandwidth and storage. This
is ownership of digital, fungible real estate because it
is a scarce resource with governance and ownership
rights … Economically, demand for the token should
grow linearly with network adoption.”
At Heisenberg, we believe that, this ownership and
governance model provides a solid foundation for
growth in the user base. This is especially true if a
wider distribution of tokens is eventually achieved
through successful deployment of dApps, but we
consider one of the biggest potential opportunities for
EOS comes from the speed of transaction finality:
“Sub-second finality also opens up the door for cross-
chain communication, where chains can communicate
with each other horizontally. One chain could
reference another chain in real time (e.g. the age of
someone in an identity blockchain) so that the main
chain doesn’t need to be slowed down with extraneous
block details.” 4
This sort of capability opens the door for more
sophisticated financial services.
6 15OCT2018 Copyright @ HC Capital
 Secure Infrastructure Proposal
for Block Producers

Heisenberg Capital Research. 7 15OCT2018 Copyright @ HC Capital

 The Risks and Challenges
to EOS
Vitalik Buterin had warned it would happen, but
collusion between block producers has already
become an issue after, as yet unsubstantiated,
allegations against Huobi suggested they were
trading votes for income. Huobi denies the
allegations. 5
EOS sources have told us, “This is mostly a red
herring. While there are probably small clumps
of related BPs, they are not a large group, and
are largely not in the top 21. Further, any
misbehavior is immediately and permanently
recorded on the chain, and will be called out. It is
a wildly different type of decentralization from
the POW which people are accustomed to, but
still well distributed, and can change within 2-5
minutes (via the continuous voting mechanism)
when/should anything serious happens.”
Further to such governance concerns relating to
concentration of power, there are many in the
EOS community agitating in Telegram groups to
expand the number of Block Producers beyond
21. This idea has not yet gained traction with
Block Producers, however, and any change in
the constitution would require a 15/21 vote
from those same BPs. Whether or not adding
more BPs would help or hinder the network, our
source familiar with the design of EOSIO says,
“More BPs make the network messier, in that all
new transaction requests are flooded via some
p2p protocol to all producers. To scale well, this
is an empirically determined compromise
achieving good distribution and good
performance.”
Competition is also a risk to the success of EOS.
Competitors in the smart contract space have
attracted some of the brightest minds in the
business and that could be a threat to EOS in the
long run. One of the eight original co-founders
of Ethereum, Charles Hoskinson is, for example,
presently building out Cardano (ADA) featuring
innovative new technologies undergoing robust
peer review.
5 “EOS voter collusion – Huobi denies receiving payments” https://ethereumworldnews.com/eos-vote-collusion-huobi-payments/
6 “Hackers target EOS gaming dApp once again, $338k believed stolen” http://thenextweb.com/hardfork/2018/10/15/eos-dapp-
hacked/
Heisenberg Capital Research.
Sidechains are also now deployable on Bitcoin
through Liquid, developed by Blockstream. No
blockchain comes near to Bitcoin for security and
these second layer technologies could rapidly
attract more of the institutional money and
attention.
Perhaps the greatest immediate risk is a hack on
the scale of the DAO bug which caused Ethereum
to fork to recover millions in ‘stolen’ funds.6 Smart
contracts open up an attack vector and the more
surface area a hacker has to attack, the more likely
it is to happen. In fact, EOSBet recently had funds
siphoned but the EOS community was able to
freeze those stolen assets. This highlights another
primary advantage or disadvantage depending on
what one is looking for in a blockchain: EOS is not
immutable. While transactions and actions are
recorded on the blockchain for eternity, some of
these actions can be undone if BPs and the
community want it. One must, therefore, trust
that this same community will not one day treat
your actions as hostile or unwanted on their
blockchain.
Winning the Smart Contract
and Blockchain development
race
As mentioned previously, the public blockchains of
the future will be those that can scale. These
blockchains will attract the best developers
building private blockchains and new decentralized
applications on Web3.0. Just as Web 2.0 exploded
in popularity because of the success of applications
like Gmail, Facebook and Twitter, it is the quality of
these dApps in blockchain that will determine
whether or not a wider audience will ever find
this new market.
To reiterate, the key ingredient required to
compete with these legacy applications is
scalability.
8 15OCT2018 Copyright @ HC Capital
Winning the Smart Contract and
Blockchain development race…..
This competitive edge presently goes to EOS. Part of the
reason, beyond what is outlined above, that it is more
scalable than Ethereum is in transaction finality and
throughput which has been achieved through ‘parallel
processing technology.’ This is described by Jorn van
Zwanenburg as such: “The cornerstone of EOS’s
scalability solution is its parallel processing technology.
This design enables dapps to operate and transactions to
be processed simultaneously without doubling the load
on the network. This is made possible by vertical scaling
(adding processing power) and horizontal scaling (adding
machines to the resource pool).” 7
While EOS is, indeed, currently more scalable than
Ethereum, more real world usage is needed to test the
actual robustness of the network. As the Daily Average
User numbers are currently not compatible to legacy
systems they seek to replace, it is difficult to gauge how
ready any of these networks are for retail deployment on
a global consumer scale.
The EOS network did recently, for example, come to a
‘screeching halt’ 8 when 100% of CPU got used up during
a promotion by EOSBet, a gambling dApp, that saw
100,000 bets placed in three hours. This transaction
volume not only caused CPU to hit 100% capacity, but it
critically impacted other dApps and saw CPU Emergency
relief funds released
7 “Solving Blockchain’s Biggest Problem: 5 Projects
Working On Scalability”
https://www.investinblockchain.com/solving-
blockchain-scalability-problem/
Heisenberg Capital Research
dApps will tell the story….
The table below references the top 5 dApps
for both Ethereum and EOS at the time of this
publication. As you can see from the user base
in the table below, we are at early days for
dApps. Penetration is nowhere near that for
legacy systems.
The best known dApp built on the Ethereum
platform is a blockchain based game called
CryptoKitties. The game is referenced as the
most successful early attempt at deploying
blockchain technology for entertainment
purposes. The game allows players to trade
distinct cats as collectibles and keep them
recorded on the blockchain.
On the downside, however, as the game
gained popularity, it slowed down the
Ethereum network significantly during peak
usage. This network slowdown occurred with
only 2,000 active users at one-time.
8 EOSBet-Run Promo Substantially Slows Down EOS
Network;
https://www.whiterabbiticos.com/blog/eosbet-run-
promo-substantially-slows-down-eos-network
9 15OCT2018 Copyright @ HC Capital
 dApps will tell the story…. EOS Price Forecasting

