Neo is an open-source and decentralized platform that was released in 2014 with the initial name of “Antshares”. The rebranding to Neo happened in 2017 with the vision to enable a smart economy by using blockchain technology and smart contracts for issuing and managing digital assets. In contrast to other well-known blockchain technologies with smart contract capabilities, Neo started with a Proof-of-Stake consensus mechanism from the beginning – more precisely, the Delegated Byzantine Fault Tolerant mechanism (dBFT).

Neo’s MainNet was released in 2016 and has since received continuous enhancements to its platform.  The latest being a completely new iteration of the Neo blockchain going under the name of Neo3, which brings several major improvements to the current Neo2. It is the result of a joint effort between the Neo Foundation and various open-source communities, preparing the Neo network for mass adoption.

This article looks back on the 4 years since the Neo2 MainNet launch and gives a future perspective by looking at Neo3’s recent developments.

 

Looking Back: Neo2 Impact

Neo considerably captured the attention of the blockchain community due to multiple factors.

One of these factors is the evolution of its innovative consensus mechanism. From the start Neo applied dBFT 1.0, an adaption of pBFT (Practical Byzantine Fault Tolerance), enabling fast single block finality. In other terms, single block finality denotes that confirmed transactions become irrevocable in the next block. No need to wait a couple of blocks to be certain. Several projects use versions of BFT nowadays, such as Libra and Cosmos, but back then it was an innovation in the blockchain space. However, dBFT 1.0 was susceptible to a single block fork in rare scenarios of high network latency among consensus nodes. While this could happen without stalling consensus, many Neo full nodes could potentially accept the forked block in the network, ultimately leading to operational issues.

Therefore, the community widely discussed the problem and developed dBFT 2.0. In this version, not only the issue was fixed, but also performance was improved for situations like consensus node restarts due to hardware failures and targeted network attacks. Figure 1 shows the performance before and after the rollout of dBFT 2.0. Moreover, the dBFT 2.0 implementation provides audit instruments to keep track of any consensus nodes’ misbehavior.

Figure 1: Maximum block time on the Neo network on a per minute basis, before and after dBFT 2.0 was deployed.
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Source: Medium: Neo's dBFT

Another property of Neo that captured attention is the dual token scheme: NEO and GAS. While NEO gives the holders rights to manage and make decisions in the network (e.g., parameter changes), GAS functions as the utility token of the network (e.g., pay for transactions, smart contract deployments and invocations). 100 million NEO were minted at launch of the MainNet, while GAS is minted to NEO holders continuously in each new block to incentivize possession of NEO. The Neo network was one of the first having the notion of holding native assets to accumulate a utility token.

Neo was also a precursor in its vision on how to provide tools for smart contract development. In contrast to Ethereum, EOS, Tezos, and others, Neo supports several general-purpose programming languages. Therefore, developers are not required to learn a new programming language to write smart contracts and build Decentralized Applications (dApps) on the Neo Blockchain.
 

Looking Back: The State of Neo2

Figure 2, 3, 4, and 5 reveal general user activity on the Neo2 blockchain under different metrics. The green lines show daily values while the dark lines represent the accumulated value over time.

Figure 2: An average of 1.3k new addresses are created on the Neo2 blockchain per day.
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Figure 3: The number of transactions per day reached 100k+ during the DeFi craze in September/October of 2020.
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Figure 4: Network fees represent the priority given to transactions made on the Neo blockchain. In other terms, consensus nodes will first process transactions that have higher network fees. Network fees have considerably increased during the DeFi craze in September-October of 2020.
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Figure 5: System fees represent the utilization of the Neo blockchain. In other terms, system fees are collected by consensus nodes for executing transactions. It is possible to observe that during September/October of 2020 similar levels of utilization was reached as during the ICO bubble in 2017.
Neo_Figure5

Looking Forward: Neo3

While Neo2 brought innovation together with operational continuity over the years, it is widely known that several challenges remain in the blockchain space. Slow adoption, missing standards, insufficient scalability and usability are the issues that stand out.

In order to accelerate enterprise-grade blockchain innovation for the future, as well as mass adoption through great usability, Neo3 is being developed with strong support from multiple communities around the globe. Neo3 will deliver a scalable platform with higher throughput, enhanced stability and security, an optimized smart contract system, and a feature-packed infrastructure set.

Table 1 shows a non-exhaustive list of adaptions that differentiates and improves Neo3 over Neo2.

