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The Ethereum Challengers, ep. 4: NEO (NEO + GAS)

PAX Trading > ICOs > The Ethereum Challengers, ep. 4: NEO (NEO + GAS)

So far, the Ethereum Challengers series has covered:

In these posts, we’ve introduced smart contracts, Turing completeness, Byzantine Fault Tolerance, and more.

The future still holds posts on NEM, Qtum, Ethereum Classic, Lisk, Stratis, Counterparty, Waves, and Komodo, plus a post on Ethereum itself. Follow the series to hear about these projects over the coming weeks.

Today, it’s time for NEO.

But before we look at NEO specifically, we should consider China. The country is relevant to our discussion in at least two ways: first, its massive market size, and second, the philosophy of the Chinese government.

A Kingdom of Its Own

I guess learning about China might be analogous to taking the Red pill.

Projects in China are a special case, and not only in the cryptocurrency and blockchain space.

Let’s take social media as an example.

In the United States, most people recognize Facebook as the king of social media, despite gains among younger users made by Snapchat and Instagram — which is in fact owned by Facebook.

In China, Facebook sees almost zero use.

This is in great part because of censorship of Facebook. But it additionally reflects a tendency that is stronger in China than in any other country in the world: the tendency for products from a given country to be more popular in that country.

Chinese projects, on the whole, do better in China than foreign projects.

And when China has 1.4 billion people, any product that captures China has already captured a massive segment of the world population.

Here blue items represent users of Facebook products. Red items are users of Tencent products.

The domination of Tencent social media products in China, including QQ and WeChat, gives them a strong foothold against Facebook products on the global scale, due to the massive size of the Chinese market.

Another example is Alibaba vs. Amazon.

Alibaba’s e-shopping revenue — including its retail site Taobao — has often exceeded Amazon’s as China’s e-commerce boom accelerates. Even though approximately half of China’s population still does not use the Internet.

Chinese companies simply do better in China. Much better.

In my days working as a video game localization specialist, I attended ChinaJoy, a massive video game convention located outside of Shanghai.

One of the strongest impressions I had from the experience was how much of the IP I didn’t know. I was a professional in the video game space, but the characters, series, stories, and even common tropes saturating popular genres were foreign to me as a Westerner.

I recognize every Cosplayer’s character at GenCon. I recognize almost none at ChinaJoy.

My task there was to sell localization, and it was admittedly difficult. China was the most profitable gaming market in the world, so many Chinese developers did not even want to bother with exporting their games to the rest of the world.

China is enough of a market on its own. It has 1.4 billion people.

When it comes to products, including cryptocurrencies, anything that gains popularity in China will be among the world’s most significant products, whether it steps outside of China or not.

The Chinese Government and Blockchain

There’s something else to consider before looking specifically at NEO.

The Chinese government is authoritarian. This has two clear relevant effects:

  • On one hand, the structure of the Chinese government means that they could move on blockchain technology quickly.
  • On the other, anonymous or pseudo-anonymous commerce and applications are not exactly a favorite of the government of China. The government will prefer solutions they can regulate.

Any smart contract and decentralized application platform hoping to thrive in China with the blessing of Chinese government and business officials will need a robust, compliant identity system. China will likely be eager to embrace a smart economy quickly, but it will need to be a compliant one.

That’s what NEO is about — speed and compliance. The NEO Smart Economy is putting together the pieces of their vision of China’s ideal blockchain platform.

Let me show you how deep the rabbit-hole goes.

Ethereum Challenger #4: NEO (tokens: NEO and GAS)

Formerly AntShares — before its rebranding and successive immense pump in the summer of 2017 — NEO is China’s largest entity in the race for a smart asset platform.

Calling NEO an Ethereum challenger may not be quite right, as NEO’s goals are a bit more specific. I owe the start of my journey into NEO’s broader ecosystem to this article (←this link is a bit of a shill, but it was a good launch-off point on the components of the NEO ecosystem).

