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Understanding the NEO blockchain

Neo blockchain

NEO Blockchain – A Complete Beginners Guide

NEO is a blockchain-based platform which supports its own cryptocurrency and facilitates the development of digital assets and smart contracts. The NEO blockchain aims to automate the management of digital assets with smart contracts.

NEO  is the brainchild of Da Hongfei and Erik Zhang, CEO and CTO of Shanghai-based blockchain R&D company “OnChain”. The NEO project amassed funds from two crowd sales. The first one took place in October 2015, during which 17.5 million NEO tokens were sold for $550,000. In the second crowd sale, the rest of 22.5 million NEO tokens were sold for $4.5 million.

 Image Courtesy: NEO Whitepaper

In order for digitization of assets to work, it is imperative to have trustworthy digital identities. The NEO blockchain utilizes the X.509 digital identity standard. It is the most widely accepted digital certificate issuance model. It also supports the Web of Trust point-to-point certificate issuance mode

Tokens in the NEO Economy

The Neo ecosystem has two tokens:

  • NEO
  • GAS


The NEO makers plan to utilise the left tokens in the following manner-

  • 10 million tokens – to motivate NEO developers and members of the NEO Council.
  • 15 million tokens -to cross-invest in other blockchain projects.
  • 15 million – as contingency fund .
  • The annual use of NEO in principle shall not exceed 15 million tokens.


NEO provides voting and decision making rights in the ecosystem and GAS fuels the smart contracts. GAS also has a fixed supply of 100 million tokens. However, it is divisible. The minimum unit of GAS is 0.00000001.

The genesis block generates 100 million NEOs , 100 million GAS are yet to be generated. They will be generated corresponding to the 100 million NEO via a decay algorithm in about 22 years’ time to the address holding the NEO. If in case NEO is transferred to a new address, the GAS generated will automatically be credited to the new address.

A total of 2 million blocks will be generated every year with a downtime of 15-20 seconds between consecutive blocks. The initial GAS generation will be 8 GAS per block. Henceforth, it will reduce by GAS per year or 1 GAS per 2 million blocks. At the 44 millionth block, the total GAS generated will reach 100 million after which there will be no GAS generation.

The NEO network will set a threshold to exempt GAS from a certain amount of transfer transactions and smart contract operations. If a large number of spam transactions take place, users with NeoID can get their transactions and smart contract prioritized over others.

Also Read: What are Paper Wallets?

Video Courtesy: Youtube

Consensus Mechanism used in NEO Blockchain

Imagine there is a country  inhabited by a lot of citizens. Each of these citizens would elect a Delegate to represent them and to make them happy. The job of these delegates is to pass laws that will make the citizens happy, if they are not good at their job then the citizens can simply vote for another delegate the next time.

First, citizens choose one of the delegates as a speaker. The speakers consider the demands of the citizens and create a law. Second, the speakers calculate the happiness factor, to see if the number is enough to fulfill citizen’s needs or not. Third, the speakers pass it to the delegates. Lastly, the delegates individually verify the speaker’s calculations. If the speaker’s number matches the delegate’s then they give their approval; if not, then they give their disapproval. 66% of the delegates need to give their approval for the law to pass.  If the process fails to attain majority, the process starts again.

In NEO blockchain,  people who own NEO tokens are ordinary nodes and delegates are the bookkeeping nodes. In order to be a bookkeeping node, a delegate should have special equipments, dedicated internet connections and a certain amount of GAS. The “demands of the citizens” are basically the various transactions made by the token holders. The “law” is the current block that is to be added to the blockchain. The “happiness factor” is the hash of the current block.

However, two situations are possible-

The Speaker is Malicious

If a speaker has sent a false message B to two delegates and an accurate message to one, this problem can be easily resolved with the majority rule. The two delegates will verify that their hash doesn’t match with that of the speaker.

The Delegate is Malicious

If in case the delegates decide to act falsely and declares that his hash doesn’t match up with the speaker, he will not have any benefits. As 2 out of the 3 delegates are non-malicious, they will approve the law which will then be passed since a 66% consensus has been reached.


NEO’s Smart Contract Solution (NeoContract: The Smart Contract 2.0)

Neo’s smart contract system consists of thee parts-

  • NeoVM.
  • InteropService
  • DevPack


  Image Courtesy: NEO Whitepaper

The NeoVM or NEO Virtual Machine is a lightweight, general-purpose VM on NEO blockchain whose architecture resembles JVM and .NET Runtime. The VM similar to a Virtual CPU reads and executes instructions in the contract in sequence. It also performs process control based on the functionality of the instruction operations and logic operations. Moreover, it has an excellent start-up speed which makes it a great option to run smart contracts.


The InteropService increases the utility of smart contracts by allowing contracts to access the data outside the NeoVM.  Additionally, it provides storage space for smart contracts.  Presently, the interoperable service provides with some APIs for accessing the chain-chain data of the smart contract. The data that it can access include:

  • Contract information.
  • Asset information
  • Block information.
  • Transaction information


DevPack includes the IDE plug-in and high-level language compiler. As NeoVM architecture is similar to JVM and .NET Runtime, it enables contract coding in other languages. This greatly reduces the time taken by developers to learn how to create smart contracts. This features NEO blockchain a favorite among the developers.

Where to buy NEO?

A trader or an investor can buy NEO on the following exchanges-

  • Binance
  • Bittrex
  • Yumbi
  • Jubi
  • Yuanbao
  • 19800
  • Yobtc
  • Cryptopia

NEO Wallets

The user can store NEO coins in several wallets namely software wallets, hardware wallets, web-based wallets, and paper wallets. These include NEON wallet, Ledger Nano S, NEO Tracker etc.

Read more at : 10 best NEO Wallets you should know about



While it is difficult to comment whether or not NEO blockchain will live up to the moniker of “Ethereum killer” or not. It is appealing to the developers as they don’t need to learn a new language to create smart contracts. Only time will tell if it lives up to its tag or not but it definitely is a great platform for developers.


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