If you are reading this report, rejoice. That means you're one of the first. You belong to a narrow group of anarchists, daredevils and rebels who, regardless of numerous opposites, questionable law and non-intuitive graphic interfaces, are the first to adapt and develop technology cryptocurrency.
Especially today, after a long period of heavy bear market, driven by a new, asymmetrical opportunity in our profitability, we have a chance to become part of a powerful wave of growth resulting from the development of technology and human greed that will come.
Markets, cyclical in nature, offer each of the new generations just such occasions. Fortunes and fortunes built by pioneers who have joined such waves at the right moment last for decades. Therefore, I congratulate you because you have made the first step to achieve the goal.
The second step is not getting lost in the constant flow of incomplete information, scams, half-truths and touts.
Technological cycles reward pioneers, but for most of them they are absolutely ruthless.
Few perseverance in involvement, some of them will be absorbed by deadly fluctuations of the young market.
Information and knowledge are the key to surviving in cryptocurrencies.
Without them, you will be cheated, robbed and used. Investigating the truth requires time and commitment. Luckily, that's what I like to do.
Therefore, today presents you with a powerful collection of knowledge. Let it light your way on this cryptocut war in the wild west.
NEO - Chinese Ethereum
I invite you to analyze and summarize cryptocurrencies NEO, by some called "Chinese Ethereum".
The aim of the analysis was to focus on the fundamental NEO architecture, extensive presentation and understanding of the project, project evaluation, as well as the detection of potential critical defects that could block further NEO development in the future. Due to the volume of projects developed under the NEO, some of the side initiatives have been omitted from the report.
• NEO has one of the largest and most active communities
• Over a dozen works on the NEO ecosystem development teams, dispersed mainly to Asia and Europe
• NEO is completely centralized blockchainem, which is publicly confirmed by NEO employees and developers. Until now, the transition to the decentralized model has not been initiated, although it has been announced since the 2017 year.
• All 7 validating nodes (confirming) all activities in the NEO network are directly (in the case of 5 nodes) or indirectly (in the case of 2 nodes) dependent on the NEO Council - the main supervisory body of the NEO project.
• NEO, despite the possibility of public access to the network, has features private blockchain.
• The NEO Council has the option making any changes to the blockchain NEO at any time.
• Most NEOs are owned by the NEO Council and Cryptocurrency exchangessuch as Binance, Bittrex and Bitfinex. If the possibility of NEO voting for delegates to the validating nodes is introduced, it is these units will have a majority of votes (although Da Hongfei announces that in the future he would like this situation to change).
• Use of the algorithm in the NEA blockchain dBFT (Delegated Bisantian Fault Tolerance) creates serious problems (currently unresolved) in planned network decentralization and blockchain scalability to the assumed 10,000TPS, without a drastic reorganization of the fundamental system architecture.
• Characters such as Vitalik Buterin, they even suggest that dBFT is unable to scalewithout full centralization.
• dBFT (being a hybrid of POS + pBFT protocols) is less secure protocolrather than POW (Proof of Work). Consensus between nodes requires at least 66. (6)% of properly functioning nodes.
• If the 3 with 7 nodes of the NEO blockchain managers stops working, the entire NEO blockchain disables.
• Finalność (finality) after one confirmation from the network that 15s will take. after entering dBFT 2.0 it is impossible in a decentralized blockchain.
• NEO cryptography is based on elliptic function cryptography - so far, the promised resistance to breaking codes using quantum computers has not been introduced yet
• The actual NEO blockchain speed is 500TPS, not as presented in the NEO - 1000TPS documentation.
• Current cryptographic signatures used in NEO, can lead to an annual one blockchain weight gain even 900MB.
• NEO does not have the key features of cryptocurrencies and should not be treated in this respect. It is also not a tokensince no functionality has been introduced so far (as described in Whitepaper), such as the voting rights in the network, defining the token. Proposed nomenclature that captures nature NEO is a digital property. Currently, the only functioning NEO function is GAS generation.
• GAS acts as a payment for depositing smart contracts in the NEO networkother functionalities, such as the network transaction fee system, have not been implemented yet.
• Incoming NEO 3.0 and dBFT 2.0 introduces a lot of fundamental changes and improvements in the NEO block and the NEO + GAS model.
• The NEO and GAS model, taking into account the suggestions and comments of the main NEO blockchain engineers from the Github platform, will be subject to large, previously unspecified changes.
• Comments from the main NEO architect Erika Zhang, indicate critical errors in the current model. Introducing the function of voting on nodes validating with the help of NEO could lead to the so-called blackhole, in the case of which the entire GAS-generated resource would be lost.
• W NEO 3.0 a new one is considered GAS inflation model due to the problem of NEO falling into dead addresses, so-called black holes, NEO divisibility, as well as the lack of economic initiative for leading nodes (which, according to the creator of this report, is a critical weakness in the case of a blockchain introducing too large a factor of trust and economic non-network initiatives based on the human factor).
• Current confidence coefficient required to use the NEO network disqualifies this platform as independent and decentralizedand thus trust-less blockchain for smart contractors. The price of 500 GAS for the deposit of a smart contract in the NEO main chain has meant that any development of the NEO as well as the ecosystem around the network is strictly dependent and monitored by the NEO Council.
• Detected errorthrough which you can use 20 GAS block the entire NEO network
• Blockchain NEO now has 130 (111 of them are tokens in the NEP standard) deposited contracts. Ethereum on the other hand, has 1 200 000 contracts on the main chain.
• Despite assurances Da HongfeiCEO of the NEO project, looking at the fundamental side of the blockchain developed by a private subsidiary NEO-Onchain and confirming by this report that the NEO is in fact a private blockchain, it is serious conflict of interest between these two bodies.
• Sources from the DNA project report that on the 2017, Onchain developed partially NEO. This is what it is big question mark in the face of the fourth, private capital collection.
• Analysis of implementation projects ICO on the NEO platform, direct or indirect involvement of NEO members in these projects. The purpose of this commitment remains the domain of speculation.
