What is Neo (NEO)? How does It Work? Complete Beginner’s Guide[2024]

Neo is a software network that seeks to serve as a platform on top of which anyone can transact and create decentralized products and services.

Neo is sometimes referred to as the “Ethereum of China” due to it sharing many similar features with its more popular counterpart, such as the ability to write decentralized applications (dapps) for decentralized exchanges, prediction markets and social networks, among others.

Further, this network also offers a host of other features to its users, including a decentralized file storage system, an identity system, and an oracle system for feeding external information to it (like price data). 

It uses a unique governance system called Delegated Byzantine Fault Tolerant (dBFT) as its consensus mechanism for the computers that run its software.

Central to running operations on its blockchain are two native cryptocurrencies, NEO, for voting on protocol changes, and GAS, used to pay for computation on the network

Users seeking to stay connected on the current development status of it can follow its official blog for up-to-date details.

KEY TAKEAWAYS

• It is a blockchain ecosystem designed to be used to build a smart economy.
• NEO has two native tokens. It is used to establish ownership and management roles in the blockchain, and NEO Gas is used to pay for transactions on the blockchain.
• It defines a smart economy as one that uses smart contracts to manage and secure digital identities and assets.

Neo Brief History

Neo was launched by Da Hongfei and Erik Zhang in 2014. It was initially introduced as Antshares (ANS) and was rebranded to NEO in June 2017. The team raised around 6,000 BTC by selling ANS tokens during Initial Coin Offering in 2014.

ANS token holders were given the opportunity to convert their ANS tokens to NEO after rebranding. The team again raised around $8 million by selling these tokens in 2016. 50 percent of the total supply was held in the company’s reserves so that it can be used for future development.

The NEO token holders were given voting rights in March 2018 to participate in the network’s governance.

Key Milestones:

• 2014: Development of Antshares begins.
• 2016: Antshares launches its Initial Coin Offering (ICO), raising 6119 BTC.
• 2017: Antshares rebrands to Neo, marking a shift in focus towards a more global audience.
• 2018: It launches its MainNet and introduces the NeoX sidechain for scalability.
• 2019: It focuses on decentralized finance (DeFi) and introduces the Neo3 testnet.
• 2020: Neo3 MainNet launches, offering improved performance and scalability.

Core Features and Innovations:

• Smart Contracts: It was one of the pioneers in smart contract technology, enabling the creation of self-executing contracts with various applications.
• Dual Token System: It introduced the unique NEO and GAS tokens, with distinct roles in the network.
• Delegated Byzantine Fault Tolerance (dBFT): It employs a consensus mechanism that offers faster block generation times compared to proof-of-work systems.
• Interoperability: It has explored interoperability with other blockchains to expand its ecosystem.

Challenges and Developments:

• Regulatory Environment: As a Chinese-based project, it has faced challenges related to the evolving cryptocurrency regulations in China.
• Competition: The cryptocurrency market is highly competitive, with numerous platforms offering similar functionalities.
• Ecosystem Growth: While it has a strong foundation, it has faced challenges in attracting a large developer community and building a robust ecosystem compared to some of its competitors.

Despite these challenges, it continues to be a significant player in the blockchain space, with a focus on scalability, interoperability, and enterprise adoption.

Where Neo came from

Da Hongfei and Erik Zhang founded Antshares, a blockchain-based network protocol, in June 2014. They published the source code to Github the next year and launched the protocol’s mainnet in October 2016.

The team behind Antshares decided to rebrand it to Neo in June 2017. It wasn’t just a name change since Hongfei and Zhang also laid out new plans for the project, including a new smart contracts system and a collaboration with authorities in China.

How does Neo work?

Its platform allows developers to use its software to run smart contracts (known as NeoContracts) and design new programs (dapps) meant to replicate real world products and services. 

NeoContracts differ from other smart contract-based protocols in that developers can build applications using a variety of popular existing languages (like C# and Java), rather than learning a new language.

Thus, NeoContract’s ability to work across various programming languages can be attractive to a larger pool of developers seeking to create dapps, or support existing ones.

How Is Neo Different From Bitcoin and Ethereum?

It maintains a clear distinction from other standard blockchain platforms in its focus on being regulatory-compliant and a development platform for decentralized applications. It also uses a different consensus mechanism than Bitcoin and Ethereum, called delegated Byzantine Fault Tolerance (dBFT).