NEO aims to build a compliant, fully-featured smart economy in China and beyond.

Smart Economy: An economy where physical and digital goods both are digitally traded and tracked using smart contracts, which enforce the rules of transactions and reduce or eliminate the need for trust by parties in the transactions.

Although trustless in nature, the NEO smart economy will also rely on smart digital identity, as parties still generally like to know with whom they are trading, and compliance with government regulation sometimes requires it.

Digitized assets, digitized identity, digitized life. See? No tangible resemblance to the Matrix.

NEO’s Consensus Model

We talked in general about Proof of Stake and Byzantine Fault Tolerance in episode 2 (EOS). EOS’s variant on PoS was “delegated,” hence DPoS. NEO likewise calls its consensus mechanism “delegated Byzantine fault tolerance,” or dBFT. If you want more details, the particulars of the NEO consensus model are described explained here on the NEO website.

What happens if one of the “Byzantine generals” is dishonest? Read the quick official explanation of the NEO dBFT algorithm here.

NEO’s dBFT network is currently more centralized than a number of other solutions.

However, it is being progressively decentralized as the NEO Council controls fewer and fewer NEO nodes, often called bookkeepers, from whom the “speaker” and “delegate” consensus nodes are elected. Beginning in December 2017, we saw a number of new bookkeeping nodes set up by City of Zion and other groups around the world.

Over 2018, I expect we will see the NEO Council’s control of the network to drop under 50%. As of this writing, it has ostensibly dropped under 66%, an important number as 66% of bookkeepers must validate each transaction in order to achieve finality.

Not my Matrix reference. It’s Ledger’s.

An Intentional Smart Economy

Unlike more freeform platforms that are designed to enable developers to build whatever they want, NEO plans to craft a complete smart economywhere real assets are converted to smart assets linked by smart contracts.

Click to Tweet:
“$NEO plans to craft a complete smart economy where real assets are converted to smart assets linked by #smartcontracts”

If I needed to sum up NEO’s philosophy in one word as opposed to Ethereum’s, I would say that NEO is intentional.

Ethereum is building a platform for smart contracts and decentralized applications.

NEO is constructing a whole economy where assets can be held digitally — cars, condos, companies, commodities, collectible cards — and transacted with in a transparent way secured by smart contracts and associated with compliant digital identities.

Public and private business blockchains, an asset exchange, and interoperability solutions will all be linked together in a supereconomy.

Ethereum will include solutions for this kind of economy with a number of third-party products on its network. But what degree of regulatory compliance Ethereum products will offer is still up in the air.

China doesn’t do “up in the air,” and NEO knows that, so the NEO Foundation is intentionally building a compliant smart economy right from the beginning.

These compliance plans include uniform identity solutions for the entire ecosystem.

We’ve had our eye on you for some time now, Mr. Anderson.

NEO currently includes a compliant digital identity solution using the PKI (Public Key Infrastructure) X.509 standard.

But this compliant identity solution does not mean NEO won’t also work for countries with “clean slate” legislation.

Identity solutions such as GDPR-compliant PikcioChain have received significant investment and support from the NEO Council, so we will likely see a wealth of privacy features available to developers in the future of NEO’s identity system.

This despite PikcioChain’s use of that unhelpful “nodes” template background featured on almost every ICO website.

GDPR (General Data Protection Regulation): European privacy regulations scheduled to take effect on May 25, 2018. There are a number of GDPR provisions, but the most relevant to blockchain industry is “right to deletion,” or “right to be forgotten,” which maintains that businesses must allow users the ability to have all of their data deleted.

How and whether major blockchains will enable businesses to comply with this regulation remains to be seen, but some solutions such as PikcioChain already offer GDPR compliance.

OnChain, Ontology, and NEO Privacy for Business

Yet even with NEO’s strong emphasis on compliance and identity, there are a variety of situations in which privacy is essential.