• NEO has one of the largest communities and institutions / organizations working on the NEO ecosystem.
• NEO has carried out 4 ICO - 3 public and one private on behalf of Onchain.
• Main codeas well as all appearing problems are solved on a regular basis.
• If you overcome the above-mentioned problems, NEO in the form semi-private blockchain (if you implement the current plan for partial decentralization of the verification architecture - especially nodes), it has a chance to develop, especially as a blockchain platform for games and virtual worlds of the new generation.
Overall project evaluation: 6.5 / 10
The report is divided into three parts. The first part is an introduction to the NEO, the second part is a fundamental analysis of the technology used by NEO. The third part is a comparison of NEOs with competing projects, threats for the future, problems that NEO will have to overcome, as well as the pros and cons of NEO. Finally, there is a summary of the report. I cordially invite you!
NEO is a distributed network, using blockchain technology, digital identity and intelligent contracts known from Ethereum in order to create something that the project's creators call Intelligent Economics.
Under Intelligent Economy (hereinafter referred to as IE) is meant to create a distributed network architecture, devoid of a trust factor, through which thousands of users from around the world will be able to use NEO to ensure the security of their digital identity.
The IE also includes: the ability to securely enter into smart contracts, digital assets that can be developed within NEO - e.g. tokens (currently, two standards of tokens are used in NEO - NEP5 equivalent to ERC20 and NEP8 - the equivalent of ERC721), SDK tools for developers and dApps.
Particularly different forms "tokenizacji"Physical assets and transferring them to the digital platform are a step in the right direction (although we know exactly the same with Ethereum - it is also done on a much larger scale, which will be depicted later).
Blockchain is a great tool for transferring, at low cost, digital representations of physical goods. It avoids obstacles, not only physical distance from interested parties, but also jurisdictional barriers.
Example: tokenization of a specific amount of physical gold, made on a trustless, secure, dispersed network. Instead of buying physical gold, worry about the numerous legal complications resulting from different legal norms among countries through which gold would be transported, the buyer would receive gold tokens that the holder would be entitled to the amount of physical gold specified in the contract.
This is of course an example, and real tokenization is measured against many problems, such as ensuring that the network is completely decentralized. However, this is an interesting issue.
NEO as part of IE also adapts its platform to a new generation of blockhain based games (CEO Da Hongfei compares it to the model of playing presented in the movie "Ready Player One" - but according to my estimates, the NEO is still a long way to even approach games on its platform to such a form).
The foundations of IE NEO are also two cryptocurrencies - NEO and GAS (although hereinafter I prove why the NEO as a cryptocurrency should not be treated). So we have to do with the two-token model. Each of the tokens, at least assumed by Whitepaper NEO, performs a specific function throughout the entire ecosystem.
Interesting fact: The NEO Stock Quote, called the Ethereum of China, in the 2017 year increased by over 200,000%. This resulted mainly from the fascination of investors with the Eastern cryptocurrency market, as well as the phenomenal NEO marketing and the bull market at the time.
NEO currently occupies 17 in the world cryptocurrency ranking. His stock quote is over $ 10 USD, and the capitalization is $ 692M USD. During the year, as a result of drops in the entire market, it lost -86.02%.
Organizational structure of NEO
NEO Foundation NEO management is officially a non-profit organization (therefore, the report omits analysis of the business model).
The maximum supply of NEO cryptocurrencies is 100M, of which 65M is currently on the open market, and the next 45M is in the hands of the NEO Foundation.
According to Whitepaper, the remaining funds are to be allocated to the development of NEO blockchain and initiatives within the ecosystem. The maximum amount of NEO that a NEO Foundation can "unlock" is 15M NEO in one year.
The NEO Foundation exercises the full decision-making power over the NEO protocol and ecosystem.
The founding members of the NEO sit on the supervisory board Da Hongfei i Erik Zhangas well as two other members.
The NEO Foundation is directly subject to two bodies - NEO Global Development and NEO Global Capital.
The first of these organizations is responsible for the entirety of R & D (research and development) and deals directly with the technical development of NEO.
NEO Global Capital, on the other hand, holds the functions of a licensed (under the Singaporean law) investment fund, serving as the NEO investment arm, to ensure the commercial use of side-chains developed within the NEO.
It is also worth remembering which companies and projects are directly or indirectly related to NEO (most of them were directly founded by Da Hongfei).
They are: NEO Foundation (managing the entire NEO ecosystem), Onchain, Onchain Custodial, Ontology and the initiative from which everything began - DNA (Distributed Network Architecture).
The history of NEO
Founded in 2014 in Shanghai, it was initially known under the name Antshares. Two friends - Da Hongfei and Erik Zhang - came up with the initiative to build NEO.
They also funded the initial activities of the project. Shortly afterwards, also in 2014, Da Hongfei founded the second of the key projects in later history - a private company dealing in the development of distributed networks and blockchain architecture, called Onchain. Onchain, unlike NEO, is fully private and commercial signature.
As I will show in the later analysis, despite the assurances, there is a serious conflict of interests between the system developed by NEO, and Onchain7 - on whose basis Ontology was founded, a project that initially started as a NEP5 token on the NEO platform.
NEO Foundation (then still Antshares) carried out three ICO (Initial Coin Offering - equivalent IPO in the world of cryptocurrencies).
This is admittedly unusual, because usually the ICO is carried out once, although it should be taken into account that in 2014-2016, cryptocurrencies were in a completely different stage of development and recognition. However, three times collecting funds for the same project can be puzzling.
First ICO carried out in October 2015 year. At that time, 2100 BTC9 about $ 550 200 USD was collected.
Crowd-funding took place on the platform WeAngel.
Da Hongfei remarked that the aim was to illustrate (it has not been given to whom exactly) how a blockchain can be used to raise funds for start-ups.
Second ICO took place in April 2016 year. In his time, it was estimated that $ 3.7-4M USD in Bitcoinie.
Moreover, between the first and the second ICO, an additional $ 4.5M USD was raised to fund further Onchain activities.
