Cryptocurrencies and blockchain technologies have come along way since Bitcoin was launched in 2009. There are now over 2500 cryptos with varying use cases for different niches. One of these niches which has captured a lot of value and attention from investors is programmable cryptocurrencies with smart contract functionality, such as Ethereum. However, besides Ethereum, there is a multitude of other cryptocurrencies competing in this niche and one of the most notable ones is NEO (NEO), which has been touted as the “Chinese Ethereum”.
According to the project’s website, NEO is a decentralized and open-source project that utilizes blockchain technology, digital identities, and smart contracts to create and manage digital assets. Like other smart contract platforms, it’s aim is to build an open network for a “Smart Economy”. So, how does NEO hope to achieve this and what makes it different from other programmable blockchains? Let’s take a look.
The History of NEO
NEO (formerly Antshares) was founded in 2014 by Chinese developers Da HongFei and Erik Zhang, and their blockchain technology company Onchain. NEO became China’s first open-source public blockchain project when they open-sourced their code on GitHub in June 2015 and released their whitepaper in September 2015. Two years later, NEO officially rebranded from Antshares to NEO in June 2017 and established it’s vision of building a “smart economy”.
As for the NEO token sale, the project was funded through two crowdsales, the first held in 2015 and the second in 2016. Collectively, over $4.5 million was raised and 50% of the total supply of 100 million tokens (50 million) were sold in the ICO. The other 50% was distributed to the NEO council for long term development efforts. The NEO tokens held by the NEO council were locked until October 2017 and now a maximum of 15 million NEO tokens may be used by the council per year. Currently, the total circulating supply is 70.5 million NEO as of October 2019.
Once NEO rebranded in 2017, it became very popular in the West and was often called the “Chinese Ethereum”. By the end of 2017, NEO climbed to the top 20 coins and achieved a $10.5 billion market cap with a price of $161.55 in January 2018. With these significant gains, NEO became the third-best return on investment (ROI) cryptocurrency with a 378,453 percent ROI from its ICO price of just $0.032.
The price of NEO has since collapsed (as with most altcoins) and NEO’s parent company Onchain launched a new cryptocurrency called Ontology (ONT) in June 2018. NEO token holders received an airdrop of 1 ONT for every 5 NEO held in a user’s wallet. With the launch of Ontology, some very important NEO developers stopped working on NEO and put all of their time, resources and efforts into Ontology. This led to an ever decreasing NEO price and stagnation of development. However, also in 2018, Da Hongfei announced a reorganization of the NEO council, changing it to the NEO Foundation and two operational units funded by the NEO Foundation: NEO Global Development (NGD) and NEO Global Capital (NGC). Now it appears that NEO is getting things going once again and revamping their entire blockchain with NEO 3.0, a completely new and scalable blockchain with a scheduled release for Q2 2020.
Purpose of NEO
NEO’s vision is to build a ‘smart economy’ in which digital assets are managed through digital identities and smart contracts. The project hopes to achieve this by providing a blockchain-based platform for building and deploying decentralized applications (dapps), as well as developing a framework for digitizing assets and managing them through smart contracts.
That being said, NEO supports various types of digital assets that can be registered, transferred and traded. These digital assets are assigned digital certificates which instill trust into the public NEO blockchain and provides full legal protection for all assets digitized through the NEO platform. Additionally, NEO utilizes several other key technologies to facilitate this ‘smart economy’ including:
Delegated Byzantine Fault Tolerance (dBFT)
dBFT is a type of consensus algorithm used to ensure finality of transactions and is believed to support up to 10,000 transactions per second when fully optimized. With dBFT, a group of bookkeeper nodes is selected by NEO token holders who vote in real-time. NEO’s digital identity technology is combined with dBFT so that bookkeepers can be identified if they act maliciously and judicial oversight can be enforced.
