Here’s a controversial opinion: the bear market of 2018 was absolutely necessary for cryptocurrencies and blockchain technology. It was inevitable too, although it’s easy to forget that when the rollercoaster is going up. Blockchain isn’t some special unicorn. It’s an emerging technology, and so it goes through the same hype cycle as any other emerging technology. We were at the peak of inflated expectations in January 2018 before crashing down into the trough of disillusionment for the rest of the year.
And it’s not nice crashing down. Many investors lost nearly all their money, people lost hope, and thousands of blockchain projects disappeared. Most people looking to make a quick buck lost interest in blockchain technology. But life returned back to normal and the Sun still rises in the East. Today, we’re on the slope of enlightenment, where hype has been replaced with pragmatism. Only the best (or at least the best-funded) projects are left standing. It’s a more sustainable environment without all the noise of the 2017 bull market.
Of all blockchain projects left standing, NEO is arguably the one (no pun intended) that’s gone hardest through this hype cycle. This is nicely reflected in the price of its eponymous cryptocurrency NEO, which went from a price of $0.15 per token in January 2017 to an eye-watering all-time-high of $163 in January 2018, back down to what is $9.16 today.
But the price isn’t the interesting part of this story. What’s interesting about NEO is that it’s still alive and kicking, despite many people assuming the project to be dead. In fact, NEO might return to the spotlights over the next year, a Renaissance of sorts. We’ll talk about why later in the article, but let’s take a step back and explain what NEO is first.
What is NEO?
NEO’s tagline is “an open network for a smart economy.” It’s an open-source blockchain network with three big use cases: to digitize assets, to automate the management of those assets through smart contracts, and to establish digital identities. Let’s explain each use case separately.
To digitize assets: currently, there’s still quite a strong separation between what’s physical and what’s digital. But the trend is that this boundary between both will disappear. Eventually, what exists physically will also exist digitally. Every physical asset will have a digital replica, something called a digital twin, or will at least have something digital attached to it that will amplify or explain the use of the physical asset.
NEO allows you to create a digital attachment or replica for your physical asset. In this Reddit thread, one user explains it with a diamond mine. Imagine that each separate diamond exists as a digital asset on the NEO blockchain. You can look up the diamond online, see the path it’s gone through from the mine all the way to a retail store, and see all the crypto addresses that have owned the diamond up until now.
This opens up a wide variety of new use cases. For example, it would become easier to understand which goods are counterfeit and which aren’t, because you can look up their trajectory on the blockchain (and if a physical asset doesn’t have a digital asset, that’s a reason for suspicion too). It would also become easier for retailers to stop buying blood diamonds or for anyone to stop buying anything that comes to you through corruption or any other shady kind of activity.
To automate the management of digital assets through smart contracts: the current way to transfer tokens is broken. As it stands, any sender can send whatever they want to a receiver without the receiver’s consent. While this is reasonably okay for money (although, would you want to be sent $1 million without knowing who it’s from and why it was sent to you?), it’s not okay for assets like stocks, property rights, bonds, or anything that has a bit more heft attached to it legally.
Transferring assets on NEO requires the digital signatures with the private keys of both the sender and the receiver. It’s an on-chain solution for the transfer of offchain assets. No longer will the receiver be a passive participant in the process. The transfer itself is conducted on a NEO smart contract. The NEO smart contract system, called NeoContract, is quite good when compared to Ethereum.
To establish digital identities: similar to digital assets, digital identities are the digital equivalent of a physical agent. This can be a person, an organization, a smart car, a connected fridge, etc… A digital identity allows this agent to share key information to requesting parties.
Your credit rating is a prime example: no longer will banks check whether you’re eligible for a mortgage by going through all the databases they have access to, so they can gain a reasonably accurate picture of your financial situation. Instead, your credit rating will be embedded in your digital identity, and you’ll be able to securely share just your credit rating with the bank. You retain control over information that’s pertinent to you, instead of relying on unknown databases that you have no control over.
None of this is theoretical. Here’s a list of DApps built on NEO that implement all three use cases. You’ll notice that many of these are business-oriented: Moonlight is a distributed workforce and analytical project management platform. Red Pulse Tokens are tokens from a research firm that covers market events that impact Chinese companies. AdEx is a decentralized exchange that allows users to control the ads delivered to them online.
Other NEO use cases are:
- Commodity exchanges and FX trading
- Peer-to-peer financing
- Supply chain financing
How does NEO Differ From Ethereum?
After all, that’s the big question. Why should a developer go for NEO, ultimately still a less popular DApp platform, when they can develop on Ethereum, where they’re likely to have higher liquidity for their token and more exposure?