It is interesting that the Antshares team collected the funds for the development of Onchain. It makes Onchain indirectly dependent (at least in the initial phase of the company's development) from NEO (then Antshares).
It is also surprising that although Onchain was supposed to be a private company, according to Da Hongfei assurances working on completely different systems than the NEO and not presenting a conflict of interest, in an article from the DNA project describing the purchase of a large portion of Onchain by the Chinese Fosun group (perhaps it was part of the alleged $ 4.5M USD from private investors) it is stated that Onchain worked (before 2017) over NEO.
Third and last ICO was held between 8 August, and 9 on September 2017 of the year, after changing the name of the project from Antshares to NEO. Thanks to him, $ 28M USD was raised.
In conclusion, NEO in the ICO phase, collected a total of $ 32 550 200 USD + $ 4.5M USD (for Onchain, from private investors).
Official press releases from the NEO Foundation state that after the confusion with
blocking ICO in China in the middle of the 2017 year, NEO returned funds to investors participating in the first two ICOs.
However, there is no proof for this, in the form of even blockchain transactions. It was never presented why three ICOs were needed. To this day, it remains a sweet secret.
The scheme we know is as follows - NEO conducts three ICOs collecting a total of $ 33M USD. In addition, in 2014 he sets up a private company, Onchain, to deal with completely different systems than NEO. However, their own official sources say that until the year 2017 Onchain worked on the development of NEO. It can therefore be assumed that the NEO therefore carried out together 4 ICO - three of them public and one private on behalf of Onchain (which belongs to NEO), collecting a total amount of $ 37M USD.
The NEO community
It is worth noticing how rich and large the global NEO community is. In this aspect, I'm really impressed.
NEO is also developed by a large number of sub-organizations and international groups. The full list as well as addresses for individual initiatives can be found here
Such a rich number of development groups results in very efficient solving of problems in the NEO blockchain and high activity over github:
Roadmap project - NEO 3.0 and dBFT 2.0
The whole of the fundamental architecture planned for over a year is approaching fast. The protocol on the basis of which there is a consensus within the NEO blockchain - we refer to the protocol here dBFTwhich will be discussed in detail later in the document, as well as the blockchain itself. Erik Zhang, co-founder of NEO and main software architect, in one of his many presentations on the subject, as well as in open developer discussions on the Github platform, pillars on which the new system is based:
• System reliability, no failures.
• Increased (and cheaper) possibilities to store data directly on the main chain.
• Increase the number of transactions per second.
Each of these aspects will be discussed later, because there are serious indications that the NEO will not be able to achieve these goals without changing the principles of the functioning of its network from the very basics.
Erik Zhang also adds that he would like to transfer all the applications currently being built into the so-called the second layer of the ecosystem (off-chain solutions) directly to the main NEO chain. I want to radically simplify many aspects of the current NEO protocol (it has not been mentioned exactly), so that all the transfer to the main chain is possible.
Simplification of architecture is also planned digital "property" (assets). Currently, they differ substantially in code issues compared to ordinary smart NEO contracts.
Zhang wants to reorganize this part of the system, so that from this point on, all digital properties within the NEO - e.g. different hybrid types of tokens, they were represented as smart contracts.
The aim of such a venture would be, above all, drastic reduction of data storage costs within the blockchain (as a solution to the so-called second layer).
Nevertheless, although such are the plans, experience with such systems, developed by the aforementioned projects, shows that this is an extremely difficult thing.
What's more, it is a huge problem to find potential customers for such services, because currently it is much more profitable to use an ordinary cloud, e.g. AWS from Amazon.
It is also doubtful that the dispersed NEO cloud would be really - dispersed.
Their current centralization of the project (as discussed in later paragraphs) clearly shows that NEO is only interested in decentralization on paper or in long-term plans.
One of the problems that NEO is facing high fees for depositing Smart Contractswhich makes NEO a worse choice than Ethereum. This also has to be changed in NEO 3.0
Specific date of implementation of NEO 3.0 and changes planned under dBFT 2.0 remain in the speculation area (although the first implementation of dBFT 2.0 is to be introduced in May 2019but no complete code has been published so far).
Work on the Github platform over these system improvements has been ongoing since the middle of the year 2018.
Differences between the developers are discussed, but there is no indication that a clear vision has been crystallized so far, what NEO 3.0 is supposed to be, in addition to changes in the protocol and several improvements.
Da Hongfei does not rest on his laurels. His long-term vision of NEO is clear. For the 2020 year (though we can talk about a longer period, because such an assumption is impossible to implement), he would like to NEO has become a crypto-valued TOP 1.
What's more, he illustrates his vision by referring to the protocol TPS / IP and HTML.
He would like the NEO to take just such a place in the future. To make it happen to decentralized applications, the above-mentioned protocols are for the Internet.
At the moment, these are only announcements without coverage. NEO processes maximum 500TPS, and the thorough examination of the dBFT technical constraints and the type of cryptographic signatures currently used show that these plans are not available at the moment (see the dBFT analysis section).
You have already been introduced to the NEO, its structures and long-term vision. You have learned what NEO is and what you would like to become. In the second part of this report, I will look, literally, under the NEO skirt, discovering and extensively analyzing the fundamental principles of protocols, blockchain that NEO uses and find out what critical threats resulting from the specificity of technology used, may threaten NEO in further plans. I will also discuss the two-token model on the basis of which NEO operates, and you will also know what kind of tokens it uses.
Blockchain NEO and Smart Contracty
Although Whitepaper NEO, which is the most important project document, states that NEO is decentralized, it could not be further from the truth.
All NEO blockchain 7 is managed by validating nodes (Consensus Nodes) which are wholly owned by the NEO Foundation, or are indirectly supervised by it - 5 nodes belong to NEO F., one to their partner, and the last one is managed by City of Zion, an international group of NEO developers managed by NEO F.
NEO can process 500TPS, this is also the limit set in the code of one block (and not 1000TPS as it is commonly assumed).
Blockchain NEO is based on cryptography of the elliptical function, which makes him vulnerable to future codes breaking quantum computers.
