In the past few weeks, I’ve been doing my own research on Neo. My sudden curiosity was sparked by the fact that I wanted to expand my portfolio with some new coins. And so, I looked into what projects I could get to like and believe in enough to begin acquiring some. This article is basically the results of what I’ve learned compiled into this piece for the convenience of all my readers out there who wish to know more about NEO and Ethereum, why they are often compared and what are the differences.
So, let’s start with why the two projects are often compared to one another. Even before I started doing my research, I would often see these two being pit against each other, but never really knew why. I think it’s also worth noting that NEO is also commonly nicknamed “Chinese Ethereum.”
But why are projects often compared to each other? Well just like any brand in any other kind of market, people want to know which one is “better”, because the general public wants to be the best. Samsung vs Apple (Or any other Android vs IOS), Microsoft vs Apple (Windows vs Mac OS…Jeez Apple, you sure like to take on the big fights) and Ninjas vs Pirates (I’m more of a Ninja guy myself).
Blockchain technology and Cryptocurrency itself is still relatively in its infancy, we’re just beginning to walk. This makes this part of technology a frontier, something left unexplored with many possibilities to advance. This also comes with many different ways of going about the advance, with different proposed solutions to problems that come with this new technology. Everybody is racing to be the best they can be for their particular goal. It’s this very reason why I personally believe there will always be room for more than just 1 cryptocurrency.
Getting back to NEO and Ethereum. Despite the two going for a somewhat different “endgame”. They are both similar in the fact that they claim (or/and are) the leading projects in the smart-contract space.
Let’s start with the very basics of each project:
|Head of project||Da Hongfei||Vitalik Buterin|
|Founded in||June 2017 (Rebranded from Antshares which was founded in Feb 2014)||July 2015|
|Protocol||Proof of Stake||Proof of work|
|Max Supply||100,000,000||Currently no limit|
|Has own blockchain?||Yes||Yes|
From the information presented in that table, they look like very different projects. Neo has a max supply, whereas Ethereum currently does not. They also both operate on very different protocols, which we’ll go through in a moment. It’s also worth mentioning that Ethereum has been thinking about switching to Proof of Stake for quite some time now.
Let’s start with Proof of Work, as this is the protocol that most people are most likely familiar with and is the protocol that Bitcoin uses. Proof of work “is a requirement to define an expensive computer calculation, aka mining, that needs to be performed in order to create a new group of trustless transactions, aka a block, on a distributed ledger, aka a blockchain.
In a proof of work protocol; once transactions have been put into a block, miners then verify the transactions within each block to make sure they are legitimate. These miners accomplish this by “solving” mathematical puzzles. The first miner who “solves” each blocks problem is then rewarded (In Bitcoins blockchain, they get a lump of BTC).
Over time, these problems get more and more difficult to solve, and thus requires the miners to increase their solving capabilities. Basically, this means upgrading to more and more powerful computer components. And thus, this is why this protocol is called proof of work.
So, what is Proof of Stake?
The POS protocol still has the same purpose as the POW protocol and is an algorithm just like the other but undergoes a different process to reach the end goal of validating blocks. Unlike the POW protocol, the “creator” (In the POW protocol the creator is the miner) of a new block is chosen depending on its wealth. So, the more coins you hold, the more stake you have in the protocol.
Another major difference is that in a POS protocol, there is no reward for finishing a block. Instead of a block reward, the ones who are doing the “work” instead take the transaction fees and in the Proof of Stake protocol, the “miners” are not called miners but are rather called forgers. NEO uses a slightly different form of POS, but we’ll get into that a little later.
Now, of course, there are pros and cons to both of these protocols. With Proof of Stake, a large concern that the public is having is the people who already have a large holding will make even more. Thus, making them even richer, whilst the small holders struggle to “compete”.
POW concerns fall along the mining side. It’s a common perception that mining is bad for the environment as it can consume a very large amount of energy. But the main drawback to POW is the danger of a 51% attack.
But of course, both protocols have pools, where people can gather and lend their computing power to the pool to help mine a block and reap some of the rewards. There are also pools for POS protocols as well.
One particular reason I started looking into NEO, is the fact that they have their own blockchain. Not a major wow factor, but there are hundreds of ICOs, projects, and tokens that are on the Ethereum blockchain, and some even on the NEO blockchain. If I were to buy or move those tokens around, I would still need to be holding some NEO or ETH to spend on “gas” prices, just so I can move these tokens. Which puts the thought into my head, why not just get NEO or more ETH?
A new internet
Let’s get into what both NEO and Ethereum are striving to accomplish. They are both aiming for similar roles within the community and that’s primarily to be a platform for smart contracts. Out of all current projects that are out there, Ethereum dominates the smart contract space. As of writing this piece, they currently are the leading blockchain platform for ICOs and dApps with more than 80% market share. In case you aren’t exactly sure what a smart contract is. Here is a quick description of what it is which I pulled from blockgeeks.com
What are Smart Contracts?
Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
The rest of this article (https://blockgeeks.com/guides/smart-contracts/) goes into much further detail and is definitely worth the read.
So, it’s clear that Ethereum’s goal is to be the platform for DApps (Decentralized apps). Whereas NEO is working towards developing something for the future. Instead of aiming to become the go-to platform for DApps, instead, NEO is aiming to become the platform for a new smart economy.
What does that mean? What is a new Smart Economy?
A NEO smart economy basically wants to be the next generation in economy and trade. Currently, trade agreements and laws are all handled by governments and big organizations and while this sort of governance usually works well, problems can arise when the situation gets more complicated.
When the rules and laws of economy and trade were first established, technology was a lot barer bone. Gradually over time, a lot of our trade is now performed online, over the internet and on computers. And while the current rules govern well for smaller domestic trades, the problems arise on a bigger scale when parties between trades do not know each other.
