NEO

NEO is an open source blockchain that was introduced in August 2016.

Formerly known as Antshares, NEO is a product of the Shanghai-based company Onchain.

NEO sees itself as a distributed network for the “Smart Economy”.

This intelligent economy is defined by the combination of digital assets, digital identity and intelligent contracts.

What is NEO?

NEO is a non-profit blockchain project that uses blockchain technology and digital identity to digitize assets, automate the management of digital assets with smart contracts, and realize a smart economy with their distributed network.

The similarities with Ethereum can be clearly seen. Both offer blockchains and developer tools that allow new developers to use platform resources instead of having to create their own blockchain.

Where these platforms differ depends on the use cases. While Ethereum intends to create a more accessible, trusted and free Internet”, NEO is trying to combine blockchain technology with existing infrastructure to create an intelligent economy that is based on asset digitization under government control.

NEOs Smart Economy

Digital assets are programmable assets in the form of electronic data. They can be divided into two categories: Voucher Assets and Credit Assets.

Voucher assets are digital copies of contracts or licenses. Contracts, share certificates and real estate licenses all fall into this category of established agreements that are included in the blockchain for transparency and convenience.

Credit claims refer to the tokenisation of physical assets. You take a physical asset for which you can prove that it is your property, such as a car, gold or a painting and issue a digital token on the Blockchain representing that physical asset.

The digital identity is used to validate the connection between physical and digital values. Assets that have been registered by a validated digital identity can be protected by the law.

Smart Contracts become effective when certain conditions are met. For example, a vending machine is like a simple smart contract: when you insert a euro and select Coke, the vending machine will release the Coke.

NEO’s Smart Contracts can easily be programmed using popular programming languages such as Python, C# or Java, resulting in increased engagement with a variety of developers.

Unlike Ethereum, where the users pay fees for network usage, NEO’s network fees are collected by those companies and individuals who want to offer a service on NEO’s blockchain.

How NEO Functions

As already mentioned, NEO uses blockchain technology to build a smart economy with smart contracts and digital assets and digital identities in a distributed network. Now we will go through all parts of NEO and describe how the network works. The NEO platform has two native tokens. They are called NEO and GAS.

The NEO Token

The NEO token symbolizes the privilege to manage the network. The owners have the right to vote on changes to the network. There is a total of 100 million NEO tokens. The smallest unit is 1 NEO.

The whole supply of NEO tokens was already created with the first block (the Genesis block). Half of these tokens have been distributed through the NEO ICO. The other half, however, has been kept by the NEO Council. The plans for these tokens are:

  • 10 million tokens will be used to motivate NEO developers and members of the NEO Council.
  • Another 10 million tokens will be spent to reward developers in the NEO ecosystem.
  • 15 million tokens are available for investment in other blockchain projects.
  • A further 15 million tokens will be retained as a reserve.

The GAS Token

GAS tokens represent the permission to utilize the NEO network. The network has set GAS as the service fee for using the network. This fee also protects the network against spam. The smallest unit of GAS is 0.000000000001. (GAS can be subdivided.)

GAS Tokens are issued with each new block that is added to the NEO Blockchain. The network started with 0 GAS in total and now produces 8 GAS per block. The amount of GAS generated per block decreases each year.

If you own NEO tokens you can earn GAS at a fixed rate based on the amount of NEO you own. If you hold your NEO tokens on Binance you will also get your GAS tokens. Binance is distributing all GAS on a regular basis.

Network Governance

There are two kinds of nodes in the NEO blockchain: consensus nodes and ordinary nodes.

Ordinary nodes are used for network transfer and exchange. Consensus nodes are in charge of accounting and maintaining the ledger.

NEO is not using the conventional proof-of-work or proof-of-stake consensus mechanisms. The Byzantine Fault Tolerance Algorithm (dBFT) decides which block comes next.

There are currently no transaction fees in the NEO network. For consensus nodes it is theoretically possible to charge transaction fees. However, the NEO network is organised in such a way that it creates incentives to not charge any fees. For example, a node can only become a consensus node if NEO owners have voted for it.

Consensus nodes

New blocks can be added to the blockchain when the consensus nodes agree on the validity of all transactions in the proposed block. More than two-thirds of the nodes must agree. Then the network can move forward. If there is a disagreement, then another consensus node will propose the block.

With no block rewards, there is no financial incentive for bad guys to break the network rules, but it is still possible that some things go wrong. Contract code errors, doublespends, and incorrect data formatting are issues that consensus nodes pay attention to before approving new blocks.

Centralisation & Speed

Currently, there are only 7 active consensus nodes in NEO’s main network, all controlled by the NEO team. Therefore, it can be argued that the NEO network in its current form is highly centralized. But this is nothing that NEO is trying to hide. They think it’s more of an advantage, which is especially demonstrated by the enormous transaction speed.

As the whitepaper states, the NEO network is capable of achieving up to 1,000 transactions per second (TPS) in reality, with a theoretical potential of 10,000 TPS. This is a dramatic improvement over the 15 TPS that Ethereum is capable of.

Conclusion

The NEO token is essentially a share of the NEO network and all its GAS fees. Owning these shares entitles you to vote on protocol changes (e.g. fee structure) and designate consensus nodes while passively earning GAS.

NEOs vision is to strengthen our current economy with its Smart Economy platform. The intelligent economy will be digitizing real assets, will be tracking their ownership on the blockchain, and will be enabling efficiency improvements via smart contracts. NEO’s approach to seeking and adopting regulation is a shift away from the free decentralised approach of many crypto currencies.

What is NEO?

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