NEO — Update I


The NEO Key Maker opens up doors for loyal entities. All the rest need not bother applying. 

TL;DR. Ecology:6 (6). Technology:5 (5). Decentralization:2 (2). Valuation:4 (3). Rating:4/10 (4/10)

Six months have passed since the BD Ratings review of NEO. Here is how that prediction has turned out so far.

2018-06-25 USD 32.38, Satoshis 515 526.

2018-12-25: USD 7.39, Satoshis 193 876.

Let's explore what the project has been up to the last 6 months. On the 4th of July, NEO Foundation initiated the election of new consensus nodes. A City of Zion candidate node had been running on testnet for half a year and was after some stability considerations elected as a new consensus node on mainnet.

Just three days later information about NEO 3.0 was released. Focus seems to have been on increasing transactions per second, fixing bugs, and changing the economics of the protocol. Suggested changes were for example an increase in the amount of GAS released every year (without touching the 100M max supply), rewarding consensus nodes, making NEO tokens divisible and allowing GAS to be divisible when paying for system fees. Also, system fees were going to be much cheaper in general, meaning the cost of deploying certain smart contracts was going to decrease as well.

In August, NEO suffered from an accidental fork, causing many to raise their eyebrows as NEO with its dBFT consensus mechanism was deemed unforkable. The event caused two blocks at the same height to confuse nodes which one was the correct one, resulting in stalled consensus. The causing factor had been discussed earlier so in a way this was bad luck. All in all, it was the second consensus failure hitting the NEO mainnet. Also in August, auditing firm Qihoo 360 Core found and disclosed a DoS vulnerability in the NEO network. The vulnerability was quickly tested and patched.

In October, the NEO Vulnerability Bounty Program was introduced, bolstering the efforts to find bugs. The programming language Go was also integrated by City of Zion to the NEO smart contract framework, making it possible to reach a broader group of developers.

On the two-year anniversary of the mainnet launch in 2018, a great piece of info-graphic was produced that summarized the ecosystem at that point. Multiple dozens of projects were evidently building on top of NEO, pushing up on-chain activity. Soon thereafter, Dutch telecom giant KPN was voted in as a consensus node operator, effectively decreasing the number of NEO Foundation consensus nodes from 6 to 5.


The number of on-chain transactions remain quite high with everything from 10 000 to 100 000 on average. This data is taken from October 2018 as data from December seems to be missing. NEO is ready for a considerable throughput given the underlying infrastructure and the few validating nodes. This is very positive for potential adoption but also negative for decentralization.

NEO's likely choice of lowering system fees is good for the ecology surrounding the project. Cheaper smart contracts means more of them will be deployed and tested out by the market. It is not fully clear whether these changes have occurred yet, but they look probable.

The work on a NEO Name Service (NNS) is positive for the long term growth of the NEO ecology. As this service is integrated with popular NEO wallets, users will later be able to send NEO and tokens within a DNS-like system instead of copying and pasting unreadable public addresses. The multiple decentralized exchanges that is being built on NEO further expands the whole ecosystem.

In general, the last 6 months have presented evidence of continuous NEO ecosystem activity. Another DevCon is planned for February 2019 as well and will follow an avalanche of community activity. If the number of projects building on NEO continues to increase throughout 2019, the Ecology rating will be increased from already relatively high levels.

Grade: 6

Reasons: Large community. Many projects building on top of NEO.


GitHub activity has increased (measured both as number of commits and visible contributing developers). Obviously these metrics can be gamed, but at a glance there is no reason to doubt that development on NEO is as strong or even stronger than before. In a recent interview, Da Hongfei mentions that there are 7 core developers on NEO, and some dozens of community developers. He also mentions the batched code updates that causes GitHub activity to appear lower than it really is. Furthermore, a plan for e technical yellowpaper was presented.

Despite multiple code audits, NEO had during this period one consensus failure and one DoS vulnerability disclosed. The bounties introduced in October 2018 can be seen as a good counter-measure to these vulnerabilities. A spam transaction vulnerability was discussed in BD Ratings' initial review of NEO, where concern was raised for the free transactions. Here is what we wrote:

But even if chain maintainers are somewhat willing to carry these costs, having a zero transaction fee creates all sorts of problems. It is a massive attack surface where malign users can attempt to spam the network with useless transaction in order to congest it and at the same time force full nodes to store unnecessary data.

It turned out that someone took advantage of exactly this and decided to send a large number of free transactions to put pressure on the network. It is still concerning that core developers did not predict this, but since they seem to have done some work to mitigate the same type of attack, the issue is not very serious any longer.

Vulnerabilities aside, the code is built from scratch and some bugs are to be expected. Nothing has happened during these last 6 months that warrants a lower Technology rating. In fact, the consensus mechanism code was deemed solid enough for Binance to adopt it for its own blockchain project.

Finally, independent 2-layer solutions for NEO is progressing nicely, with Trinity releasing a state channel protocol for NEO as early as June 2018. Trinity and NewEconoLabs also entered a partnership recently, further strengthening the connection between Trinity and NEO.

Grade: 5

Reasons: Large number of developers. Multiple developer teams.


The decentralization phase initiated by the NEO Foundation in July 2018 is extremely essential for the long term value of the project. By giving up one consensus node to the independent entity City of Zion, NEO has improved a bit on the centralization issue. The KPN consensus node election in October further decentralized the network slightly. Another improvement is the plan of O3 Labs, a NEO wallet provider, to run a consensus node in the future. The network is however still far too centralized and BD Ratings is waiting for far more action on the issue.

Yet, by having so few consensus nodes, it seems that there is a high risk of too powerful entities ending up controlling too many of them. NEO ought to try too, as a short-term solution, put as many nodes as possible under the control of neutral, non-profit organisations. Then the foundation ought to release its governance infrastructure and open up for permissionless voting. In a December blog post, it is fully evident that the NEO Foundation sees itself as the spider in the net; all future consensus node applications need to go through the foundation. Why is this controlling behavior unnecessary? We already have evidence of fully functioning public blockchains without much central control at all. This should be enough for the NEO Foundation to stop its tip-toeing around the decentralization issue.

There is an argument going around that proclaims NEO architectural decentralized. What the authors mean is the NEO consensus nodes are run from different countries and continents. This is of course better than being geographically centralized but absolutely not adequate for realistic decentralization.

Grade: 2

Reasons: Still highly centralized in many aspects.


Aggregating the market capitalization of both NEO and GAS, the project as a whole is valued at around USD 970M. This is a still a quite high valuation considering the centralization of the project. NEO's relatively impressive ecology creates a solid foundation for a high on-chain activity, but this activity needs to be on a decentralized protocol for wealth to dare seek long term storage. Without decentralization, NEO's coin scarcity is just an illusion.

Grade: 4

Reasons: Still highly centralized.