First of all, as already mentioned above, the fact that you don’t need to learn Solidity to create smart contracts, but can create smart contracts in any popular programming language is a big plus. Although Solidity has been out for over four years now, there’s no denying it’s still a hurdle that developers have to cross if they want to build on Ethereum. With NEO, they don’t need to.
Secondly, NEO is a Chinese blockchain project. You could be inclined to think this is a disadvantage, considering China is very strict on cryptocurrencies and quick to regulate or downright ban them, but it has forced NEO to comply with regulations where other blockchain projects don’t. As such, NEO could be the only blockchain platform that governments are more comfortable working with, because it fits better in their regulatory frameworks.
Thirdly, NEO has its own consensus mechanism that allows for thousands of transactions per second (TPS), over Ethereum’s limited 15 TPS. More specifically, NEO runs on a delegated Byzantine Fault Tolerance (dBFT) consensus mechanism that allows for better scaling and better performance.
The Byzantine General’s Problem is a typical problem in distributed computing. Imagine you have six separate armies of Turkish generals surrounding the city of Constantinople. They want to take over the city, but they all need to attack at the same time in order to claim the city. So they need to communicate between themselves when they’ll attack.
This poses a number of problems. There could be traitor generals that don’t attack when they should, generals that haven’t understood the order and retreat instead of attack, bribed couriers that deliver a false message, couriers that fail to deliver a message, and so on… On a distributed network such as a blockchain, we face exactly the same problems. How can distributed nodes come to a consensus when they receive info at different times and in different states?
The solution is best explained with another analogy: think of a watch that runs ever so slightly behind. Every once in a while, when you notice it’s running behind too much, what do you do? You find a reference point that gives you the accurate time and you reset your watch according to the reference point.
A BFT protocol has a small number of pre-designated, trusted nodes that other nodes use as a reference point, to set their watch to, if you will. NEO’s dBFT has nodes, delegates that approve blocks, called bookkeeping nodes, and a speaker that proposes the next block. Its consensus algorithm has perfect finality, which means that all transactions are 100 percent final after the first confirmation of the bookkeeping nodes. There’s no possible transaction reversal, which is part of the reason why the NEO blockchain allows for a much higher TPS than Ethereum.
And finally, NEO has a dual currency system whereas Ethereum doesn’t. NEO has both NEO, which we talked about at the beginning of this article, and GAS as cryptocurrencies that run on its blockchain. NEO has a hard cap of 100 million tokens and cannot be subdivided into decimal units. In fact, NEO isn’t considered a digital currency.
Instead, think of it as a share that gives you the right to vote for bookkeeping nodes, the right to dividends in the form of GAS, and the right to vote over major issues in the NEO blockchain. GAS, meanwhile, is how you pay your fees and service charges and also what you use as collateral to become a bookkeeper nominee.
Can You Game On NEO?
So far, we’ve not spoken about gaming. But you are visiting DGaming.com, so why are we featuring NEO? Well, just like any other DApp platform, NEO can be used to build games on top of. But it doesn’t quite feel right to say “on top of”, because that’s not coherent with NEO’s vision of a smart economy.
The ethos of NEO is to have a platform where the things that live inside of it are interconnected. It’s not a blockchain where each DApp is a silo completely separate from everything else. It’s an ecosystem where things can easily interact with one another. As such, the “killer DApp” might not be a single DApp, but might be an interconnected ecosystem instead, full of games linked with each other.
On the 9th and 10th of March this year, NEO held its first NEO GameCon in Tokyo, an event with over 1,500 attendees purely focused on games built on the NEO blockchain. There, NEO’s CEO Da Honfei talked about the importance of gaming for any blockchain, as well as the importance of mobile in gaming.
During the event, NEO developers presented a new racing game built on the NEO blockchain: CryptoFast. You build your own cars, pimp them up if you like, and race against other players. Typical for any blockchain game, you fully own the cars you build and can sell them to other players. Interestingly, the game also allows companies to place billboard ads next to the racing tracks in return for sponsoring the game.
During NEO’s 2019 DevCon event, which was held in Seattle on February 16th, Hongfei said that he wants NEO to be the #1 blockchain platform by 2020. They’re planning a whole host of technical improvements for the next iteration of NEO, called NEO 3.0.
But what I like most about NEO is the pragmatism of the team behind it. Hongfei has said on numerous occasions that blockchain technology isn’t mature yet. The technology still has a long way to go before people will consider replacing it with what they currently have. As such, they have no other options but to keep on iteratively improving their blockchain until it provides genuine solutions to the problems of centralized systems.
To me, this kind of heads-down, dig-in mentality makes them sound like a project well on their way out of the trough of disillusionment and onto the slope of enlightenment. Don’t underestimate NEO. The project is here to stay.