What is NEO?

NEO, formerly called Antshares, is a platform for creating smart contracts similar to Ethereum. It's often referred to as China's Ethereum, perhaps because it was developed by Shanghai-based fintech firm Onchain, and has partnered with China-based companies like Alibaba.

It also offeres benefits like fast transactions and support for numerous programming languages. This guide will go through what NEO is, how it compares to Ethereum, and what are its competitors.

What coins are built on NEO?

A core feature of NEO is the ability to build other coins on top it through smart contracts (an example of a smart contract might be a coin for buying/selling houses, where the rules for if the payment goes through or not are part of the NEO smart contract). Ethereum-based coins are called 'ERC20 tokens', and NEO-based coins are called 'NEP5 tokens'.

A consideration here is that there are hundreds of popular coins already built on Ethereum; EOS, Tron, OmiseGO and Binance Coin are examples of very popular ones. NEO in comparison only has 10 at the moment, including NEO and Gas. So although it has potential, it needs many new ICOs on its platform before it can compete with Ethereum.

NEO vs Gas

So one thing to be aware of. Back in 2014 when NEO was created, it wasn't called NEO; it was called Antshares. So Antshares and NEO are the same coin, NEO is just the new name. NEO and Gas however are two different coins, both used in the NEO ecosystem and both with a maximum market cap of 100 million coins.

NEO is a pre-mined coin that represents a share in the NEO ecosystem/network. 50 million of these were initially held by the NEO Council, with 15 million being unlocked in late 2017 for "long-term investments which will help NEO grow". The 35 million still held by the NEO Council is not tradable yet, so on many sites you'll see the circulating supply listed as 65 million.

New Gas is distributed to people holding NEO in a NEON wallet, where the more NEO you hold the more Gas you get. The Gas is later consumed by the smart contracts built on NEO (as a fee proportional to the computing power used). Once the 100 million limit is reached for Gas, no new Gas will be created.

NEO vs Ethereum

NEO is often compared to Ethereum, but there are pros/cons of each of these coins. In general Ethereum has plans to fix many of its flaws, so scaling for example will likely be fixed at some point; but right now NEO is ahead in areas like this.

Pros of using NEO:

  • NEO can handle some 1000 transactions per second, and in theory up to 10,000 in the future (Ethereum can only handle 15 per second and has had scaling problems because of this).
  • NEO wouldn't be effected by quantum computers (as Ethereum is current proof-of-work based, it would be susceptible to a 51% attack by a quantum computer, where someone with 51% or more of the mining power could rewrite the Ethereum ledger).
  • Ethereum relies on its own programming language called Solidity (there are also several others, but this is the most popular), whereas NEO smart contracts can be written in popular languages likes C# and Java (so there's less of a learning curve). Neo's founder Da HongFei compares Ethereum to Apple's lightning connector, and Neo to USB-C.
  • NEO aims to be regulatory complient (this is both a pro and con depending on your point of view).

Pros of using Ethereum:

  • Ethereum has a bigger ecosystem.
  • NEO is partly centralised in the short-term.
  • Ethereum has plans to increase its transaction speed (currently it's very slow compared to NEO).
  • There has been at least one occasion where the NEO network froze due to a consensus node disconnecting during the consensus process.
  • NEO aims to be regulatory complient (this is both a pro and con depending on your point of view).

Is NEO proof-of-work or proof-of-stake?

Proof-of-work and proof-of-stake are two different approaches to achieving consensus for a cryptocurrency (e.g. how everyone using the coin agrees on if a transaction is valid or not). Each of these approaches has pros and cons, with coins like Ethereum potentially moving away from proof-of-work as it requires significant amounts of electricity to work at scale.

NEO doesn't use either of these though, it uses a different consensus mechanism called dBFT (Delegated Byzantine Fault Tolerance) intended to solve a problem where nodes in a decentralised network might be faulty or act malicuiously (if you're not very technical think of a node like a mailman, where the mailman might accidentally or intentionally deliver the wrong mail).

A general overview of dBFT:

  • Users put forward delegates
  • Each time a block is proposed, a speaker is randomly drawn from the deligates
  • The speaker will propose the block to other deligates
  • 2/3 of the delegates need to approve for the block to pass
  • If the block doesn't pass, the block would be ignored and a new speaker selected

This process repeats until a block is passed by 2/3 or more delegates. A big risk here though is that bad deligates need to be removed before they become a majority, as if they're a majority of 2/3 or more they can approve faulty/malicious blocks.

Competitors to NEO/Ethereum

NEO isn't the only coin competing with Ethereum in the smart contract space, below are some other coins with similar goals:

  • Ethereum (ETH)
  • Stratis (STRAT)
  • Lisk (LSK)
  • EOS (EOS)
  • Waves (WAVES)
  • QTUM
  • Cardano (ADA)

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