How the success of block.one is linked to EOS

Introduction

Lots of people feel very disillusioned with block.one and their business model, especially with respect to the EOS Mainnet blockchain, but if you look at it not from the perspective of a EOS token holder, but from the perspective of a company trying to maximise profits, it can make perfect sense. I am going to share my thoughts on their approach and make some guesses as to the long-term strategies and goals of block.one.

  • To prove the authenticity of the origin of a transaction

What is block.one’s motivation?

At the end of the day, block.one is a company, and the main goal of a company is to make profit. I am assuming that this is the case with block.one. However, it is important to remember that block.one is not a public company (Bloomberg), and therefore does not have the pressure to pay fat dividends to shareholders every quarter. If they want to, they can cope with short term losses for long term gains, and the game they are playing is the long game.

So how do they plan to make a profit?

Current thinking is that block.one’s long term strategy to make money comes from speculative investments in Bitcoin and other cryptocurrencies beyond EOS, but I don’t believe this to be the case. So far they have probably made a couple of billion dollars just from buying Bitcoin and watching its price rise, but those gains only matter if they sell the (approximately) 230,000 BTC (Westermeyer and Angermeyer) that they have accumulated, and block.one becoming an asset management firm does not fit with their strength in the technology field.

How does holding EOS lead to profit?

The powerup model (block.one #1) is the new resource model that has been proposed by block.one. There are plenty of good articles (block.one #2) explaining how this works in detail, so I will not go into too much detail here, but the general idea is as follows.

Okay, so why is block.one not doing anything to help adoption of the EOS Mainnet?

This boils down to a matter of perspective, and ultimately comes back to the point of blockchain technology in the first place. Right now, the entirety of the blockchain space has a market cap of approximately $1 trillion. This is nothing in comparison to the $360 trillion dollars in wealth around the world (Credit Suisse).

  • To prove the authenticity of the origin of a transaction

Real world blockchain usage

Any company that does any significant amount of business has to do a lot of work to show compliance, pass financial audits, handle taxes, and conform to regulations. This is work that no one wants to do, but is required by the respective authorities of whatever country the company works in. The problem with these requirements is that they are expensive! An average company will spend 5.5 million dollars each year (Kenton) on proving to the authorities that they are not money laundering, that they have declared all their income for tax purposes, and that there is no internal fraud occurring within the company. Blockchain gives a trusted way for a company like this to automate this process and save themselves millions of dollars each year.

Why is EOS the most censorship-resistant chain?

There are lots of different protocols to develop censorship-resistant blockchains, proof of work is the original mechanism used by Bitcoin and Ethereum. The problem with PoW is that it is possible for a country to seize and control the hardware within their country and perform a 51% attack. The mining pools that run on these chains could also agree to collaborate to perform a 51% attack. If they do this, then it does not just break Bitcoin, but all PoW chains. Because if someone creates a fork of Bitcoin, and that fork becomes popular, then the bad actor can simply switch from mining on the (now dead) Bitcoin chain to the popular fork, and they will immediately have over 51% of the mining power again. The effect is to dilute the PoW chains and make them all more susceptible to such an attack.

So how does this translate into profits?

The Powerup model is not live yet, so for this next bit I am going to assume that we stick with the current resource exchange model, the point stands and will be the same in both cases, the only difference is the mechanism by which it is done will be slightly different.

  • The EOS Mainnet is being used at current rates in terms of transactions, activity, and REX usage.
  • There are 100 companies that need to send a hash every block
  • There are 1000 companies that need to send a hash on average every minute
  1. The next company must pay more for the same resources.
  2. As these companies buy EOS, the pressure makes the price of the token increase.
  3. As the rewards for staking start getting larger, more token holders will stake to participate, increasing the scarcity of EOS.
  4. This further increases the price of the token.

I do not see the connection with block.one, why are they so quiet?

Because they are not talking to you.

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