Quantum cryptography it has not been implemented in NEO, nor is there any plans to introduce it in the planned NEO 3.0.
This is puzzling because some of the NEO information pages still say that it is QS (Quantum Secure).
NEO was also often promoted as QS, which can be considered as simply untruths or misinformation (in the article there are other errors, such as the fact that NEO can process 1000TPS).
The total centralization of the NEO blockchain is a huge red flag. Even employees admit openly that the NEO is centralized. The developer's need to be the official reason and the need to keep the network coherent until the next nodes are introduced.
However, since the 2017 year, it has been maintained that the NEO will become decentralized. Although numerous documents have been presented, as shown in the blockchain scan presented above, nothing has changed in this matter.
This is extremely important for several reasons.
First, kryptowaluty from the assumption of a pure definition, they must be decentralized.
Hiding a private blockchain managed entirely by one foundation, under the guise of a decentralized network, poses a huge threat to developers building their solutions at NEO, but is also a pure lie to investors. NEO, through its total decision-making dependence on the Foundation, is in fact a private blockchain, open to public viewing.
NEO 3.0 is not planning to change it, and the process of introducing new Consensus Nodes is in place.
To achieve consensus within the NEO network, the minimum 66 (6)% 29 required nodes are required. Recall that 5 from 7 nodes is controlled directly by the NEO Foundation. This makes the NEO blockchain completely dependent on the Foundation, which developers can change any system rules at any time.
At the moment, NEO is therefore a private blockchain. Until the broad decentralization process is introduced and the validated nodes are operated by independent third parties, the NEO remains completely centralized and should not be considered in other categories.
An important thing to add about the honest choice of Consensus Nodes - it was planned to introduce the possibility of voting using the NEO token for delegates.
It would give the opportunity to democratically choose delegates who would offer some kind of economic initiative, such as cheap transactions.
Nevertheless, the vast majority of NEO is owned by stock exchanges: Binance, Bitfinex and Bittrex i The NEO30 Foundation.
This would mean that if a voting model was introduced, as we know it from, for example LISK (with the dPOS model) The NEO Foundation along with the stock exchanges would have an impossible to overcome decision-making hegemony regarding the election of the CN. This creates a practical monopoly on decision-making about the further development of the project - if the NEO resource is not also subjected to decentralization, there is no room for naming the NEO public blockchain.
Cryptocurrencies, full, as in the case of Bitcoin, or at least partial - Ethereum, Monero, Dash, decentralization always have a certain mechanism that provides an economic initiative to have full nodes.
Transactions in Bitcoin are confirmed by miners, and the protocol POW (Proof of Work) provides them with financial initiative for securing the network. At the same time, users must also pay a small fee (Bitcoin, Ethereum) for sending the transaction.
This mechanism makes it unprofitable to spam blockchain (which in no case is an efficient database) with unnecessary transactions - because it is expensive.
Transactions within NEO are free. Amazing?
No, because we already know that NEO is a private blockchain with only an apparent audience. The fact of free transactions seems to confirm this. The whole chain is operated directly by the NEO Foundation, they can also afford such a procedure. In the case of a normal, even partially decentralized, cryptocurrency, it would be impossible, because the network would immediately be infected by dishonest individuals.
Leading NEO developers, in a public conversation on the Github platform, as part of discussions on changes in NEO 3.0 confirm that there are already organizations that without any direct economic initiative flowing from the network (such as receiving payments for verifying transactions) are able to pay for maintaining Consensus Nodes.
A critical red flag for the project.
Blockchain can not be decentralized if its nodes that are guarding the network consensus do not receive anything in return.
Cheating economics never goes for good.
In cryptocurrencies, this is only possible with fully centralized blockchains, when there is an indirect financial initiative.
When the NEO Foundation agrees with a given company / group willing to cover the cost of maintaining the node, in exchange for, for example, the opportunity to purchase shares in a new technology company established by NEO Global Capital.
This is just an example and this situation (or at least it was not publicly awarded) did not take place. This shows, however, that there can not be a decentralized system without any mechanism that would reward the holders of validating nodes for their service to the network.
NEO, like platforms like Ethereum or Waves, offers smart contract technology. Intelligent contracts are intelligent only by name - it is simply an agreement written in the code, instead of a traditional legal letter that is possible to do so without third parties, automatically.
The purpose of this report is not to go into the technology of smart contracts, on which you can read many studies on the internet. However, I would like to point out that the NEO differs from the platforms mentioned above in terms of flexibility.
Smart contracts can be written in different programming environments:
• C #, VB.Net, F #
• Java, Kotlin
Smart contracts are currently being implemented using NEO VM (Virtual Machine). This is to be changed in NEO 3.0, however the current diagram showing the specific cycle of depositing and contract performance is as follows:
dBFT - Delegated Bisantian Fault Tolerance
According to words Vitalika Buterina, creators Ethereumthere is a misconception that consensus protocols in cryptocurrencies should make them fast.
The truth is that the consensus protocol is to make blockchain safe. In such words, Vitalik criticized the claims of some projects that thanks to the use of dBFT can achieve thousands of TPS (transactions per second).
Yes, it is possible, but such cryptocurrencies are not decentralized - and yet decentralization is just the cryptocurus magnum opus.
This assertion was also directed towards the NEO - which, as we have already stated, only has 7 validation nodes controlled entirely by the NEO Foundation. Therefore, NEO Blockchain is a private blockchain with the possibility of public access to the network.
But what is this whole dBFT?
dBFT is the NEO blockchain network consensus protocol.
The whole envelope around consensus protocols (consents) in decentralized networks consists of one problem: how to solve the problem Byzantine generals?
Byzantine Fault Tolerance means that two nodes can safely communicate over the network, knowing that they display the same data. This is a key and one of the most important issues in cryptocurrencies. So let's find out more about it.
The problem of Byzantine Generals
The problem of Byzantine generals was conceived in 1982. As a logical dilemma illustrating how a group of Byzantine generals may have communication problems, trying to agree on the next move during the attack on the opponent.
