Tech
What is NEO and how is it used?
What is NEO?
NEO is a blockchain developed to fully digitize assets and identities through smart contracts, which will facilitate the emerging smart economy. In the theory behind a smart economy, digital assets and digital identities are seen as essential to improving the quality of life for everyone.
NEO aims to automate the management of digital assets through smart contracts, with the ultimate goal of building a distributed, network-based smart economy system using decentralized applications.
Key points
- NEO is a blockchain ecosystem designed to be used to build a smart economy.
- NEO has two native tokens. NEO is used to establish ownership and management roles on the blockchain, and NEO Gas is used to pay for transactions on the blockchain.
- NEO defines a smart economy as one that uses smart contracts to manage and protect digital identities and assets.
Understanding NEO
NEO was founded as AntShares by Da Hongfei and Erik Zhang in 2014. It was rebranded as NEO in June 2017. It is a blockchain-based platform that supports two native tokens, NEO and NEO Gas. The NEO project blockchain is designed to digitize identities and assets and use smart contracts to track and transfer ownership – a smart economy.
NEO originally described its intelligent economy system as:
Digital Assets + Digital Identity + Smart Contract = Smart Economy.
Digital resources
Digital assets are not just digital properties but are also physical assets that are tokenized by transferring their value to the blockchain and having a token issued for each asset. Tokenization creates a decentralized, reliable, traceable and transparent way of asset management, free of intermediaries and their associated costs.
Users can register, buy, sell, trade or circulate various assets. NEO developers believe that this digitalization supports the protection of assets because they are registered on its platform, providing them with a validated digital identity.
Digital Identity
Digital identity enables verifiable key information about individuals, organizations, and other participating entities that exist in the digital context. Developers believe that protecting individual information via blockchain, consensus mechanisms, and encryption methods is essential as life becomes increasingly digital.
NEO and NEO Gas are not mineable cryptocurrencies. There will be only 100 million NEOs: 50 million of which went to fundraising supporters, and the remaining 50 million are for developers, cross-investments and contingencies. NEO Gas is rewarded for blockchain work and transaction fees. However, you can buy NEO on exchanges.
NEO uses the Public Key Infrastructure (X.509) standard as a guide for identity management by creating encrypted private and public keys used to verify identities. Digital identities can be verified using facial recognition, fingerprints, voice, SMS and multi-factor identification methods.
Smart contracts
Smart contracts are codes that automatically execute transactions and agreements between different parties. Smart contracts eliminate the requirement for third-party involvement because transfers are completed automatically. They also allow for traceability, transparency and irreversibility of transactions.
How is Neo different from Bitcoin and Ethereum?
NEO maintains a clear distinction from other standard blockchain platforms by focusing on regulatory compliance and as a development platform for decentralized applications. It also uses a different consensus mechanism than Bitcoin and Ethereumcalled Delegated Byzantine Fault Tolerance (dBFT).
Delegated Byzantine fault tolerance
Instead of using a system like proof-of-work where random numbers are generated in a competitive bid to open a new block on the blockchain, Delegation Byzantine Fault Tolerance (dBZT) designates nodes in consent round using a “staking” method similar to proof of stake to reach a majority agreement of more than two-thirds.
To address the problem of untrusted validators (the general Byzantine problem), consensus nodes with staked NEO Gas are randomly chosen for consensus rounds to validate transactions and open new blocks.
The NEO dBFT is reportedly capable of reaching 1,000 transactions per second (TPS), compared to Bitcoin’s much slower three to seven TPS.
Ethereum
While digitized assets and smart contracts are popular on the Ethereum blockchain, the third key feature of what is called “digital identity” separates NEO from the rest. Each participant operating on the NEO platform must have a unique digital identity that can be verified, meaning you must enter unique information to receive a public key, somewhat reducing the anonymity provided by other blockchains.
Ethereum is designed to be adapted to any application a person can think of, be it new currencies, non-fungible tokens, decentralized apps, or something not yet invented. NEO says it is focused on facilitating a smart economy.
Bitcoin
Bitcoin was created to be a decentralized digital currency and uses work test in its consensus mechanism. It has a cryptocurrency that is used as a reward for mining, the process of validating transactions and opening new blocks on the chain. The NEO network is less dependent on processing power for validation, so transaction costs and times are much lower.
Is NEO a good cryptocurrency?
Whether NEO is a good cryptocurrency depends on your risk tolerance, the outlook for the cryptocurrency, and your intended use for it. It may increase in value, or it may not. NEO is designed to track and transfer ownership of assets, but it also has a market value.
How many NEO coins are left?
50 million coins have been issued to supporters of the project and 15 million are being held for unforeseen events. Additionally, there is 20 million used to incentivize developers and 15 million for cross-investment in other projects. No more coins will be issued, but NEO is available on some exchanges.
What is NEO in cryptocurrencies?
NEO is a cryptocurrency used to incentivize the development of the NEO smart economy blockchain.
The bottom line
NEO is a blockchain designed to create a smart economy by digitizing assets and identities and introducing interoperability, which is the ability of different blockchains to communicate with each other.
The comments, opinions and analyzes expressed on Investopedia are for informational purposes only. Read ours warranty and exclusion of liability for more information. As of the date this article was written, the author does not own cryptocurrency.