Delegated Byzantine Fault Tolerance

Rather than use a system like proof-of-work where random numbers are generated in a competitive bid to open a new block on the blockchain, Delegated Byzantine Fault Tolerance (dBZT) designates nodes in consensus rounds using a “staking” method similar to proof-of-stake to achieve a majority agreement of more than two-thirds.

To address the issue of non-reliable validators (the Byzantine General Problem), consensus nodes with NEO Gas staked are randomly chosen for consensus rounds to validate transactions and open new blocks.

Ethereum

While digitized assets and smart contracts are popular on the Ethereum blockchain, the third key feature of what it calls “digital identity” separates it from the rest. Every participant operating on this platform must have a unique digital identity that can be verified—which means that you must enter information unique to you to receive a public key, somewhat reducing the anonymity provided by other blockchains.

Ethereum is designed to be scaled for any application a person can think of, be it new currencies, non-fungible tokens, decentralized apps, or something as of yet uninvented. It claims to be focused on facilitating a smart economy.

Bitcoin

Bitcoin was created to be a decentralized digital currency and uses proof-of-work in its consensus mechanism. It has one cryptocurrency that is used as a reward for mining—the process of validating transactions and opening new blocks on the chain. This network is less dependent on processing power for validation, so transaction costs and times are much lower.

Neo Tokenomics

It is the primary token of this blockchain network that gives voting rights to its participants. Only 50% of the Neo tokens were sold at the time of its launch and the remaining 50% were held for future development. With a circulating supply of 70 million tokens, it has a market cap of $772 million.

The remaining 30 million tokens will be released over the years depending on the network’s needs.

GAS is the second token of this blockchain network that is used for smart contracts. The node operators receive GAS tokens as a reward when they verify a transaction. Around 8 GAS tokens are produced whenever a new block is generated.

Why does Neo use two cryptocurrencies?

You may know that it’s not necessary for blockchain networks to have more than one cryptocurrency. Cardano is capped at 45 billion ADA coins, and ADA is used for everything — staking, voting, transaction fees, and smart contract fuel. Polkadot’s DOT is also on similar ground, except that the coin is inflationary.

In both cases, each medium of exchange has a very large supply limit and is issued in a controlled way, to regulate prices. Both Cardano and Polkadot mint new coins regularly to reward block producers.

This gives the coins some resistance to price volatility, where it’s not possible for a wallet to own the market for coins since not all the coins have been issued.

The second reason is to regulate network activity and avoid congestion through the natural supply and demand of GAS, without harming the price of the governance coin NEO. When a transaction is committed or a smart contract is executed on it, a portion of the paid GAS is “burned” (or destroyed permanently). 

However, to balance the supply, new GAS is rewarded to it holders who staked it. If the network burns more GAS than it creates, it could result in a price increase in GAS, which naturally buffers additional load. However, when this happens, the price of it is not affected. It holders will still earn the same amount of GAS regardless.

5 new GAS tokens are created for every block created until the network has released a total of 100 million tokens. 

What makes Neo unique?

As an open-source blockchain, it has similarities to Ethereum (ETH 1.48%) and other platforms developers can use to create smart contracts and build decentralized apps (dApps). In 2021, it started a migration to a new version, N3. It has a long list of interesting capabilities, including:

• Multi-language support: It strives to be a developer-friendly blockchain. It offers the Neo Blockchain Toolkit for developing blockchain applications, and it supports C#, Python, Go, TypeScript, and Java.
• Decentralized storage: NeoFS is a distributed, decentralized storage network that you can use to encrypt and secure your data.
• Native oracle: It has its own oracle service that allows developers to access off-chain (external) data sources.
• Self-sovereign identity: NeoID is a decentralized identity tool that provides user authentication in blockchain-based applications.
• Interoperability: It is a founding member of Poly Network, an alliance to facilitate transactions across different blockchains. Other supported networks include Ethereum and BNB Chain.

It was also the first open-source, smart contract blockchain founded in China. According to developers, China’s crypto ban had little effect on it. It’s one of the blockchains servicing the country’s Blockchain-based Service Network (BSN), and it’s working to promote adoption of non-fungible tokens (NFTs) there.