Well known dApps for EOS include:
EOS Knights is the first mobile role-playing
game (RPG) built on the EOS blockchain.
EOSBet is a decentralized application for
tokenized gambling which moved to the EOS
blockchain after Ethereum proved too slow for
them. EOSBet promises to be “100% provably
fair” with payouts transparency on the blockchain
and EOSBet has also built a commercial scale
smart casino which has paid out its first dividend.
The success of EOSBet has already spawned
9 a legion of clones.
The EOS token was originally launched on the
Ethereum network as a ERC-20 token and, as
mentioned previously, was launched in the middle
of a crypto-winter as the mainnet went live in June
2018. Despite this the EOS token quickly reached a
price of over $20 USD with a market cap of over
$16 billion USD.
At the time of this publication, EOS as with all other
crypto currencies have declined. The price of EOS is
in a tight trading range around $5 USD which gives
EOS a market cap of about $4.5 billion USD.

Everipedia is the world's first Encyclopedia on

the blockchain that “allows anyone to become a
stakeholder in the system and earn rank, rewards
& tokens for curating content.”

Chintai is a p2p token-leasing marketplace and is

the first major EOS infrastructure dApp to go live
(a similar REX model had been proposed but not
yet built by Dan Larimer). The marketplace was
launched by EOS42 and “allows users to lease
out their token capacity to other users who’d
9
like access to their resources.”
In this paper, we have compared both Ethereum
More applications are expected on EOS sister and EOS in technical capacities. When one
chains as well. compares the market capitalizations of both
currencies we can see that despite the massive
As mentioned, we are at very early stages of correction in 2018, Ethereum still has a market cap
dApps being built on the blockchain. If the history of almost $30 billion USD which means it has a
of the internet is precedent, however, the market cap almost six times that of EOS.
numbers of applications are sure to explode in the
coming months and years once the standards of At Heisenberg, we expect the market cap of
the underlying protocols have grown more robust Ethereum and EOS to converge in the future. As
and uniform and the engineering and creative other competitors emerge, however, both will have
entrepreneurial talent has built the applications. to continue to innovate or die.

In the meantime, the world is still waiting for the

killer dApp to be built. You will know it is here
when it draws users to the blockchain in the same
manner that the killer apps of Twitter, Facebook
and Google have drawn eyeballs to the internet.

9 Aurora EOS Weekly Update, Issue #6, https://www.getrevue.co/profile/auroraeos/issues/aurora-eos-weekly-update-

138031

Heisenberg Capital Research 10 15OCT2018 Copyright @ HC Capital

 Summary
The world is in the first innings of the
blockchain/crypto revolution. Blockchains
are part development platform, part
network enabler, exchange medium, a
secure network, and a host of other
decentralized capabilities. Blockchains will
come in many variations and will overlay
on top of the Internet.

The blockchains that win in the future are

the ones that can not only scale but
enable.

In this paper we provided a short overview

of both Bitcoin and Ethereum, the
protocols against which EOS was built to
compete. We looked at just some of the
many promises and only a few of the risks
and shortcomings of EOS. There are many
others we did not have time to explore in
this paper. The aim of the EOSIO protocol
is to provide a decentralized application
hosting with smart contract capability.
EOS has the capability to scale in a manner
and at a speed at which both Bitcoin and
Ethereum have so far had trouble doing.
Going forward one must continue to not
only monitor the price action of these
important protocols but also focus on the
applications being built on them. May the
best blockchain win.

By building, the developer community will

choose the blockchains that survive the
crypto-winter.

NOTICE: This is NOT investment advice. Cryptocurrency markets remain in their infancy and are
extremely volatile, high risk investments. Do your own research.

Heisenberg Capital Research. 11 15OCT2018 Copyright @ HC Capital

 IMPORTANT DISCLAIMER
This document does not contain or purport to be, financial promotion(s) of any kind.
This document does not contain reference to any of the investment products or
services offered
by members of Heisenberg Capital. Digital assets and related technologies can be
extremely complicated. The purpose of this document is to provide objective,
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It should not be assumed that the methods, techniques, or indicators presented in

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Heisenberg Capital Research. 12 15OCT2018 Copyright @ HC Capital