NEO project purpose and description
What is NEO?
Neo is a blockchain project that is playing a key role in transitioning the world to a smart economy through the use of disruptive technology. Its infrastructure is an open source network that allows for the digitalization of physical assets and the creation and execution of smart contracts to manage these assets on the blockchain.
It has attracted the name of “China’s Ethereum” due to the striking similarities it has to the number one altcoin. China as a nation has imposed strict regulations surrounding cryptocurrencies, but it appears to have taken a divergent turn to throw its weight behind NEO. Up until June 2017, NEO was referred to as Antshares.
The switch to the name NEO was a milestone event that served as a tool to give NEO a global look, NEO means novelle or new. As of July 2018, the total market cap of NEO was at $ 2.537B, placing it at position 12. The current price of the coin is at $39.02, a significant drop from $160 at the peak of the bull market in January of 2018.
NEO uses blockchain technology to identify, digitize and self-manage digital assets within a distributed network with the aim of achieving a smart economy. Using the multifunctional NEO blockchain, users can register, identify and trade digital assets.
When it comes to governance, NEO utilizes both on chain and off chain methods. In the former, token holders manage the network while in the later the NEO council consisting of the founders of NEO control the system.
What’s striking about NEO is that it has two native tokens, NEO and NeoGas both of which have a total of 100 million tokens each. While NEO tokens represent ownership of shares in the blockchain, Gas is the currency used to power the NEO blockchain. When users hold NEO in their wallets they are able to passively earn Gas as a reward. NEO units are indivisible, the smallest unit being 1, Gas, on the other hand, can be split up to fractions.
NEO represents two types of digital assets: global and contract assets. Global assets are publicly visible to all users while contract assets are private and only accessible to compatible clients.
Another key component of NEO is digital identity based on the public key infrastructure (X509) which is an international agreed upon standard for digital identification.
The digital identification is secured on the blockchain and will be instrumental in ensuring regulatory compliance- KYC/AML. This will also make it possible to transact high value tangible assets such as real estate on the NEO blockchain when digital identities are created and executed.
NEO also features smart contract functionality through the NEOVM. This is similar to smart contract functionality on the ethereum network. NEO is however able to accomodate more developers because it allows for the use of many programming languages such as Java and C++ in the familiar IDE environments. The NEO virtual machine allows for scalability on the blockchain. This will allow developers to create and run many applications on the network in an efficient manner.
The ecosystem comprises of three major components: smart contracts, digital identification and decentralized applications.
Unlike ethereum and bitcoin blockchains, NEO uses a unique and superior verification system- the delegated Byzantine Fault Tolerant (dBFT) algorithm which builds consensus through proxy voting.
You can envision this as many nodes selecting representative nodes (bookkeepers) through a voting process, the selected nodes are then responsible for validating transactions. With fewer nodes taking part in the validation, the process becomes very efficient and hence the network works at an amzing fast speed, theoretically at least. The dBFT also creates security in the system, once transactions are validated they cannot be revoked. More of this is discussed later.
NEO is a project set to make the dream of a smart economy a possibility. Other than creating a platform for smart contracts and decentralised applications, it is also a platform for the implementation of ICOs.
What is the problem that NEO Solves?
- Scalability issues
Massive scalability on the blockchain is still an elusive goal. This is because most blockchains are not able to practically operate at their theoretical capacities and fall way below.
With slow transaction speeds come high processing fees for users. For example, the Bitcoin blockchain should be able to handle 7 transactions per second, however, it only manages half this figure. Compounded to an hour the difference is massive. The same applies to ethereum which is supposed to be able to handle 30 transactions per second but only manages to handle 15.
The problem arises due to decentralization where all nodes in the system are required to validate transactions before they are confirmed.
- Limited programming languages
Developers have to work very hard to adapt to the new technology and be able to write codes on it. The challenge in this space has been a limit in the variety of programming languages on the ethereum blockchain- being restricted to Solidity which is relatively new to most programmers. This makes the learning curve very steep and discouraging.
