Last Updated On November 14th, 2018
NEO is a non-profit community-based blockchain project that started sometime around 2014 and became a real-time open source on GitHub in June 2015. Although the project name was inspired by the ancient Greek word “neo” meaning “new”, it is better known in the crypto community as “The Ethereum Killer” or “The Chinese Ethereum.”
The project was funded by two crowd sales. The first crowd sale took place in October 2015 and raised $550,000 in 10 days, during which 17.5 million NEO tokens were distributed among investors, whilst the second one managed to raise $4.5 million, allocating the remaining 22.5 million NEO tokens of the Initial Coin Offering. During its stupendous ascension in value in 2017, NEO offered investors an ROI of more than 30,000%. With a current market cap of more than $8.8 billion, the first blockchain-based project backed by the Chinese government is presently the 6th largest cryptocurrency on the market.
The principal reason for NEO’s aforementioned success is its active community and the highly reputable development team. Created by a Shanghai-based R&D company that designs and develops blockchain solutions for businesses called Onchain, NEO aims to “automate the management of digital assets using smart contracts,” and to “realize a ‘smart economy’ with a distributed network.” The project is lead by Da Hongfei, Onchain CEO and one of the key opinion leaders in the Chinese blockchain industry and Erik Zhang, CTO, co-founder and core developer. A true trailblazer for cryptocurrencies in Asia, Hongfei’s involvement with this wave of the future started back in 2014 when he founded Antshares, which was soon after rebranded as “NEO” and became a top 50 fintech company in China in just two years after its inception. Beside Zhang and Hongfei, the other key patrons are Tony Tao, Secretary-General and NEO Council Secretariat, core developer Li Jianying, and a big team consisting of more than 100 developers all over the world, around 30 of which are full-time members and part of the headquarters in Shanghai.
Why the “Ethereum killer” nickname?
As stated in its whitepaper:
“NEO is the use of blockchain technology and digital identity to digitize assets, the use of smart contracts for digital assets to be self-managed, to achieve “smart economy” with a distributed network.”
The “smart economy” it is trying to bring to the world is threefold — comprised of digital assets, digital identity, and smart contracts. Bringing these three blockchain features together in one holistic ecosystem is the whole essence of the project.
Digital assets are ownable programmable assets that exist in a binary format. With the advent of distributed ledger technology, the connection between digital and physical assets is achieved through digital identity which enables the assets to be registered and properly validated on the blockchain and thus become protected under law. The blockchain makes the right to use, store, trade, and register multiple types of digital assets much safer and trustful because it eliminates all the risks that arise from the bestowment of trust upon centralized intermediaries.
NEO has two forms of digital assets:
- Global assets can be recorded in the system space and can be identified by all smart contracts and clients.
- Contract assets are recorded in the private storage area of the smart contract and require a compatible client to recognize them. Contract assets can adhere to certain standards in order to achieve compatibility with most clients.
The main reason NEO is concerned with digital identity is that its primary target groups are large corporations and businesses. In order for the business model to work, NEO must cooperate with government laws and regulations, and especially so in China where the Onchain company is registered. NEO verifies its users by utilizing the X.509 digital identity standard which is based on Public Key Infrastructure. In addition to this, it uses facial features, fingerprint, voice, SMS, and other multi-factor authentication methods. Although cryptocurrencies are usually praised for their anonymity, NEO’s special digital identity feature is what makes it stand out as a business-oriented blockchain platform.
The concept of smart contracts was first introduced by Nick Szabo in 1996 in his publication “Smart Contracts: Building Blocks for Digital Markets.”
The underlying idea behind smart contracts is that many kinds of contractual clauses (such as liens, bonding, delineation of property rights, etc.) can be defined as a series of “if this, then that” logical steps, and therefore can be written in code and embedded in the hardware and software we use today.
As described in their whitepaper, they use an independent, smart contract system called NeoContract which allows developers to create smart contracts in many different programming languages such as C# and Java.
The NEO ecosystem
There are thousands of cryptocurrencies on the market, and every one of them is unique in its own way. They all have diverse ecosystems, different use-cases, consensus mechanisms and even technically distinct blockchains. In this section, we’ll explain their ecosystem starting from the very basics it relies on — the tokens.
NEO vs GAS
The NEO blockchain platform has two native tokens.
First, there’s NEO (abbreviated symbol NEO), the equity token that you buy on an exchange and the token that essentially grants you “shares” which give you the right to vote over major issues regarding the NEO blockchain. The NEO equity token also gives you dividend rights. Contrary to most cryptocurrency models, NEO is inspired by the concept of shares of a corporation and it’s designed to be indivisible, which means that you can’t own a portion of a NEO token, as you would with Bitcoin for example. Furthermore, much like owning shares in Apple, holding a NEO token pays dividends in the form of GAS.