NEO is offering solutions for businesses needing privacy via its partnership with OnChain, a significant piece of the NEO Smart Economy. Founded by Da HongFei and Erik Zhang, who founded NEO, OnChain works with governments and businesses to create public and private blockchains that connect to the NEO ecosystem using OnChain’s Decentralised Network Architecture (DNA).

OnChain is a member of Hyperledger and a partner with Microsoft China — particularly with Legal Chain — and recently airdropped its Ontology token to NEO holders. Followers of the NEO economy will want to keep a close eye on OnChain’s activities.

Other Components

NEOX will provide interoperability between NEO’s public and private blockchains.

The NEX exchange trades between NEO and other tokens on the NEO blockchain.

Note that Ethereum also has a number of equivalent partners in the broader Ethereum economy.

TokenHub is similar to NEO’s ProjectICO, the Enterprise Ethereum Alliance has a mission much like OnChain’s, and of course NEO is not the only platform with an exchange running on it: multiple exchanges run on Ethereum.

But NEO’s methodology, again, is more intentional. Rather than just letting the ecosystem grow, the NEO Foundation is building it. And the Chinese government is certainly in favor of intentionality.

Red Shill, Blue Shill

OK, seriously, this needs to be the last Matrix reference.

The NEO ecosystem runs on two tokens: NEO and GAS.


NEO is an indivisible unit that represents stake in the NEO ecosystem. It represents partial ownership of the NEO ecosystem. Holders of NEO can vote for bookkeepers, the delegates in the NEO ecosystem who validate transactions and build the blockchain.


GAS is the token which “powers” the NEO Smart Economy. On many other networks, such as Ethereum, the main currency — in ETH’s case, ether — alsoserves as gas. Whenever companies register or modify assets on the NEO blockchain, the GAS costs to do so are distributed to NEO holders.

Accumulating GAS requires no special action on the NEO holder’s part. Even NEO held in cold storage accumulates GAS, which only needs to be collected via a wallet such as NEON Wallet in order to be used.

Forking and Finality

In traditional blockchains like Bitcoin, confidence in the blockchain grows as more blocks are added to the chain, in front of the chain in question, decreasing the likelihood that some other chain will overtake the chain and become the new longest chain — and thus the chain accepted by the network. Ethereum is similar.

This is why cryptocurrency exchanges wait for confirmation (expressed as anumber of blocks) to make your digital currencies available for trading when you send them.

In both protocols, accidental forks happen continually and must be continually resolved, reducing confidence in transactions for a short time. Ethereum does this quite well using the GHOST protocol, but confidence in transactions still takes some time.

By contrast, the NEO bookkeepers reach a final majority consensus quickly.

No forked chains spring up, as the network knows which blocks have achieved the necessary consensus. Note that EOS also offers rapid finality, and Ethereum’s Casper Proof of Stake, whenever it is implemented, will likely feature finality as well.

Sheer transaction volume isn’t enough to guarantee speed for many types of businesses. Finality is important, too.

After all, financial markets and other rapidly-moving industries cannot operate with a blockchain that only provides a certain level of certainty and which may fork away from any given transaction before “confirmation” is achieved. They need confidence almost immediately.

Censorship Resistance

As with other delegated systems, in theory NEO provides weaker censorship resistance than Ethereum.

As it stands today, if a project desires strong sovereign-grade censorship resistance above all else, it should probably look elsewhere. But if a project wants to join a compliant, tightly-connected smart economy with fast performance and finality, NEO may be the blockchain of choice for that project.

NEO as an Ethereum Challenger

I should have taken the blue pill.

Although there are a number of possible futures where NEO and Ethereum coexist as strong projects — just as Alibaba and Amazon, and WeChat andFacebook, are doing well today — many decentralized app projects today face the decision of which platform to run on or focus on. They need to decide between the two, at least for now.

So let’s hit up our seven big questions. I’m not going to introduce them again, as we spent some time on that in episode 1. How does NEO stack up against Ethereum in these areas?