The dilemma assumes that each of the generals has its own army and that each group is in different places of the city that they intend to attack (it is therefore dispersed). Generals must agree to attack or withdraw. It does not matter if they attack or retreat, until all generals reach a consensus, i.e. they agree on a joint decision, they win.
Therefore, we can consider the following requirements:
• Every general must decide: to attack or withdraw (yes or no);
• Once made, the decision can not be changed;
• All generals must agree on the same decision and execute it in a synchronized manner.
These communication problems are related to the fact that one general can communicate with another only through messages that are forwarded by the courier. Therefore, the main challenge of the problem of Byzantine generals is that messages may be delayed, destroyed or lost in some way (and, in the worst case, intercepted by the enemy).
In addition, even if the message is successfully delivered, one or more generals can choose (for any reason) malicious activity and allow false messages to mislead other generals, which will lead to complete failure.
If we apply a dilemma to the block chain context, each general represents the network node. Nodes must reach a consensus on the current state of the system. In other words, most of the participants in the distributed network must agree and do exactly the same to avoid a total failure.
Therefore, the only way to achieve consensus in this type of distributed systems is to have at least the majority of reliable and fair network nodes. This means that if most networks decide to act maliciously, the system is vulnerable to failures and attacks. In practice, you need a majority of min. 51% on fair nodes.
In a few simple words, Byzantine resistance to errors (BFT) is a property of a system that is able to resist the class of failures stemming from the problem of Byzantine generals. This means that the BFT system may still work, even if some nodes fail or act maliciously.
There is more than one possible solution to the problem of Byzantine generals, and thus many ways to build a BFT system. Similarly, there are different approaches to the block chain to achieve Byzantine resistance to errors, and this leads us to the so-called consensus algorithms.
NEO and network consensus
In the case of NEO, the consensus is achieved by means of the dBFT protocol - Delegated Bizantian Fault Tolerance, a BFT variant adapted to cryptocurrency.
100 000TPS founded for 2020 year at NEO is another marketing idea that we can put in the basket.
BFT has been used in computer networks for centuries 38, and the specific study and evaluation of consensus protocols on the cryptocurrency and blockchain issue, clearly shows that dBFT can not scale beyond the size of a small, local and centralized network 39. What's more, it is extremely questionable to scale such a blockchain to the size of the Ethereum network.
This is another confirmation that the NEO is in fact fully centralized.
The higher security of dBFT over the POW protocol is also questionable. Although such claims were made by Erik Zhang:
As shown by the data from the analysis carried out by the NEO development center in Sant Petersburg, illustrating the distribution of tasks between validating nodes within the NEO blockchain, in order to reach a consensus, min. 66, (6)% honest nodes.
Note that in the case of POW and, for example, its implementation in Bitcoin, for the main chain to be at risk, the attacker must have 51% of total computing power.
So if 3 from 7 Consensus Nodes used by NEO is damaged, defective or attacked for some reason, the entire NEO blockchain stops working, transactions can not be validated, and subsequent blocks are created. A chain break may also occur.
This is a serious problem, even critical, for NEO, also considering the fact that it has only 7 validating nodes (in addition, they are all centralized, so there is one point that is enough to attack to plunge the entire blockchain).
This is not the only problem with which NEO and its blockchain are measured. As the analysis of the 42 code suggests, the maximum number of transactions in the block is fixed on 500TPS, and not founded and strongly promoted in the social media 1000TPS.
It also wonders the type used cryptographic signatures. It is the same multisig. known from Bitcoin. Long time between blocks in Bitcoin, ensures that the annual increase in the weight of the entire block chain is not so significant.
However, the use of the same signatures in the case of a blockchain whose block time is specified on 15s. (Update in NEO 3.0) causes the chain of blocks to increase by almost 1GB per year (exactly - over 900MB).
As a result, if a planned decentralization process is implemented, it will be extremely difficult to maintain, by an ordinary user, a full copy of the chain. This leads to further network centralization.
Delay and finality in the blockchain
In order to better understand the improvements proposed by Erik Zhang in the dBFT 2.0 protocol, I think that it would be appropriate to introduce somehow what they are and what function they play in cryptocurrencies delay and finality (Ang. Latency & Finality).
Because just delay and finality is to be seriously improved in dBFT 2.04445.
Delay - time that elapses since the creation of the transaction until confirmation of its acceptance by the blockchain (and how the certainty of its acceptance increases with the passage of time).
Finalność - the property that after the transaction has been completed it is not possible to reverse it (or change it). Essentially, this is the moment when the parties involved in the transfer can consider the concluded contract (in this case the transaction) as final and irreversible. Finality can be deterministic or probabilistic.
Both of these features play a key role in the blockchain of 46. It depends on them how quickly our transaction will be on the network and whether we can consider it safe.
Ultimately, if we want to scale our system to global sizes, and also use it as an instant payment system, the delay must be as small as possible (preferably no more than a few seconds), and the finality should:
• aim for the value of 1
• achieve the value of 1 (maximum - assurance that our transaction is in the main chain, is safe and irreversible)
This may sound surprising, but most blockchains, including Bitcoin, have no deterministic ultimate. For each given block there is only a theoretical (assumed by users) possibility that the longer chain will be propagated by the network.
Because the protocol requires that nodes always accept the longest chain as valid, this means that all blocks from the initial chain that are not part of the second long chain will be discarded.
Therefore, the last resort in the case of Bitcoin is probabilisticso it increases with time.
Humanly speaking - the more confirmations we have from the web, the more secure our transaction becomes. This reduces the probability of its reversal by the attacker.
The irreversibility of the transaction and its security are the basis and the greatest asset of the block chain. Therefore, effective optimization of these parameters is the basis for improving such a system.
It is customary to assume that when the transaction is approved on the main chain, it becomes completely safe.
Let's look at how the probability of a transaction reversal is distributed by a person or entity with significant computing power supplying a given chain of blocks that attacks the main chain.
How secure are your transactions?
