Can NEO truly replace Ethereum? If you are reading this, you probably have come across quite a number of blogs describing NEO as the “Ethereum of China” — largely owing to its many close functionalities to the Ethereum network while also offering one or more standout features.

While you can find the history of the NEO network with a few clicks on the internet, in this piece, we attempt to enumerate the use cases of the NEO token in itself.

Let’s dive right in!

What is NEO?

NEO is a blockchain-based platform founded in 2014 in China. Originally called Antshares, the name “NEO” was adopted in 2017 as part of a rebranding campaign with its platform enabling the creation of digital assets and smart contracts development.

NEO shares a stern comparison with Ethereum as a smart contract platform seeing that it also facilitates the creation of decentralized applications (dApps). However, the platform largely defines itself as a distributed network for a smart economy, combining a number of native functions with the aim of facilitating the creation of digitized assets linked to real-world use-cases and assets.

With its regulator-friendly technology, NEO appears to be thriving in a country where regulations are becoming increasingly severe, largely owing to the government’s continuous attempt to curb the prevalence of Initial Coin Offering (ICO) scams.

NEO and Onchain

While many blockchain technology companies have either moved to less strict climes or simply re-assessed their positions within the country, NEO’s parent company, Onchain, has weathered regulatory storms by maintaining a dual-pronged approach in the blockchain space – providing both private and public blockchain services, primarily to Asian companies, and NEO serving as the latter.

NEO adopts a dual-token system – NEO and GAS – which both run on its network and caters to separate use cases. GAS tokens are used to pay for transactions on the network, whereas NEO token holders are entitled to participate in governance and network management activities.

We discuss the NEO token use cases extensively below.

Neo Use Case: On-chain Governance

The advent of DAOs (Decentralized Autonomous Organizations) introduced the concept of on-chain governance. As the name implies, DAOs are independent, censorship-resistant and autonomous organizations built on a blockchain. Similar to traditional organizations like Apple and Microsoft, where anyone can purchase a stake in the company, DAOs offer tokens which represent a stake in the organization and can be purchased by anyone.

However, unlike traditional organizations, where a closed unit of people make the decisions on the direction of the organization, DAOs have embedded in their smart contracts voting rights for every single holder of the project’s token – a functionality referred to as on-chain governance.

NEO’s Governance Token

The NEO coin serves as the governance token for the NEO protocol, granting stakeholders the ability to vote on code changes and updates proposed by the developers of the project before it is being implemented on the blockchain. This provides more inclusivity for NEO token holders and encourages participation from community members.

NEO also employs a derivative of the Proof-of-Stake (PoS) consensus mechanism, namely Delegated PoS (or dPoS). The PoS consensus mechanism randomly assigns block validation rights to network participants based on the number of tokens they have locked in the network – ideally, selecting users with higher stakes. Alternatively, dPos employs delegates – select groups of people elected based on their reputation and trustworthiness – to reach a consensus amongst themselves. The election process to either vote in a new delegate or expel a delegate considered to be badly behaved is conducted using the NEO tokens.

Neo Use Case: Passive Income

As mentioned in the above section, NEO employs dPOS – enabling all holders of NEO token a right to vote on selecting network validators. However, as opposed to many other dPoS blockchain projects, users are not required to vote before they can earn rewards.

NEO token holders can begin to earn rewards by simply owning the crypto asset in a compatible cryptocurrency wallet – a process generally referred to as NEO staking. NEO staking allow users of the network to earn rewards by locking their NEO tokens in designated wallets such as Neon wallet – the native wallet for all Neo-based tokens, or other third-party compatible wallets such as Atomic, ANSY wallet, Guarda wallet and Exodus, to name a few.

While users are not “required” to partake in the governance of the NEO platform, additional rewards are issued to NEO token holders as incentives for participating in any governance activities such as voting. This can accrue to significant yields for Neo token holders over a period of time. However, seeing that NEO is a two-token system, users are not rewarded in NEO tokens. Instead, they are issued GAS tokens – used for all operations and transactions fees in the NEO ecosystem. Although the rate of rewards is not readily available, platforms such as NeotoGas help calculate expected GAS returns on NEO holdings.

It is worth noting that not all NEO and GAS-compatible wallets are eligible for governance activities; hence, if you intend to participate in the platform’s governance, be sure to check for this. Also, according to the company’s website, not all cryptocurrency exchanges distribute GAS tokens to NEO holders on their platform; hence, it is worth looking out for.

Neo Use Case: Investment purposes

While this is not a specific use case to NEO coin, the investment value of the crypto asset is still worth noting. Similar to other cryptocurrencies like Bitcoin and Ethereum, NEO holds an investment value in the short-term and long-term.

Undoubtedly, the short-term investment value of NEO coin will require a proficient level of skillset in cryptocurrency trading (in-depth market analysis, price action, fundamental & technical analysis etc.) – concepts more suited to experienced crypto investors. Alternatively, if its historical data of the cryptocurrency is anything to go by, coupled with the fact that the entire cryptocurrency industry has outperformed traditional asset classes in the last decade, the long term investment value of NEO can be explored, requires less skill and is more suited to the novice investors with ample crypto knowledge.

Taking a glance through its historical report as analyzed by LiteFinance, the digital asset experienced a rocky 2021, hitting a new year-to-date high of $140 and plunging to $30 in just three months. However, following the network’s announcement of a major upgrade to its network, predictions for the year 2022 have been largely positive and optimistic. Also, the NEO coin is an indivisible unit and cannot be mined; thus, making it a relatively scarce and limited asset.

Nevertheless, if you have spent a single day in the cryptocurrency sphere, you most certainly would have heard of the risks associated with crypto investments. So this goes without saying – DYOR (Do your Own Research). The crypto market is extremely volatile, with huge price swings happening in both directions at any point in time – a property of the market that makes it more rewarding and riskier than other investment assets. The general rule of thumb is to only invest money you are willing to lose.

Neo in Crypto

Neo aims to serve as the go-to all-in-one blockchain natively solution providing a host of services to achieve a smart economy. While NEO remains one of the earliest projects still at the forefront of the blockchain industry, especially with its recent upgrade to N3 — which the company lauds as “the biggest advancement in Neo’s history”, one cannot but wonder if they will be able to successfully deliver a truly comprehensive blockchain experience.

Regardless, if the project remains successful in the long run, holders of the NEO token will continue to play a crucial role in maintaining and propelling the project further.