1) Scalability

As with most solutions that currently promise scalability, NEO is not based on a proof-of-work consensus model. (See “governance” for details on this model.)

As a result, blocks are confirmed in 15–20 seconds and the chain can support about 1,000 transactions per second, with optimization plans proposed to scale up to many thousands per second.

NeoVM optimizes smart contracts before running them, which increases their efficiency and scalability.

2) Governance

According to NEO documentation, each holder “of the NEO token can, by voting, pick the bookkeeper it supports. The selected group of bookkeepers, through BFT algorithm, reach a consensus and generate new blocks. Voting in the NEO network continues in real time, rather than in accordance with a fixed term.”

This variant of the DPoS system claims “good finality” while being “resistant to general and Byzantine failures.”

Digital identity technology is bound to the dBFT algorithm, so bookkeepers can be identified as real individuals or institutions, meaning that judicial decisions can be executed on them to “freeze, revoke, inherit, retrieve, and ownership transfer.” As mentioned before, NEO aims for a compliant smart economy.

3) Development Complexity

An Ethereum developer working with smart contracts.

NeoContract’s NeoVM runtime is close to Java’s and .NET’s, so Java byte code and .NET MSIL can both be compiled into instructions for NeoVM.

In other words, C# and Java/Kotlin developers can build smart contracts with the languages they know, and can even do so in the IDEs familiar to them, like Visual Studio and Eclipse.

NEO nodes can dynamically fragment smart contracts, and NEO is expanding to allow development in many other languages, as well. Updates and bug fixes can be implemented.

4) Timeline

NEO is live, but scalability improvements will continue to be made over the coming years.

Various components of the NEO Smart Economy — NEOX, NEO identity, DNA, etc. — will continue to be in development for some time, but ICOs launching on NEO seem to have decided the platform is ready for use.

5) Generalized Features

Of all the solutions on this list, NEO probably includes the most generalized features as its intent is to build not just a multi-purpose platform but a smart economy.

  • NeoX provides cross-chain interoperability
  • NeoFS provides distributed storage
  • NeoQS claims to provide anti-quantum cryptography
  • NEX provides a decentralized exchange

In addition, the NEO Smart Economy has the following components in development:

  • identity management
  • smart funds
  • AI-assisted legal smart contracts
  • social networking
  • automated token liquidity provision
  • secure communications
  • intellectual property trading
  • prediction, advertising, and hashpower markets

6) Adoptability

Transaction fees are still a question with NEO, but companies at least will likely pay them.

However, thanks to the division of NEO and GAS, bookkeepers are incentivized to keep transaction fees low.

Other “grandma-friendly” considerations I’ve seen in other projects are still unavailable in NEO. However, the NEON Desktop Wallet does offer several interesting conveniences, including functionality for:

  • direct integration with Ledger wallets,
  • collecting GAS, and
  • purchasing and tracking NEP-5 ICO tokens directly in the wallet.

7) Market Position

Ever since its summer 2017 rebrand, NEO has had a significant following. NEO’s strong brand, connections with Chinese government and corporate persons, growing ICO activity, communities like City of Zion, and ambitious plans for integrating businesses with OnChain’s DNA together boost NEO’s chances for successfully creating the Smart Economy they intend.

As far as funding goes, the NEO Foundation has 35,000,000 NEO which they can unlock for development purposes in the future. Out of the 100,000,000 total supply, 50,000,000 were transparently reserved for NEO’s use for development, and 15,000,000 of those 50,000,000 were unlocked in Fall 2017.

This means that the NEO Foundation, barring extreme events, already has plenty of funding for the sustained development of the NEO Smart Economy for years to come.

Will NEO dominate the dApp/smart contract space in China?

And will it expand out of China and give Ethereum a run for its money, even on the latter’s home turf?

I don’t know, but I expect to see a continual stream of activity from NEO over this year and the next. I will be keeping a close eye on the project.

Thanks for reading. Check back next month for the New Economy Movement (NEM), another top platform focused on smart assets.

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