The diagram was created on the basis of the original code from Bitcoin Whitepaper. This is how safe our transaction depends on the number of confirmations from the network:
• 30.3% security after 1 confirmation
• 77.6% security after 6 confirmations
• 90.2% security after 10 confirmations
• 99.99% security after 45 confirmations
Considering the frequent assumption that 6 transactions are sufficient (about 1h for Bitcoin) for full network security, let's look at a few numbers that show the security level depending on the percentage of computing power being controlled by the attacker when the transaction is committed in 6 fair chain blocks:
• 99.99% transaction security, if the attacker has 8% of the computing power
• 95% transaction security, if the attacker has 25% of the computing power
• 78.68% transaction security, if the attacker has 33% of the computing power
• 49.6% transaction security, if the attacker has 40% of the computing power
• 4.06% transaction security, if the attacker has 49% of the computing power
As you can conclude, the optimization of delay (latency) and finality is the key to large-scale, fast and safe block chains. Various cryptocurrencies suggested different solutions to this problem.
How to ensure that the transaction was transmitted to the network in a minimum delay, at the same time it became safe after the least number of confirmations from the network and extracted blocks.
Kryptowaluta Stellar Lumeninstead of having a certain number of unconfirmed transactions (so-called pool), as in the case of Bitcoin, each of the validating nodes approve independently whether the given transaction is correct. Only then does he communicate with the rest of the nodes and confirm the transaction.
The problem of continuous communication with all nodes at once may endanger the scaling of Stellar, but this has been solved by introducing the so-called trusted group of local nodes.
The point is that each node has several of the trusted twin nodes that confirm the transaction after it is considered correct.
Therefore, it is unnecessary to communicate with all nodes, because we create "local areas of trusted nodes" on which the network is based and which can be trusted. It is true that the blockchain of Stellar cryptocurrencies is currently managed by only 65 validating nodes, so we do not know how this system would work on a scale such as Bitcoin.
IOTA uses a completely new type of protocol for this: Tangle.
However, for both of them, there are serious problems with real decentralization. IOTA needs a single node known for its coordinator, managed by IOTA Foundation.
So you can not honestly talk about any network decentralization if its operation is based on a single point of failure. As you can see, the improvement of these two attributes in the blockchain is extremely cumbersome and simply technically complicated.
The changes to the dBFT 2.0 51 terminology protocol are as follows: a single transaction does not have to be committed by all nodes, but rather by a specific minimum number of them.
This is described by the equation:
M = 2f + 1
f = 1 / 3 x N
M - the minimum number of authenticity signatures required from nodes
N - number of validating nodes (Consensus Nodes) in the network
Short calculations: NEO currently has 7 CN (Consensus Nodes). Therefore, to confirm the transaction, you need confirmation from:
f = 1 / 3 x 7 → f = 7 / 3
M = 2 x 7 / 3 + 1 = ~ 6 nodes
Thus, in the new dBFT 2.0 protocol only 6 nodes will be required to commit the transaction (unless the CN number changes).
This will make the distribution of the finality, in the exponential diagram, where OX is the number of blocks, and OY the level of security (irreversibility of the transaction) will take the shape of the exponential function.
Specific data is not available at the moment because the protocol has not yet been entered into the NEO system.
Erik Zhang's theorem that thanks to dBFT 2.0, the final will reach the maximum value = 1 (i.e., the certainty that the transaction is safe on the main chain and can not be reversed) can be inserted between the tales.
In terms of finality, however, there is a lack of specific technical data describing how to improve this feature. Nevertheless, as the Stellar cryptocurrency example shows, in the case of less decentralized networks (and we have already proven that the NEO is fully centralized), reducing the delay should not be a big problem, because you do not have to worry about the level of network decentralization.
"(...) we know that the system does not use any economic initiatives and requires huge trust, which is simply unacceptable in cryptocurrencies" - Eric Wal, dBFT criticism at NEO
The introduction of dBFT 2.0 is planned for May 2019 of the year.
Tokenekonomia - NEO and GAS
Introduction to the two-token model
Maybe you know this model. One project, but two cryptocurrencies. It's like a man and two women - very rarely works.
It is no different in the case of cryptocurrencies.
When a project decides to own a cryptocurrency, it becomes a terribly difficult task at that moment. How to ensure the value and usefulness of the newly created cryptocurrency. Therefore, an effective solution is usually to use existing ones - in particular, to build your business around proven and trusted (and popular) systems: Bitcoin, Ethereum.
Nevertheless, two-token modelalthough tempting for speculators and small investors, which may make the stock market somewhat confused and rises, it is a long-term threat to the operation and development of the project. It is difficult to find a new application for one new cryptocurrency (if it is not as revolutionary as Ethereum and the technology of intelligent contracts introduced in it), let alone create a great (or at least well) functioning ecosystem in which two separate tokens are used, or kryptowaluty.
It is worth noting that not only NEO has two cryptocurrencies in its arsenal. A similar model (almost the same) uses even Vechain Thor and Tefood.
NEO is one of the tokens in the two-token model. Its maximum supply to 100M is indivisible (you can send 1NEO minimum), and according to Whitepaper and the original assumptions, the token was supposed to work similarly to the standard publicly listed company's shares - to be a NEO voting right. Thanks to NEO (token), we could vote for candidates for validating nodes. However, this has not been introduced yet.
It should also be noted that NEO, unlike traditional action, does not give you any share in the NEO Foundation.
So what are the NEO functionalities at the moment?
It can send, receive and receive in the wallet, which generates GAS.
It does the same NEO, in my definition, a digital asset. Because it does not have the features of cryptocurrency - we can not make payments, it is also not decentralized, in addition it is indivisible, so there is no standard and required function of money.
The planned voting function has also not been implemented, so you can not talk about the NEO as a token (because the token has a function in the ecosystem).
NEO could be called a token at the time when GAS would have had long-planned characteristics. However, he is, at the moment, mostly useless.
NEO is listed on most cryptocurrency stock exchanges: Binance, Bitfinex (where we can trade NEO on the so-called margin), or Bittrex.
Despite the lack of any functions, NEO turned out to be one of the best digital assets in which it was possible to invest.