NeoGAS (abbreviated symbol GAS) is the utility token of the NEO ecosystem and it’s used to pay for the bookkeeping services (fees) as well as to pay for any action that’s executed on the NEO blockchain, like asset creation, registering a bookkeeping node, creating a smart contract, service charge payment or basic fee payment. The GAS token is, as the name suggests, the fuel of the network. It’s the currency that is being exchanged inside the NEO ecosystem as an economic incentive. In the NEO ecosystem, GAS is automatically created and distributed as a dividend to all NEO token holders proportionally.
Disclaimer: NEO needs to be kept in a wallet address (not an exchange) to generate GAS as a dividend. A good secure option is the Ledger Nano S hardware wallet.
All of NEO’s 100 million tokens are pre-minted with the Genesis block and divided into two portions. The first portion of 50 million shares (50% of the total number of shares) were distributed proportionally to supporters of NEO (then Antshares) during the ICO in the following proportions: 10% to early supporters, 17% in ICO Phase 1, 23% in ICO Phase 2. The second half of the shares were distributed on October 16, 2017, after being locked up for one year after the mainnet was launched via smart contract. 10% of the second half of the shares was distributed among the NEO developers, 15% to be used for investing in other NEO based blockchain projects and 15% is retained as a contingency.
The GAS distribution differs significantly from the NEO distribution. Gas is not pre-minted but rather generated with each new block, similarly to Bitcoin, Litecoin or other mainstream cryptocurrencies. The total limit of GAS is capped at 100 million GAS tokens which will be produced up until 2030. The NEO block-time is averaging 15-20 seconds or 2 million blocks in one year.
According to the NEO white paper:
“Each year around 2 million blocks will be generated, and the initial generation will be 8 GAS per block. There will be an annual reduction of 1 GAS per block, per year, to coincide with the passing of every 2 million blocks. The reduction will continue down to just 1 GAS per block and will be held at that rate for around 22 years. After the 44 millionth block the total GAS generated will have reached 100 million, and from this point, there will be no further generation of GAS from new blocks.”
Potential NEO use cases
The core idea behind the NEO project is the asset exchange and management. NEO uses e-contracts to record the transfers of digital assets such as equities, securities, various contracts and stock ownership among many others. Because NEO is Turing-complete and because it uses digital identities, it can be proficiently used for crowdfunding, trading of stocks, bonds and commodities, P2P financing, evidence storage etc. With a very low barrier to entry for NEO blockchain developers, massive innovation is inevitable – and the once the bandwagon has started rolling, there’s no going back.
NEO’s unusual consensus algorithm
One of the most distinctive features that makes blockchain technology so special is decentralization. Although we have a tendency to take it for granted, designing a distributed system that achieves consensus effectively and efficiently is a fairly complicated matter. This problem is known as the Byzantine Generals’ Problem, and solving this problem requires a work of genius.
How does a distributed network of unrelated and untrustworthy nodes reach consensus and avoid catastrophic system failure? Satoshi Nakamoto solved this problem through the Proof of Work consensus algorithm, which is still in use today in most of the cryptocurrencies on the market. Although the PoW solution is ingenious, it’s not optimal, and for this reason, developers are already working on better consensus algorithms. Some of the solutions like the Proof of Stake and Delegated Proof of Stake are already well known within the community, but others like the Practical Byzantine Fault Tolerance (PBFT) and NEO’s Delegated Byzantine Fault Tolerance (dBFT) are still fairly unknown.
So, how does NEO’s dBFT consensus algorithm solve the Byzantine Generals’ Problem?
There are two types of nodes in the NEO ecosystem: ordinary nodes and bookkeeping nodes. Ordinary nodes represent the majority of NEO holders, and these nodes can only transfer and exchange assets, without participating in the “voting” process on the network. The bookkeeping nodes, however, represent the “delegates” that participate in the block validation and do the voting, achieving consensus with approval from ⅔ of the network. The dBFT consensus algorithm protects the NEO blockchain from forks and radical, unsupported changes to the implementation of the blockchain system. Special equipment, dedicated internet connection and a certain amount of GAS is a prerequisite to becoming a bookkeeping node. In a sense, the bookkeeping nodes are analogous to mining nodes in the Bitcoin ecosystem.
A fairly simple solution at first glance; the dBFT algorithm offers an elegant way of reaching consensus, making the NEO blockchain fast, scalable and ready for mainstream adoption.
How to buy and store NEO
Step 1: Set up a NEO wallet
You can find all available wallets on Neo’s official download page, which features mobile, desktop, and web versions. We’ll discuss some of the available options:
- NEO Tracker (web)
This wallet was developed by NEO Tracker. It’s an open-source, easy to use third-party wallet that allows its users to send, receive and store NEO and GAS, and claim GAS if they’re holding NEO assets.