Table 1: Comparison of Neo2 and Neo3.
neo_table_ERST – Table 1
Figure 6: Neo3 governance model illustration
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Source: NEO News Today: Da Hongfei discusses Governance Model
Table 2: Examples demonstrating compression ratio and size reduction using past blocks (Neo2) and the new auto compression mechanism in Neo3.
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A noteworthy inconvenience in Neo2 is related to developer experience (DevEx). A general and recurring feedback was the need of better tools when building dApps and Smart Contracts. Therefore, it is important to highlight the comprehensive efforts from the different Neo communities to provide developer tools (i.e., SDKs, compilers, IDE extensions) for the upcoming Neo3 platform. The goal is to deliver superior tooling compared to what is already available for Neo2. Members of projects like the Neo Blockchain Toolkit, neow3j, mamba, the Neo Playground, among others, are working in parallel to the Neo core team to deliver the toolset right on time for the Neo3 MainNet release.

 

Recent Strategic Developments

Over the years, Neo has attracted and consolidated strong support from multiple communities around the globe. Next to the Neo Foundation and the core developer team, Neo Global Development (NGD) interacts and manages developer communities like AxLabs, City of Zion, NeoResearch, and NeoSPCC to name a few. These communities enrich the Neo ecosystem with a multitude of software tools and thereby enable developers and businesses with different backgrounds to build their applications on the Neo blockchain. For attracting even more developers, NGD has recently set up a streamlined grants system that lowers the entrance barrier for new developers interested in contributing to Neo’s prosperity.

Neo is active not only inside of its own ecosystem but pushes adoption of blockchain technologies in cooperation with other industry partners too. In 2020, NGD became a founding member of the InterWork Alliance alongside other companies like Microsoft, Nasdaq, and the SIX Digital Exchange. The alliance has the goal of accelerating blockchain adoption in businesses by producing standards and frameworks.

Moving towards interoperability and DeFi, Neo launched a protocol alliance called Poly Network as a founding member. The goal is to enable cross-chain asset transfers and transactions. Based on the Poly Network, Neo’s first DeFi protocol called Flamingo Finance was released. In the end of 2020, the peak of total value locked in the so-called “mint rush” reached around 1.6 billion USD, of which around 500 million USD were cross-chain assets, e.g., Bitcoin and Ether [22]. In addition, other modules are being developed within the Flamingo platform to solidify its presence in the DeFi space: Perpetual Contract Trading (Perp) and Community Governance (DAO).

 

Neo3: TestNet and MainNet plans

The rollout plan for the TestNet and MainNet are not yet fixed and can shift according to decisions by the community.

  • The Neo3 TestNet launch is expected for Q1 2021.
  • Neo Foundation will organize a hackathon in early 2021 to promote Neo3 development.
  • Neo3 MainNet rollout is planned at the end of Q2.
  • Neo2 and Neo3 chains will co-exist for a period. Documentation and cross-chain tools to convert tokens and migrate Smart Contracts will be provided.
  • After a grace period, Neo2 chain will be superseded by Neo3.

 

Conclusion

After four years of Neo2 MainNet, Neo3 is the largest and most impactful update in the Neo ecosystem’s history. Other blockchains with smart contract capabilities employed Proof-of-Work (PoW) for consensus when they were released but are slowly switching to Proof-of-Stake (PoS) mechanisms, like, for example, Ethereum. Neo was established as a PoS chain from the beginning, accumulating years of experience with BFT-based consensus algorithms. Neo3 will certainly refine what was already good in Neo2 (i.e., dBFT), but, most importantly, focus on advanced features and improvements to bring blockchain to mass adoption.

In a nutshell, Neo3 will be more attractive for a wider audience because of lower smart contract deployment costs, better accessibility for developers, an integrated Oracle and distributed storage system, as well as better performance and security. This allows Neo to accommodate a substantially larger amount of use cases and could potentially increase the number of deployed contracts by 10 to 100 times. With such growth one can anticipate a snowball effect, where ultimately Neo could power the next era of enterprise-grade blockchain applications.

 

[1] GitHub: NEP Proposals
[2] Medium: Scoped Witnesses
[3] NNT: Da Hongfei talks about built-in Oracles
[4] NeoFS
[5] Neo SPCC
[6] NNT: Da Hongfei discusses Governance Model
[7] GitHub: Discussions on Economic Model

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