The investors' fascination with Chinese projects during the 2017 boom year, as well as the nickname "Ethereum of China" and looking for further investments that could provide returns comparable with those of Ethera (when the stock market valuation increased from $ 0.3 USD to over $ 1200 USD), indeed, the NEO increased by an unbelievable percentage of value.
As you can see, the lack of any usefulness and good marketing make wonders in the world of cryptocurrencies.
It is worth mentioning that if we place NEO on a dedicated portfolio from the creators (Neon, NEO GUI) or on the Binance or Kucoin stock exchange, it generates GAS.
One NEO generates 1GAS within 22 years. Below you can find a graph of the assumed GAS emission based on available data.
GAS it was supposed to be, as the name says, fuel that drives the blockchain NEO. It is with him that we would pay transactions in the NEO network, he would need to deposit smart contracts, he would become the foundation Smart Economy.
What was the assumption. However, the only property of GAS that actually works is to pay for depositing smart contracts in the NEO network - we need 500 GAS units for this. The high cost of smart contracts and low GAS emissions mean that developers from the NEO Foundation have strict control over smart contracts deposited in the network.
Transactions in the NEO network are free. As you can see, there is no economic initiative for validating nodes. They were supposed to receive so-called transaction fees - ie fees for validating transactions that network users would pay in GAS.
Currently, however, such a model has not been adopted and remains in the sphere of plans. What's more, maybe it will change with the ongoing discussion about NEO 3.0 between the developers at Github.
Many calculations also show that GAS is highly undervalued in relation to NEO. Perhaps this is due to the poor understanding of investors what GAS actually is, and what NEO and what roles they play in the system.
It is GAS that should have (if strictly in line with the assumptions of the developers building blockchain NEO) the highest value due to its low emission and usability. However, as they say, the market is never wrong - it is possible that the NEO and GAS functions have been poorly communicated to the community, or the system itself does not work as it should be based on assumptions. Nevertheless, this is an interesting situation.
GAS emission model in relation to the NEO market supply:
Assumed (if the principles of the network operation will not change and, for example, GAS inflation will not be introduced) the model of total GAS supply in time:
Changes in the NEO and GAS model
The planned NEO 3.0 is also expected to bring a lot of changes to the NEO and GAS model. They result from several dangerous technical problems found by developers in the system, as well as economic factors.
In this section, we will take a closer look at them. All of the screenshots presented below come from official discussions about NEO 3.0 on the open Github platform.
The first of technical problems are so-called addresses "blackhole". Black holes in computer networks indicate the places where network traffic is interrupted, but without informing the source.
An example of black holes may be e-mail addresses used to send one-time e-mails. If we try to respond to a message, it is automatically deleted and never goes to the recipient.
Recall - Erik Zhang is the co-founder and main architect of the blockchain and the entire NEO ecosystem.
In the above, the introduction of the inflation factor in GAS was considered.
This would mean that GAS would no longer have a specific, fixed amount (corresponding to 100M NEO, each producing 1GAS within 22lat). Instead, the GAS would be subjected to inflation, which is relatively small, but it would be an extremely important, fundamental change (to which the NEO Foundation has the full right, as it controls the entire network - investors can be affected). Inflation would cause the NEO falling into the "black hole" will not cause a chain reaction in which in a short time the entire GAS would be absorbed.
One of the biggest, if not the biggest advantage of cryptocurrencies is that, unlike in the traditional financial world, once the transaction can not be blocked by anyone, undone (if there is no mass attack on the network, as described above), reversed. You will send a cryptocurrency - for example to your family in Australia - no government body is able to reverse this transaction and confiscate your coins.
All the more puzzling is the proposal to solve the problem of black holes in the NEO network by means of the possibility of reversing the transaction (if any NEO falls into the dead address).
It is true that some centralized cryptocurrencies (which should not be called cryptocurrencies due to centralization), such as EOS, have the ability to withdraw the transaction.
It is, however critical red flagthat should deter you from the project, because it means that your funds are not safe.
For the time being, in the case of NEO, the withdrawal of the transaction remains in the idea phase, but such a proposal from leading developers is an act of pure ignorance and misunderstanding what crypts are actually and for what purposes they should serve.
There was also information about a critical error in the NEO code, leading to a complete paralysis of the network, or - at best - a delay in mining blocks by several minutes.
In such a serious mistake, Eric Zhang's standpoint is very puzzling and he commented that they should focus on NEO 3.0:
The last alarming thing that I managed to find in the proposal of changes in NEO 3.0 is to focus on promoting the functionality of the system directly related to the possible exchange quotation. It is no exaggeration to say that just speculation should be the last thing that we pay attention to when designing an efficient and decentralized system. NEO claims that it is an open-source project, and the NEO Foundation is a non-profit organization. Such claims, unfortunately, put this information into question.
When it comes to storing your NEO - you want to do it on a wallet for which you have private keys! Only then, cryptocurrencies are truly yours!
I recommend two wallets: NEON Wallet and NEO GUI.
The former is preferred if you are not very experienced in cryptocurrencies, or you prefer good design and UI, while NEO GUI - that is, simply graphical implementation of the user interface, offers a rich number of functions. You should choose it if you are interested in building on NEO as a developer.
Tokens for NEO - NEP5 standard
Currently, NEO exists 54 operating and efficient projects, having its token in the NEP5 standard. It does not differ much from the ERC20 known to us from Ethereum.
What's more, ERC20 was a good hint for developers during the creation of NEP5.
The trails were already sawn, it was enough to adjust the code for the multiplatformity offered by NEO. Thus, NEP5 is simply the equivalent of ERC20.
All projects that have carried out the ICO on the NEO platform are currently in the NEP5 standard. The whole graphic is presented below:
The graphics are a bit outdated, because e.g. Thor project, recently ended its operations, leaving investors on ice.
The rest of the data is correct. However, the situation with Thor clearly shows how important it is to accurately analyze cryptocurrencies and correct diversification and proverbial, not putting all our eggs in one basket.