What are the advantages of Neo?

1. Using the fault-tolerant dBFT protocolWhich protects the entire system from powerful hacker attack.
2. Support for the most popular programming languages ​Java, C #, Go and Python. This approach expands opportunities for promoting it services.
3. Virtual machine (Neo VM)Which allows launching custom smart contacts in two clicks.
4. The actual throughput of NEO reaches 1000 t/s.
5. Payment of fees in GAS tokensWhich are intrasystem and are charged to all holders of it.
6. The ability to create digital certificates that are registered in the system and pass the identificationThat is, they are protected by law and can be used in the real world.
7. Using the NeoFS protocolWhich allows you to manage digital certificates without a central server.

What are the disadvantages?

1. Lack of anonymity in fullCreators of it could not create a completely confidential environment for their users and transactions on the network.
2. Pseudo-decentralizationThe founding company OnChain controls 60% of the nodes of the crypto project NEO.

Is NEO a Good Crypto?

Whether it is a good crypto depends on your risk tolerance, cryptocurrency outlook, and what you intend to use it for. It might increase in value, or it might not. It is designed to track and transfer asset ownership but also has a market value.

Partnerships

Arguably the most important partnership it has established so far is with the Blockchain-based Services Network (BSN). The BSN was developed by the Chinese government to be a global infrastructure that can power a digital economy.

It is one of a small number of blockchains supported by the BSN. As part of its role, it will be working with the Chinese State Information Center, China UnionPay, and China Mobile to promote blockchain innovation and widespread adoption.

Since developers can use it to launch dApps, this ecosystem includes a variety of projects. Here are a few examples of the types of projects Neo houses:

• Flamingo Finance, a decentralized finance (DeFi) protocol.
• DogeRift, a play-to-earn blockchain game that uses NFTs.
• GhostMarket, an NFT marketplace.
• DeepBrain Chain, a decentralized network that provides computing power to AI companies.

Its founder Da Hongfei also founded Onchain, one of China’s top blockchain companies. Onchain uses the Neo platform as the framework for its Distributed Networks Architecture, which helps businesses build private and public blockchains.

Can I make passive income with Neo?

It makes it easy to earn passive income. All its token holders receive a portion of the network’s utility token, GAS. The tokens are generated each time a new block is minted. GAS tokens are rewarded automatically.

Note that if you store your these tokens on a cryptocurrency exchange, you may not receive these rewards. It depends on the exchange, which is why it’s highly recommended that you store your cryptocurrency tokens in a blockchain wallet that you (and not the exchange) have sole control over.

You can increase the amount of GAS you earn by staking your NEO tokens. When you stake your crypto, it helps with the transaction validation process.

The Neo network splits up 80% of the GAS token rewards among those who stake their tokens, compared to just 10% among this token holders who don’t stake them. Since there’s such a large difference in rewards, staking is the better option.

Unique risks

Its connection to China and the Chinese government could be either a benefit or a risk, depending on how you look at it. China is known for being strict on cryptocurrencies. Neo seems to have the nation’s seal of approval for now, but, if that changes, it could have a significant impact on the project’s growth.

Speaking of growth, it hasn’t impressed investors in that regard, and some are complaining about a lack of marketing. Its team approach has been to focus on developing the technology first, in particular the N3 upgrade. However, while Neo does that, it has been losing ground to other blockchain projects that care more about promotion.

Also worth noting is that these tokens are indivisible, which can make them somewhat inconvenient to use. Even an expensive crypto such as Bitcoin (BTC 2.11%) can be divided into Satoshis, which are worth one-hundred-millionth of a Bitcoin.

With Neo, this isn’t possible. If you want to buy, sell, or trade it, it needs to be a whole number such as one NEO or 10 NEO. You couldn’t send 0.5 NEO or 5.75 NEO. That makes it harder to use for transferring funds compared to other types of cryptocurrency.

How Many NEO Coins Are Left?

There were 50 million coins issued to project backers, and 15 million are held for contingencies. In addition, there are 20 million being used to incentivize developers and 15 million for cross-investing in other projects. No other coins will be issued, but it is available on some exchanges.1

What Is NEO in Crypto?

It 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—the ability for different blockchains to communicate with each other.

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