What we're doing here is not considering the NEO coin or giving any financial bits of advice. We're an independent software development company and we're analyzing NEO blockchain from the technical and business perspectives only.
It's not the answer to the popular question "How do I get rich with NEO ASAP?" that we're aiming to give here. It's a comprehensive analysis of the NEO platform that we're conducting. The question "Does NEO make sense to my long-term, real, and non-scum business?" is the one we're answering.
Not a disclaimer, just a note.
What is NEO and why'd you care about it?
Put it shortly, NEO is the blockchain project considered an alternative to Ethereum in terms of quite simply everything. It's even colloquially known as Ethereum of China because the two are so similar and because, yes, the NEO platform was born in the People's Republic.
As one of a number of blockchain platforms that rely on the coins both fueling the operation and rewarding the consensus-fulfilling participants (nodes), NEO is designed to be a versatile framework suitable for the development of all sorts of the blockchain software.
However, unlike the good part of the overwhelmingly versatile Chinese products offered now, NEO doesn't have the real right owners located somewhere far from China. Nor it has the issues with the quality. In fact, the NEO blockchain now is by mile more advanced than that of Ethereum. It is, essentially, one of the most progressive blockchain networks to date.
It's quick, it's green (and we're not talking about the logo), it's coder-friendly, it's secure, it's versatile - in short NEO makes sense not because it's cheap or something. It's just a properly made product that has its own unique features.
That is to say that if the present or the future of your business has at least something in common with the blockchain, NEO naturally attracts attention.
Why is everyone obsessed with Ethereum and nobody seems to be interested in NEO?
It's true that the NEO blockchain is not particularly popular. While Ethereum is now run in the thousands of projects, ranging from the enterprise permissioned blockchain systems to the initial coin offerings, you can count the number of NEO use cases with your fingers. Even Hyperledger frameworks, most of which are too fresh and too narrowly focused, appear to be more demanded blockchain raising tools than NEO with its refined architecture and superb design.
Something has to be wrong with it. And you're about to learn what exactly.
For that, let's have a closer look at NEO.
As said above, NEO is more technologically sophisticated than Ethereum. This is particularly impressive given the fact that NEO was released in February 2014 - over a year before Vitalik Buterin made his move with the Ethereum network.
Originally named AntShares, NEO underwent its Keanu Reeves-honoring rebranding in June 2017. Then, the multi-million marketing campaign began. Then, a ton of articles saying that NEO is just an utterly perfect solution for everything appeared. And then, we accumulated enough NEO-related queries to write this article.
Never really different from the rest of the blockchain targeting pack in its world-changing ambitions, NEO initially chose a distinctive path of their accomplishments. This strategy can be best expressed with the phrase "Be a solution to the governments instead of being a problem". It doesn't sound cool and it definitely lacks the rebellious flavor that blockchain enthusiasts so much like. What this phrase is not lacking is common sense.
Reasonably seeing the blockchain technology-based smart economy as the total of digital assets, digital identity, and smart contracts, NEO focuses a vast amount of its resources on adding such capabilities to the toolbox.
That's because NEO understands that governments won't let anybody create such an economy on their own and the blockchain will never really change anything unless it's supported by the authorities. They, in turn, are not going to make any steps in that direction until the blockchain starts following the "rules" - collecting, saving, and if demanded, sharing info about the participants and their transactions.
But that's not what makes NEO progressive. Its actual strengths are more of a technical nature.
The main pro of NEO lies in its innovative consensus mechanism. It's the dBFT - the Delegated Byzantine Fault Tolerance. There is no way this term can be explained in simple words, but it can be described through the protocol it relies upon - the modified Proof of Stake (PoS). That word, "modified", keep it in mind for a while.
The ordinary PoS suggests the operation of the system to be managed by those who own a sufficient stake in the network. The only consumables here are the GAS tokens - the reward that the NEO holder obtains for just storing these coins in the wallet. It's in contrast to the Proof of Work consensus mechanisms of Ethereum and Bitcoin requiring the nodes to actually do work - use the powerful hardware and spend energy to solve mathematical puzzles.
The benefits resulting from the PoS are not significant. They're enormous.
10,000 is the theoretical number of transactions that the NEO network can process each second. Compare that to 30 offered by Ethereum and feel the difference. The same story with the electricity consumption and the cost of purchasing the hardware capable of running a node in the first place.
With that, except for providing the obvious monetary value, NEO allows what Ethereum cannot do even in theory - for example, support a SWIFT-like system processing thousands of transactions per second. Besides, it solves one big but commonly missed problem - the scalability.
Ethereum is now working on its own PoS protocol, but don't expect that to appear earlier than Spring 2020.
The other crucial technical difference adding aces to the NEO's deck is the acceptance of a dozen of the commonly-used programming languages.
