As cool as it would be if Neo was named after the Matrix character, Neo the cryptocurrency, has nothing to do with him – sadly. In fact, Neo was rebranded from Antshares last year and the rebranding has been very successful – June 4th Neo was valued at $1.25 and now Neo is valued around $140. The rebranding was a step forward for the blockchain as they were looking to expand their vision. Looking to become a powerhouse in the crypto-space and build, what they are calling, a smart economy.

Neo’s Design:

The key to their smart economy is three things: Digital identities, digital assets, and smart contracts.

Digital Identities:

A key component of Neo’s smart economy is Identities. The digital identities rely upon the theory that digital signatures and contracts are legally binding – and in some countries this is true. Within China, the requirements to meet this regulation is strict. But, Neo’s team is actively trying to meet government regulation – not only in China but around the world. Some of these methods include using facial recognition, fingerprint, voice recognition, text messages, or other two factor identification methods. Neo partnered with OnChain who is helping implement these solutions on the Neo blockchain.

Smart contracts:

A smart contract is a programmable contract – fancy that. The idea is when a preprogrammed condition is met, the contract will execute the following contract terms. By using the blockchain to execute the contracts it offers people a secure, tamper-resistant, and reliable system for contracts.

Digital Assets:

Neo’s niche, in comparison to ethereum’s, is assets.

Digital assets are real world assets – house deeds, titles for cars, currency, ect – in the form of electronic data. The idea is that using smart contracts and digital identities that are enforced by law/verification. You can create a entire economy to trade using these contracts without the need to trust each other, all while it being traceable, transparent, and free of intermediaries.

According to Neo’s whitepaper, Neo has two forms of digital assets: Global assets and contract assets. Global assets can be viewed, identified, and recorded in the system by all other contracts and clients. While contract assets contain more private information for the client – like a house deed or bank records. They are stored in the private space in a smart contract. They require that the client give access to the potential viewer of the smart contract – making them secure.

But Neo is more than just an intelligent design, it has a impressive technical system backing it up.

Neo’s system includes:

Delegated Byzantine Fault Tolerance algorithm –

Neo uses a variant on proof of stake for consensus that was designed specially for Neo. It works by Neo holders voting for specific computers on the network to become bookkeepers. Bookkeepers are then suppose to verify transactions on the blockchain. Two thirds of the nodes must agree with the bookkeepers version of the blockchain or if the other nodes do not agree, another bookkeeper is called upon and the process repeats.

This process is significantly faster and energy efficient than other proof of stake algorithms – notability the Byzantine Fault Tolerance algorithm. Neo is able to process 10,000 transactions per second, or so they claim. But the network has yet to be pushed anywhere near this theoretical limit. Even without any real strain on the network that is far superior to Ethereum’s maximum transaction rate which is near 15 transactions per second.

The amount of transactions primes Neo for mass adoption, if their theoretical limit is true. That limit is far more than Bitcoin, Ethereum, and Visa put together.

NeoContract –

Neo has global assets within the smart contracts which necessitates the need for reliable reproducibility across the network. Reproducibility can only be achieved by using time stamps, random number generators or data storage. Using any one of those three reference points the blockchain can remain verified. If Neo did not have those three reference points it would mean that anytime a contract got referenced by the blockchain the network would struggle to verify the block.

Another nice feature about NeoContracts is that they are developer friendly – unlike Ethereum. With Ethereum’s contracts a developer would have to learn solidarity – a programming language built just for ethereum. With NeoContracts they can be written in C#, VB.Net, F#, Java, Kotlin.

NeoX –

NeoX allows transactions to cross blockchains. There are two interesting features here which are important to note. The first is that NeoX allows transactions to happen in multiple steps across different blockchains, making transactions potentially faster by utilizing blockchain space in a fluid and free way. Second is that all steps are either valid or invalid across all chains. Thus making sure that if one step of a transaction fails the entire transactions fails.

NeoFS –

Neo also has a distributed file storage system within the platform. FS allows users to send large files to network and have them divided and distributed across the network. Users can specify the level of reliability for each file. The lower the reliability, the lower the costs to the user but the slower the retrieval. The higher the reliability, the higher the costs, but faster retrieval.

NeoQS –

Last but not least is NeoQS or Neo Quantum Safe. Quantum computers pose a high risk to ECC (elliptic curve cryptography) and RSA (Rivest–Shamir–Adleman) cryptographic methods because quantum computers are able to quickly solve decomposition problems and elliptic discrete logarithms. But Neo relies upon a, currently, quantum safe method called lattice cryptography. As quantum computers can’t quickly solve the shortest and closest vector problems.

Tokens –

Neo Token (Neo and Gas) –

Neo’s blockchain uses two tokens Neo and Gas.