As a result, project development is slowed down and ends up becoming very costly. This beats the whole sense of establishing efficiency and cost management using blockchain technology. A tenable solution to make the process simpler for developers would reduce costs significantly.
- Issues with anonymity
Blockchain technology is synonymous with anonymity, but anonymity is not good all the time. As more and more mainstream institutions and “sensitive” industries adopt blockchain technology, there will be an increasing need for the creation of verifiable digital identities.
In order to have widespread adoption, blockchain technology will have to create systems for digital identification to allow for regulatory compliance and also allow for judicial intervention in processes when the need arises. All dealings with governments will require some form of digital identification of persons or assets involved.
- Poor security and finality issues
The blockchain space has not been short of security issues which have led to major failures in the networks and spam attacks. This is very unfortunate considering that security is one of the selling points of the technology. In a proof of work model, availability is prioritized above and beyond the finality of transactions. This is what has led to the forking seen in bitcoin and ethereum when developers have a disagreement over a certain standard the result is a split. This means that once a transaction is completed users cannot rest on their laurels as the decision is not 100%final. This poses a serious threat for transactions such as in the stock exchange.
- Limited cross chain interoperability
As more and more industries adopt blockchain technology, the question of vertical integration sticks out as a sore thumb. There is an ever increasing need for connectivity between different blockchains especially as more industries such as real estate, health and financial institutions come on board. Cross chain interoperability will allow public and private blockchains to interact and share vital information that will facilitate transactions across both networks.
How does NEO Solve these problems?
NEO uses the Delegated Byzantine Fault Tolerant system to validate transactions. This means that participating nodes in the system vote for bookkeepers who participate in the validation process.
Theoretically speaking, this allows the NEO blockchain to be able to operate at a speed of 10,000 tps or 1,000 tps practically. This is still significantly higher than what bitcoin and ethereum blockchains manage. Following the NEO DevCon that took place in San Francisco, NEO will soon roll out a state channel that will allow for off chain transaction processing using smart contracts.
The off chain channels will only need to upload the end result of the transactions to the block, making the process of validation much faster.If the plan materializes, NEO will be able to process 100,000 transactions per second and this will have solved the blockchain speed limitation with finality and allow for large-scale commercial applications.
Multi language programming
Ethereum and NEO are both platforms that allow developers to create decentralised applications and smart contracts. Ethereum is the most known of in the space with numerous Dapps developed on it, however, it uses a relatively unfamiliar coding language that is not popular with many developers – Solidity.
NEO has simplified this process for developers by allowing them to code in the most basic of languages such as Java and C++.
Creation of digital identities
In order to create a fully compliant smart economy, regulatory compliance is a necessary evil. Bookkeepers in the NEO network will be required to have verifiable digital identities.
As much as other blockchains have digital identity as an option, NEO has made this a priority and a key component of their blockchain model. This should give government agencies and large institutions the confidence to use the NEO blockchain or interact with entities that are using it.
“Digital Assets + Digital Identity+ Smart Contracts = Smart Economy”
NEO complies with X509 which is an internationally agreed upon standard for creating digital identities. Digital identity makes it possible to link physical assets to digital assets in an agreement that is protected by law. In case of violation, judicial action can be taken.
Digital identities have become increasingly important in providing proof of ownership for trading tangible assets on the blockchain. They are also vital in instituting regulatory compliance and registering financial assets. NEO opens the door for governments and other mainstream institutions to rethink large scale blockchain adoption.
Optimized security and finality of transactions
The dBFT is a fault tolerant system which ensures security and finality of transactions. The fault tolerance makes it immune to general or byzantine failures. Security is paramount if blockchain technology is to experience mainstream adoption.
You want to be sure that transactions once made are final and irrevocable. NEO blockchain cannot fork because of the finality of transactions. Each transaction before being added a block has to be validated as authentic by two thirds of the bookkeeper nodes. Once this is done, the transactions become irrevocable and the block cannot be bifurcated.
NEO also has Anti-quantum cryptography mechanism (NeoQS) which theoretically makes it quantum computer resistant. In the future should quantum computer be an issue, NEO will be equipped to handle this risk.