While Ethereum's smart contracts can be coded in any language for as long as it's Solidity, NEO supports C++, C#, Java, Kotlin, Go, Python, and others. It's possible thanks to the smarter Virtual Machine that, among other things, optimizes the code of smart contracts before their execution.
What that means is that for coding something on NEO, you need just a software developer. Meanwhile, for doing the same with Ethereum, you need an Ethereum software developer. The latter is harder to find and is more expensive to acquire.
Finality & quantum computer protection
These two are also the resultants of the PoS algorithm. In the Ethereum network, nodes are effectively competing with one another by making bets with their computing power. The more powerful node wins and makes the block while taking the reward.
Ethereum allows multiple chains to be created at once and each of them will be a valid chain allowing further mining. With that, the ledger doesn't really look like a chain of blocks - it's more like a tree.
The process of creating a new "branch" is called forking and is considered the major problem of the PoW-based systems. A part of the Ethereum network update process, forks happen constantly and are usually resolved when the chain with the winning amount of the computer power is chosen as a legitimate one.
What these two paragraphs mean is that the seemingly solid transactions, in fact, can be reversed or modified in the Ethereum network if enough computing power is in place. They are not final and they are susceptible to be overrun by the mighty quantum computing, which is likely to be available in a not that distant future.
NEO's PoS, on the other hand, implies no forking and it cannot be cheated by the brutally powerful processors. Whatever happens in the NEO network, it stays there forever.
What could possibly be so wrong with the NEO network?
If the combination of the facts that NEO is from China and is so much concerned about being authorities-friendly looks suspicious to you, you're already close to the answer.
China is a one-party, Communist state whose rulers care about freedom and democracy just as much as they're concerned about the copyright. It's not as totalitarian as the Soviet Union once was, but you still cannot do any successful business there without asking permission first.
And, if what you're doing is big or promising enough, the poster "BIG BROTHER IS WATCHING YOU" would no longer be fun.
Remember that word "modified" emphasized above? Just about time to explain it. The NEO's PoS algorithm is modified in a one particularly interesting way - it handles the entirety of the power to a small group of nodes called the
Communist Party members. Just kidding. They are called Bookkeepers.
Ideally, this works much as any parliamentary system does. Nodes sort of choose their public (known, checked, and certified) representatives and then relax while Bookkeepers do all the work. Such a partition definitely has its pros - the decision-making process gets much faster and the ordinary nodes don't need to spend time and energy directly participating in that process. But the obvious cons are available, too.
How significant they are depends mainly on who and how can become Bookkeepers. Curiously, NEO doesn't tell a lot on the topic
On the Internet, the "How-to-become-a-NEO-Bookkeeper" guides look like this:
- Set up a full NEO node.
- Obtain the identification certificate from the Certificate Authority.
- Be approved by NEO holders.
Everything is fine with the first point - get yourself a computer, pump in some code and you're good to go.
However, in terms of the certification, things get much trickier. The process is more or less described for the Chinese citizens only and it's not clear whether one even in theory can become a Bookkeeper if he or she doesn't speak the Mandarin dialect.
But even if you succeed in this, you've got to be liked by the NEO holders whose vast majority now are the citizens of guess which country. None of these seems particularly democratic, does it? Add in some rumors that the project was initially sponsored by the Chinese government and take a minute thinking.
NEO features nothing of what makes blockchain a disruptive technology today - it is not decentralized, not self-governed, and not independent. It's just a hollow shell of a blockchain filled with red flags, red stars, and George Orwell quotes.
Dealing with NEO effectively means dealing with the Chinese government. You cannot become a validator unless you're from China and have a paper signed by the Chinese authorities.
Hence, whatever one builds on NEO, it will never be under his or her full control and there will always be a possibility to be shut down simply because somebody in the People's Republic thinks that the given business is inappropriate.
Have you ever heard anybody saying: "The communist pseudo-decentralized blockchain controlled by the totalitarian regime? Yes please, I'll take one."? Nor have we.
Does it mean you need to be crazy to run anything on NEO?
Well, not really.
The substantial technical advantages described above are still in place, it's just the association with the communist government and the resultant risks that are repelling. But these may have no effect if you're already conducting business there.
From where we stand, NEO may be reasonable if:
- Your business is from China.
- Your business is already or is going to deal with China.
- You have connections in the Chinese government.
Any of the three imply that you know how to survive in the fairly specific business environment of China and that you're already correspondingly shaping your business. That would defuse NEO, substantially reducing the risks and leaving only the technical goodies on the table.
But if that is not your case, it's better to leave NEO alone. Accepting great risks or redirecting your entire entrepreneurial activity to use albeit advanced but still just a piece of software just not worth it.
Learn more about NEO, blockchain, and business in China with our free webinar.