What Is Neo?

Aug 17, 2021

Defining NEO

NEO is a blockchain-based dApp development and smart contract platform that launched in 2014. The mission and vision of the project are to provide an open network for a smart economy to flourish, which allows any digital or physical asset to be accessible with minimized trust and permission.

Originally named Antshares in 2014 by Da Hongfei and Erik Zhang, it rebranded to Neo in 2017. Neo was the first public smart contract platform founded in China, the first chain to use a dual-token model, and the first to implement a BFT-style consensus mechanism. Importantly, NEO returned all funds raised from early investors once the project had the revenue stream and reserves to do so. 

For years, NEO has been in the spotlight both for its heavy involvement in the Chinese market, and for its persistence and resilience in the global marketplace. Some in the crypto industry compare NEO to ETH and speculate that someday the project will rival Ethereum in relevance. With several updates on the way and a developer-friendly approach, let’s look into what makes NEO work.


NEO Infrastructure

On early blockchain projects, most notably Bitcoin, final settlement of a transaction, or finality, requires a good deal of effort. This makes finality a relatively difficult task to achieve, though newer blockchain technologies need it to build applications and new sidechains.

Finality in the blockchain - where the network agrees on the completion of a new transaction - requires just a third of the nodes to achieve consensus. This threshold for fault tolerance is quite high, but is a trademark of Proof of Stake (PoS) BFT consensus algorithms, which NEO operates on. Cosmos is another project that uses BFT.

NEO tackles the issue of slow finality by introducing a safety-first approach to its infrastructure. The BFT system that NEO uses is called dBFT, which requires a ⅔ majority agreement between validators before new blocks can be committed to the blockchain.

As a result of the strong safety mechanisms in place, NEO will never fork, and every transaction is permanently settled as soon as it is published in a confirmed block. This eliminates transaction reversal.


The Tech of NEO

There are several components to NEO that make it the long-lived blockchain project that it is today. Many of the features are similar to Ethereum, but function slightly differently. NEO features smart contracts, a storage network called NeoFS, a decentralized ID tool called NeoID, oracles, and a name service called NNS.

NEO’s Smart Contracts

Just like on Ethereum, smart contracts on NEO are used for various purposes. Most commonly, smart contracts are used to execute economic functions such as reward payouts and lockups. They also specify functionality of dApps based on the inputs from users that fulfil certain requirements. They can be used in real-world applications as well.

NEO uses the lightweight NeoVM (NEO Virtual Machine) to make its smart contracts work properly. The instructional setup of the NeoVM provides a series of cryptographic instructions to optimize the efficiency of algorithms in smart contracts. In addition, data manipulation instructions provide support for arrays and complex data structures. 

NEO claims to make smart contracts easier for developers by supporting a wide array of languages. Now developers can write smart contracts in C#, Java Kotlin, Python, Golang, and Typescript. With multiple-language support, more than 90% of developers can directly participate in the development of a NEO smart contract without the need to learn a new language. Existing business system code might even be directly ported to the blockchain.

Distributed Storage Via Blockchain

Another feature native to the NEO blockchain is the NeoFS decentralized object storage network. It is designed to function as a drop-in replacement for expensive centralized data stores, granting developers full control over where and how their application data is stored and accessed. 

Stored data is always encrypted, and can be locked or decrypted with secure access lists. NeoFS users always remain in complete control of their data. Malicious nodes that do not correctly store data are mitigated through zero-knowledge data validation techniques. 

Enabled through Neo’s native oracle, developers can tap into the NeoFS network at the code level, manipulating data from within NeoVM without the cost of preserving the data on-chain.

NeoFS also helps developers create the frontend for their projects, replacing the need for centralized web hosts. With the integrated CDN services, applications can even customize edge cache locations to ensure fast delivery of data to their core users.

Decentralized ID NeoID

Decentralized identity tools provide much-needed solutions for user authentication in blockchain-based applications. Although many services may be accessed freely by any user, other specific use cases may depend on the verification of specific attributes in order to function properly.

NeoID provides the identity framework required to support these application scenarios. It allows users to create and manage decentralized identifiers, issue claims as a data verifier, or integrate attribute verification into their own applications as needed.

Users can tap into these verified credentials to gain access to applications without ever needing to share their private data, retaining full sovereignty and preventing its possible misuse.

Price Oracles

Oracles play an essential part in making sure an ecosystem that transacts cryptocurrency is able to move value around efficiently. Smart contracts control how the oracles work. There are many barriers to overcome before decentralized applications are ready for the mainstream, but one of the most notable is the inherent limitation of contracts due to the data they have access to. 

Most existing blockchain applications must rely purely on transactions as a source of input data.

Contracts deployed on Neo can use the oracle contract for a data request, specifying a target URL and a filter. Oracle nodes, elected through the Neo Council, will work together to guarantee the truthfulness and reliability of the results.

Neo's native oracle and NeoFS lets blockchain-based applications take the next step forward into true decentralization. Any extra data required by an application can simply be stored off-chain with NeoFS, then retrieved in a decentralized manner through the oracle service.


The NEO Token

The NEO ecosystem transfers value from one application to another via the NEO token. In much the same way that Ethereum uses Ether to pay transaction fees, NEO is used to pay transactions fees and stake for governance voting.

There are 100 million NEO tokens in existence. NEO holders participate in governance by voting for the Neo Committee, composed of members and consensus nodes that govern the Neo blockchain. The Neo Committee provides specific services, such as maintaining the liveliness of the network and adjusting critical blockchain parameters.

The minimum unit of NEO is 1 and tokens are indivisible. This means you must withdraw NEO tokens in whole numbers. It also means that NEO is one of the scarcest public blockchain tokens, as it cannot be broken down into smaller pieces.

The Neo network charges GAS for the operation and storage of tokens and smart contracts, preventing the abuse of node resources. System fees are burned, while network fees are redistributed to consensus nodes, creating an economic incentive for their services.

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