One specific altcoin, if it is not in a high position in the cryptocurrency ranking, should not be more than 3-5% of your overall portfolio.
This is due to the fear of possible closure of the project, when the investor remains without any funds that he invested in the project.
Tokens in the NEP5 standard you can store in exactly the same way as you do with NEO and GAS. Both NEON Wallet and NEO GUI will be suitable for this. Transaction of tokens can be tracked using NeoTracker.
Only part of the NEP5 tokens is available on the largest world exchanges - mainly Binance. However, all of them you can easily exchange for Switcheo71. Be careful, order books are shallow and there is a large spread, and the daily volume is negligible on most couples.
Unfortunately, the code itself described in the NEP5 standard is not free of errors and problems. They are repaired relatively quickly, but they are a serious problem. A warning about errors appeared on behalf of Tencent, the largest Asian technology company.
Communication Monitoring Lab Tencent - "The famous NEO blockchain project has errors that involve the risk of remote piracy. When the user starts the NEO network node with the default configuration and opens the wallet, the digital currency can be remotely stolen.
The problem was related to nodes and errors in the NEP5 code. A few months later, another critical issue appeared, this time detected by the network security organization Qihoo 360. The error in the code allowed to block the entire smartXMLX contract system
Different types of fundamental errors were also detected directly in projects on the NEO platform.
Applies to TheKey, DeepBrainChain and Ontology. In the case of Ontology, it is also puzzling why Li Jun - initially one of the main NEO developers, he set up his own company - Ontology, and gave up working for NEO. I am far from seeking any conspiracy, but it is puzzling.
Perhaps nothing insignificant is the fact that the NEO and ONT offices only share 6km. Both are in the same city, so there is no misunderstanding, also considering the fact that ONT still seems to work closely with NEO. That is why it is puzzling for the main developer to set up another, such a promoted company as Ontology.
An important event is also the migration of the first of the ICOs carried out at NEO - RedPulse - for the Binance Chain chain. It is true that the project swears that development on NEO will be continued, and that two tokens will apply in both networks.
But you already know what I think about the two-token model. In addition, in this situation, the economic advantage of the transition to Binance Chain is surprisingly visible and clear.
NEO, Onchain, DNA
I wrote about Onchain in the first paragraphs. Founded by the co-founder of NEO - Da Hongfei, the company aimed to become a private company developing commercial blockchains, in contrast to the NEO Foundation which is a non-profit organization and NEO that is officially presented as a social project. For this purpose, just $ 4.5M USD was collected between II and III ICO NEO.
Are not these exactly the same assumptions as for NEO? Universal blockchain? TOP 1 to 2020 year?
The sense of private capital collection may also be questioned. From the DNA82 project article, which formed the basis of Onchain's architecture, we learn that:
"The product, called DNA [Distributed Networks Architecture], is very similar to NEO, but it was written in Go. Onchain helps other blockchains and financial institutions to create their blockchains from DNA. Basically, it's very similar to NEO, and in the future thanks to NEOx (cross chain protocol) everything can be combined. "
Surprisingly, Onchain, to develop private blockchains using DNA architecture (see below), a private project financed largely by a Chinese group Fosun, he was actually developing the NEO.
It can be concluded that Onchain, in fact, has simply become the private arm of the NEO Foundation, through which they could raise funds for the development of NEO, in addition to the three public ICOs they have carried out.
Onchain is therefore not just a competition for NEO. Onchain was part of the NEO. In the deepest sense of the word. The private arm of the NEO project.
Analyzing this trail a bit further, I came across a strange thing. All official pages, the main page and the DNA project forum are inactive.
The repository on Github is also abandoned.
The situation changed when Onchain set up the Ontology project in 2017.
A tangled thing? Yes.
It seems that since the 2017 year, Onchain left his work on NEO and took care of the construction of Ontology - which, after all, began as a NEP5 token, just on the NEO platform. It must be admitted, however, that Ontology did not carry out the ICO. Tokens were distributed to NEO holders. No wonder, once Onchain has financed his development once.
Curiosity: NEO can be sent and received for free, the Binance stock exchange also does not take any fees for depositing and withdrawing NEO from its stock exchange. The chart below shows that NEO is used mostly to send free transactions between stock exchanges, without paying for it. The diagram is as follows. First, Tether is purchased, then exchanged for NEO, which is then used for a free transaction and the purchase of BTC on the next of the target exchanges.
NEO compared with Ethereum
Contrary to Da Hongfei's plans, there is a high probability, supported by data, that NEO will unfortunately not even come close to the scale of the Ethereum network in the near future.
As you can see, the activity in the Ethereum network is significantly higher than in the case of organic network activity at NEO. The level of active addresses has also changed significantly. The fall in the NEO exchange market valuation also affected the number of active users.
This report was intended to be insightful analysis of NEO cryptocurrencies, its strengths and weaknesses, the whole ecosystem, technology and possible long-term complications. This is the first such extensive and insightful publication available publicly on the internet about NEO.
Some of the key conclusions presented in the report are new and for the first time "come out" to the light. Some of the conversations between developers about NEO 3.0 presented in this report and their implications are unique.
The report is also extensive a compendium of knowledge about NEO and cryptocurrencies and mechanisms of their functioning in general.
Despite its length, each line was thought out in it, and no word was written in vain.
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Remember, cryptocurrencies are an amazing phenomenonHowever, to fully understand them, it is not enough to look at stock prices.
First and foremost, understanding.
Technology and market.
May each of the reports presented by me bring you closer to this goal.
About the author
He is involved in researching and analyzing the world of cryptocurrencies. I also run educational portal about cryptocurrencies. I'm fascinated by science and technology. Vires in numeris.
Studies and reports are possible to implement on request. Prepares reports on specific cryptocurrencies, as well as any other topics related to the cryptocurrency market, such as the cost-effectiveness of introducing a cryptocurrency related service to the market.
All reports provided by me do not constitute investment advice.
I am not an investment adviser, I do not have the power to give such advice. Analyzes are only my opinion.
It is forbidden to make any changes to the report without my consent.