This is where NEO wants to step in.
Like Bitcoins trustless ledger (the blockchain), Neo is aiming to do the same thing but with trade agreements. They want to do this by digitizing real assets (Or rather, have a physical asset be represented as a digital one in the NEO blockchain).
Even though both NEO and Ethereum are frequently compared to one another, I still hold my belief that there will be room for multiple cryptocurrencies to peacefully coexist in the future.
Let’s talk a little bit about decentralization. Bitcoin is by far the most decentralized cryptocurrency out there. Ethereum and NEO are a bit more centralized than what most people would think. Ethereum has quite a number of core developers that have power and influence and Vitalik Buterin undeniably has the most of both. If he really wanted and pushed for it, I’m sure Vitalik could sway the direction of Ethereum quite easily. However, when Ethereum finally moves onto PoS, it will definitely help their case regarding decentralization.
NEO, while on a POS protocol. Isn’t quite as decentralized as other pure POS platforms. As NEO’s POS protocol is slightly different and is more specifically called a Delegated Byzantine Fault Tolerance protocol (dBFT). The following segment explaining dBFT is pulled from hackernoon.
This protocol’s main disadvantage is a lack of decentralization. In Bitcoin, where you can easily run your own node and become a validator. Where as with NEO’s dBFT protocol, you instead ‘vote’ for the validators that run the nodes and currently the majority of these nodes are operated by the NEO team. Though it’s also worth noting that as time progresses, the number of nodes held by the NEO team will decrease.
NEO can’t fork
I remember a joke I saw in a comment on a YouTube back when forking cryptocurrencies were all the trend. Bitcoin and Bitcoin Cash, shortly after Bitcoin Gold, etc etc.
The joke was: “Chinese Crypto can’t fork because they use chopsticks.”
Well, that joke is actually true. NEO cannot fork. This is due to the fact that the NEO bookkeepers (node validators) need to reach a 66% consensus in order for any transaction to be validated and placed into the blockchain. Once consensus is reached and the block is validated. That validation is final. If 66% consensus is not reached, the block is discarded entirely.
Here’s an example of how other cryptocurrencies work and why forks can happen with other cryptos.
Say a consensus is reached. 66% of people stop a block from being validated. In NEO, this means that the decision is final and the block is dropped. But in other projects, the percentage that did not agree on the validation can still take the block that they think should be validated and go ahead with the validation anyway. This effectively creates another chain, as you now have a chain where the block was not validated, and one where it is.
As stated previously, as of writing this piece, Ethereum holds over 80% of all ICOs on their platform. That is a huge number. I’m sure you’ve heard of CryptoKitties, well that was on the Ethereum blockchain also and was even responsible for flooding the Ethereum blockchain for a short period.
But the strange thing is that smart contracts on the Ethereum platform must be written in a coding language called Solidity. Which is a language that’s specific only for Ethereum. That’s right, if you are a coder and want to write a smart contract on Ethereum, you must learn this contract.
Whereas NEO currently supports five different coding languages, making the barrier for entry a lot lower than Ethereum. The main reason why Ethereum holds the majority of smart contracts is due to its age. The fact is; Ethereum has been around for much longer. Though technically, NEO was rebranded from Antshares in June 2017, its origin was founded back in Fed 2014, a whole year before Ethereum. But NEO didn’t become popular and start traversing in the right direction until it’s rebrand in 2017, giving Ethereum the 3-year lead.
Usually, in most other industries, a 3-year lead is enough to keep all the competitors at bay. However, I still believe the industry has a long way to go and because it’s still in its infancy, there is no real brand loyalty and people are looking for the best crypto projects to invest in.
NEO is called Chinese Ethereum for good reason. They are backed by the Chinese Government, as well as some Chinese giants such as Alibaba.
Ethereum however, is not backed by any government but are part of an “alliance” called the Enterprise Ethereum Alliance. This alliance helps to connect companies within the group to help each other “learn from and build upon” the smart contract supporting blockchain: Ethereum. Basically, if one company within the group, such as JPMorgan, decides they want to build a dApp or some sort of smart contract, they will get help to do so and then if another company within the group would like a similar dApp, it can be done much easier with the help of other people in the group.
Divisibility and Fuel.
The network fuel of Ethereum is just small units of Ether. Whereas the network fuel for NEO is a separated token called NeoGAS (or GAS). What does that mean exactly? So, GAS is the token for NEO that’s on the NEO blockchain. Unlike Ethereum, where you use Ether to transact with, NEO is not.
Instead, you use GAS and you keep NEO untouched. Whenever a company registers or changes any assets on the NEO blockchain, that company pays in GAS. You then acquire this GAS as it’s distributed to all NEO holders. No need for mining, you simply can claim GAS by just holding NEO in a wallet.
GAS is also capped at 100 million, just like NEO. When it comes to divisibility, Ethereum and GAS are divisible. Meaning it can be any denomination, whether it is 1 or 0.153295. NEO, however, only exists in whole numbers. 1, 2, 5, 10, 100, etc etc. So be extra careful when sending them to other wallets.
Both projects still have a long way to go to reach the goals that they’ve set for themselves. But Ethereum and NEO are both leading projects in the cryptospace. I have been a long-time holder of Ethereum and still definitely believe in the project so I won’t be selling off my ETH anytime soon.
But with what I’ve learned regarding NEO, I think it is headed in a good direction. Progress and innovation can also promote “healthy competition” as well as new ideas. So, I will now finish this article off with a “what’s next” for both Ethereum and NEO.
References and links:
Cover illustration artist Ryohei-Hase, DeviantArt