Cross chain interoperability
Interactions across blockchains without having to exchange coins or tokens on an exchange is a vital necessity if the technology is to realize its full impact. Neo X is a protocol that executes cross chain interoperability on the NEO platform. Interoperability will tackle scalability issues and congestion which results in reduced efficiencies. It will also provide a bridge between public and private blockchains.
Neo X is divided into cross-chain assets exchange protocol and cross-chain distributed transaction protocol. Essentially, NeoX allows for the merging of atomic swaps and smart contracts. This means that users on two different blockchains can trade instantly and securely on this platform.
What makes NEO better than its competitors?
NEO’s main competitor in the blockchain space is ethereum, hence the coined name “the ethereum of China.”
Having been developed later, NEO has some superior features to ethereum. This is a summary:
- While ethereum uses primarily one programming language- Solidity, NEO uses quite a number including simple languages such as Java and C++. this makes it very easy for developers to work on the NEO platform as compared to the ethereum platform.
- Ethereum has one native token that fuels its platform- ether, while NEO has two native tokes; NEO and Gas. Users on the platform are rewarded with Gas when they hold NEO which represents shares in the blockchain. This allows NEO users to earn passively just by holding NEO.
- Through Neo X, the NEO blockchain has interoperability functions which means it can allow for transactions across different blockchains. Ethereum does not have this capability.
- While ethereum uses the proof of stake algorithm for validating transactions, NEO uses the delegate byzantine fault tolerant system (dBFT). This allows NEO to be able to process transactions much faster than ethereum giving NEO scalability options and finality of transactions. The dBFT offers security to the NEO blockchain as explained above.
- The ethereum blockchain has no finality of transactions hence it can fork out. The NEO blockchain can never fork out because transactions must be validated by 66% of nodes and once added to the block they cannot be revoked. In ethereum when there are divergent opinions the chain will split/ fork out.
How can NEO be categorized?
Neo is a blockchain platform for the development and execution of decentralised applications, smart contracts and is also a platform for token issuance (ICOs).
It is a second generation blockchain platform that may soon evolve to third generation if it can tackle the issue of scalability successfully. It is also a promising cryptocurrency.
NEO and Security?
The delegated Byzantine Fault Tolerant (dBFT) is instrumental in boosting the security of the NEO blockchain. The algorithm prevents forking out of the blockchain and ensures finality of every transaction.
As mentioned above, the anti-quantum mechanics (NeoQS) makes the network quantum computer resistant.
Examples of NEO’s use cases / applications.
We can break this down into four:
- Creation of digital assets
Given the security features on the NEO blockchain, it is a suitable platform for creating digital assets that can be stored or traded on the blockchain. Physical assets such as land can be converted to digital assets for easy tracking of ownership and making transfers with maximum efficiency.
- Creation of digital identities
For high-value assets to be traded on the NEO blockchain, digital identification will be a necessary step that will allow for regulatory compliance. NEO will use facial features, voice, SMS, fingerprints and other multi factor methods for digital identification records. Once this is securely established, NEO blockchain will be used in the registration of compliant financial assets, transfer of ownership and generally transition to a smart economy.
- Creation of smart contracts
NEO allows developers to create smart contracts on its platform using basic programming languages. It uses a universal lightweight virtual machine (NeoVM) which offers advantages such as high scalability, high concurrency, and ease of use.
NEO offers unique opportunities for the development of decentralized applications on its platform. The city of Zion is an independent group of open source developers and designers that support the Neo blockchain ecosystem. The team is focused on creating highly optimized Dapps such as artificial intelligence, legal smart contracts, decentralized exchanges and much more.
NEO has managed to form strategic partnerships (through Onchain) with Microsoft China, Alibaba group, Hyperledger and the Chinese regional government among others. However, looking at the current bearish market, NEO’s value has definitely plummeted with the rest. But given the unique solutions it presents to the space, the adaptability of their technology and the dedicated team behind it , it okay for NEO enthusiasts to remain hopeful amidst the tough times.