- NEO WALLET (web)
This wallet developed by PeterLinX allows sending, receiving and storing NEO while claiming GAS.
- Neon Wallet (desktop)
A desktop wallet that’s available for Windows, Mac OS, and Linux; Neon Wallet was developed by City of Zion, and it allows sending, receiving, and storing both NEO and GAS. It’s one of the most popular options out there due to the fact that it’s easy to use and it offers a high level of security because the user’s private keys aren’t stored on Neon’s servers.
- NEO APP – Android version (mobile)
The NEO APP is the mobile version of PeterLinX’s wallet, currently available only for Android.
You can also get a hardware wallet as an extra line of defense — after all, the safest place to keep your coins is offline. Ledger makes NEO-compatible wallets for storing and sending NEO.
Step 2: Buy NEO
Now that you’ve set up your wallet, you need something to fill it with! In order to do that, you first must purchase Bitcoin, Ethereum or Litecoin and then trade it for NEO, as there is no direct way of purchasing it at the moment.
After you’ve purchased BTC/ETH/LTC, we recommend transferring it to Binance in order to buy NEO since this is our favorite exchange. Other options include Bittrex, Bitfinex (BTC only), Kucoin, Cryptopia.
Step 3: Store NEO
Finally, you should transfer your funds from the exchange to your Neo wallet (e.g. Ledger Nano S) by using your wallet’s public address as the withdrawal address on the exchange where you’re holding. Check your wallet a few minutes after the transaction — and they should be there! Congratulations, you have thus successfully secured your NEO, and you will be able to see your free GAS building up over time.
The future of NEO
According to the NEO whitepaper, the NEO design goal is a smart economy; and the team moves forward to achieve this goal by introducing three novel technologies: NeoX, NeoFS and NeoQS.
NeoX is a cross-chain protocol that allows interoperability of blockchains. It is divided into two parts: cross-chain assets exchange agreement and cross-chain distributed transaction protocol.
The assets exchange agreement allows:
“multiple participants to exchange assets across different chains and [ensures] that all steps in the entire transaction process succeed or fail together.”
As for the distributed transaction protocol, the following explanation is given in the whitepaper:
“Cross-chain distributed transactions mean that multiple steps of a transaction are scattered across different blockchains and that the consistency of the entire transaction is ensured. […] NeoX makes it possible for cross-chain smart contracts where a smart contract can perform different parts on multiple chains either succeeding or reverting as a whole.”
In other words, NeoX is going to bridge consortium blockchains, private blockchains, and other compatible public blockchains with NEO – thus allowing integration and interaction between trusted and trustless (or permissioned and permissionless) environments.
NeoFS is a file storage protocol based on a technology called DHT (Distributed Hash Table). It indexes a piece of data by hashing its content, rather than its file path (URI). Files that are too big to be stored on a single node will firstly be divided into blocks of fixed size, that will then be scattered across different nodes.
NeoFS will enable for smart contracts to store files on the blockchain and access them in accordance with their permissions when needed. Furthermore, it will be used along with digital identities so that digital certificates can be assigned, sent and revoked without the need of a central managing server.
Many cryptocurrencies, Ethereum and Bitcoin among others, utilize either RSA or ECC cryptosystems to secure data transmission. In such systems, the encryption is based on the difficulty of a so-called “factoring problem”, which is a problem of factorization of the product of two large prime numbers.
Without getting too technical, here’s why this is important:
“Whereas common digital computing requires that the data be encoded into binary digits (bits), quantum computing uses quantum bits, which can be in superpositions of states. […] Large scale quantum computers would theoretically be able to solve certain problems much more quickly than any classical computers […], like integer factorization using Shor’s algorithm.”
Back in 1994 Peter Shor, a professor of applied mathematics at MIT, showed that a quantum computer would be able to solve the “factoring problem” in polynomial time, thus breaking RSA. This means that all cryptocurrencies that utilize RSA and ECC are potentially at risk with the advent of quantum computers. However, the SVP (Shortest Vector Problem) and CVP (Closest Vector Problems) are two problems that quantum computing cannot solve at the moment. This is where NEO has the upper hand.
NeoQS (Quantum Safe) is a lattice-based cryptographic mechanism, which appears to be resistant to attacks by quantum computers. Even though the development of actual quantum computers is still in its infancy, both theoretical and practical research is in the process — and NeoQS is the response that the NEO team came up with to solve the potential problem of securing data when the time comes.
All in all, it’s safe to say that the future of NEO is bright, and technologies like NeoX, NeoFS and NeoQS are sure to become the building blocks of an intelligent digital economy.