Unlike Ethereum, Neo decoupled gas from it’s base token. If you have ever paid or looked at a transaction on the ethereum network, you’ll see that the transactions costs are paid in gas. But on the ethereum network gas is paid in Eth.

While on the Neo blockchain Gas is a completely different token given to Neo holders as a proof of stake like incentive. As Gas is required to execute smart contracts the more enterprises use Neo’s platform the more gas will be needed, thus providing buying pressure.

Token distribution –

For gas the token distribution is fairly easy. During the first year per block there are 8 gas generated, 2nd year 7 gas generated, 3rd year 6 gas generated, ect. Until all 100 million gas are generated.

For the Neo token it’s 100% premined. 100 million were initially created, 50 million tokens were distributed via the Neo ICO. While the remaining 50 million are managed by the Neo Council with the breakdown of how the Council plans to spend the coins below:

10 million Neo go to Neo developers and Neo Council members

10 million Neo as incentives for developers in the Neo ecosystem

15 million Neo invested in other auxiliary Blockchain projects used by Neo

15 million Neo earmarked for “contingencies”

The council has indicated that they will not spend more than 15 million Neo per year.

These large amounts of Neo in the hands of a small portion of the network mean Neo is heavily centralized. Further, this means there is a potential for dumping concerns. While both are legitimate concerns there has been nothing to resemble a large dumping of Neo yet. But it’s a risk to consider. Speaking of risks, we should consider the pros and cons of Neo’s platform.

Strengths and weaknesses –

Weaknesses:

As listed above the Neo coin is pretty centralized but the centralization is even worse. The network has literally 13 nodes all of which are ran by the Neo council.

Further, a while back there was some concerns about China banning ICOs, cryptocurrencies, and crypto mining. The current state is this:

China still has ICOs banned

Exchanges are allowed to trade but crypto to crypto trading is banned – it’s only fiat to crypto

Mining is not banned – but it’s rumored miners won’t be getting perks like reduced electricity and tax benefits from the government.

Another point is there are lots of people who think that Neo’s price will ultimately be outshined by the price of Gas. That’s because the only two benefits Neo offers over gas are dividends/transaction fees in the form of gas and voting rights. So once the dividends stop Neo stops offering as much in comparison to gas. Where as gas offers a real strong use case on the platform. But a strong gas price is much more dependent upon actual usage on the platform than Neo. But only time will tell which group is right.

Finally the only other weakness I can see is that as Neo’s price grows it will be harder for people to get into Neo as you can only move coins in whole numbers on the network.

Strengths:

Neo has an insanely high potential transaction rate beating even visa at 15,000 tps.

Powerful vision for the future of the digital economy.

More ICOs and Dapps are looking to partner with Neo.

Onchain, a fairly successful company in the Chinese fintech industry, is a partner of Neo’s. This gives them leverage to work with the Chinese government on regulation to legalize ICOs. Not to mention the founder of OnChain is the founder of Neo – Da HongFei.

Speaking of ICOs in China, Neo is in a prime position to take advantage of when regulation soffens against ICOs. I think there’s a strong possibility that China will relax regulation. It’s either that or China falls behind in a developing industry. China’s not the most progressive nation on the planet, but they are working to become a world leader. Stifling innovation isn’t how nations become a world leader, China knows this.

Summary:

I’ve tried to be unbiased in this article. But I seriously think Neo is one of the best cryptos in the sphere right now. It’s a little risky bet considering the regulation with China and this hurts Neo’s ambitions a bit. But they have continued strong despite the China FUD.

I also dislike the extreme concentration I see with the 13 or less nodes running at once. However, Neo does have plans to decentralize – or so they say. So until that time it’s a very centralized coin both on the network and the monetary supply.

I really like that Neo is trying to be ahead of the game by offering cross chain transactions and considering scaling before it becomes a problem. In addition, it’s planning ahead by taking steps to make it’s platform quantum secure which is a lot better than the majority of cryptos.

Then I like the storage aspect of Neo but I think it won’t be a major part of their platform. With so many competitors I can’t imagine everyone relying solely upon Neo for their storage needs. Even within the cryptospace there’s SIA, Storj, and Maidsafe. And outside of the space there’s even more storage from amazon, dropbox, to google drive and more. That’s not going to be Neo’s profitable niche.

What will be Neo’s niche is the smart economy driven by digital assets, identities, and smart contracts – and they realize this. There’s a lot of growth to be had in such a unique and ambitious goal. Power that with new ICOs and solid fundamentals, then add the potential for China to relax it’s stance on crypto, and this coin could really become a big powerhouse – even more than it is now. I think 2018 will be the year for Neo to shine.

Disclaimer:

I try to be as unbiased as possible but my opinions are my own. I have about 20% of my porfilio in Neo.

As always, do your own research and do not invest more than you can afford to lose. Best of luck.

Update:

New regulation in China may end the ban on Initial coin offerings.