Neo Virtual Machine (NEO VM)
The NEO VM executes smart contracts on the NEO network and uses deterministic calling tree-technology which is theorized to achieve unlimited scalability. The NEO VM is also a lightweight, general-purpose VM which allows for shorter start-up times with efficient execution.
Cross-Chain Interoperability Protocols
NEO is said to be interoperable with other blockchains because it uses a Cross-Chain Assets Swap protocol and Cross-Chain Distributed Transaction protocol to achieve atomic assets swap and guarantee the operation of smart contracts executed on different chains.
Distributed File Storage Protocol (NeoFS)
NEO can divide large data files and store them across many nodes. This allows smart contracts to store large files in a decentralized manner on the blockchain.
Anti-Quantum Computer Security Mechanisms (NeoQS)
NEO has introduced a lattice-based cryptographic mechanism and encryption technique called NeoQS, to enable its network to use Shortest Vector Problem (SVP), which are more resistant to quantum computing.
NEO Issues and Controversies
Like any cryptocurrency, NEO has suffered its fair share of scrutiny and controversy. For instance, the project has been around for 5 years or so (just as long as Ethereum), yet it hasn’t even come close to the level of adoption that Ethereum has achieved. NEO only has 67 dapps, many of which have no users and the ones that do have very few. Ethereum, on the other hand, has thousands of dapps with thousands of active users and millions of dollars locked in DeFi dapps.
Tying into this lack of adoption is another controversy surrounding NEO’s development. As previously mentioned, the parent company behind NEO launched a different cryptocurrency called Ontology and many of NEO’s core developers moved onto build out Ontology’s blockchain. As a result, NEO’s development came to a standstill and its price crashed significantly as a result. Meanwhile, Ontology performed quite well price-wise and experienced lots of healthy development. However, the project team behind NEO has apparently been developing the third version of NEO’s blockchain, NEO 3.0, which is said to significantly increase the speed and stability of NEO and increase its adoption.
Another major controversy surrounding NEO is that it’s centralized. NEO founder Da Hongfei has even admitted that NEO is centralized to an extent and claims that this is on purpose. According to Hongfei, NEO compromises on levels of decentralization so that it can achieve higher transaction speeds and be easier to implement for enterprise use cases. NEO’s centralization at a blockchain technology level comes from its dBFT consensus algorithm whereas NEO’s nodes are selected by the NEO team rather than voted on by NEO token holders. This level of centralization is seen as a huge negative by many cryptocurrency experts in the space.
NEO Partnerships and Adoption
When NEO was first launched, 50% of the total token supply (50 million NEO) was reserved for NEO’s long term development goals. Therefore, the project has plenty of funding to aid in the development and adoption of NEO. From this funding, the NEO Foundation established NEO EcoBoost, a program created to stimulate and support developers and project participants in the NEO ecosystem. Currently, the program has $100 million in funding and is providing support for more than 100 NEO ecosystem projects.
Such projects/partners include:
- 10 liquidity providers such as crypto exchanges
- 13 crypto wallets supporting NEO
- 16 media news outlets
- 6 dapp development channels
- 23 community entities supporting NEO development and adoption
- 5 security services
- 67 decentralized applications (dapps)
- 11 blockchain explorers
Furthermore, NEO has partnered with various technology and blockchain development firms such as NewEconoLabs (NEL), Parsec Frontiers, TECHFUND Inc. and multiple others. All in all, NEO has made plenty of partnerships and will continue to do so in the future. However, NEO’s primary focus right now is to develop and upgrade their blockchain to NEO 3.0 which is slated for Q2 2020.
Being an Ethereum competitor, NEO faces a lot of competition and must work hard to stay relevant. However, NEO has managed to remain as one of the leading smart contract and dapp development platforms thus far and has major developments down the pipeline. If all goes to plan, NEO will continue competing in this space and will be a viable alternative to Ethereum for the issuance of digital assets managed by smart contracts.
What do you think about NEO? Do you believe NEO 3.0 will scale better than Ethereum 2.0 and take away from its market share? Let me know what you think in the comment section below.