An alternate ecosystem for blockchain startups
Ethereum has been the King Kong of blockchain development projects thus far, mainly because of its ERC-20 token protocol, which made it ridiculously easy to launch your own cryptocurrency token. As a result of all of this activity, the Ethereum ecosystem has flourished, and Ethereum has established itself as the #2 cryptocurrency in the world.
The smart contract concept that Ethereum has pioneered is here to stay, but now there are many other blockchain systems aiming to challenge its dominance. Those competitors include Cardano, Stellar, EOS, and NEO.
We’re going to focus our attention on NEO’s NEP-5 token protocol, which offers an attractive alternative to ERC-20.
NEP-5 Tokens Defined
NEP stands for “NEO Enhancement Protocol” and NEP-5 is simply an enhancement added to NEO last year that allows NEO to support cryptocurrency tokens in much the same way that Ethereum does. In fact, it is clear in the NEO Github notes for NEP-5 that ERC-20 and ERC-223 standards were the primary models when the NEP-5 protocol was designed.
Thus, when people refer to NEP-5 tokens, they simply mean that they are tokens that are running on the NEO platform, per the NEP-5 protocol in NEO. A NEP-5 token must be stored/managed via a NEO-compatible wallet, because it is part of the NEO ecosystem. This is exactly how things are with ERC-20 Ethereum tokens, as well.
NEO vs. Ethereum
So, if NEP-5 tokens are very similar to ERC-20 tokens in purpose and function, why chose them over their Ethereum counterparts, which are much more established in the marketplace?
The biggest reasons are:
- Transaction costs and speed: NEO currently supports 1,000 transactions per second (compared to Ethereum’s 15 per second). In addition, there are currently no transaction fees for NEO, while all Ethereum transactions do carry a fee, which can be significant.
- Development Flexibility: if you are a developer creating your own blockchain-based application, NEO supports many common programming languages, while Ethereum uses its own proprietary language (Solidity).
- Quantum Computer Proof: The cryptographic models for most blockchain platforms will not be secure once quantum computers become a reality. That means that quantum computers could decrypt the private keys of crypto accounts. NEO, however, is already quantum computer resistant. Ethereum is not.
- Better Consensus Model: When blockchain platforms make major changes to improve their systems, those changes need to be agreed upon by its “stakeholders” via a consensus model. Ethereum’s consensus model has led to one major fork (Ethereum Classic) already. NEO’s Delegated Byzantine Fault Tolerant (dBFT) model prevents forks/splits and should lead to a more stable overall upgrade path for the future.
Why Choose NEO for a Token Sale
My own project, Narrative, just completed a token sale on NEO (using a NEP-5 token), but we initially started off as an Ethereum project. We were very far down the path of being an ERC-20 token- having already developed our token sale smart contract on Ethereum- before we made the difficult decision to switch over to NEO.
And we did so for all of the reasons listed above- faster, much cheaper transactions, more flexible development environment, and more future-ready. The decision was still difficult, however, because the tools and ecosystem surrounding Ethereum are much deeper and more proven.
And, to be sure, launching a token sale on NEO is not nearly as easy from a development standpoint, primarily because there are relatively few examples. When we did our token sale smart contract, we were able to use some templates developed by the City of Zion (a NEO development group), but there was little in the way of experienced projects/developers that could assist us. In fact, we were the first NEO project to conduct a token sale using “verified mode”, which ensures that user contributions only go through if all requirements have been met. This protects the token sale contributors and saves the project from having to issue too many refunds.
The other thing we discovered while conducting our token sale is that the NEO community is very tight-knit and eager to help. We received assistance from many NEO developers as we ran into problems creating our token sale smart contract, but we also gave back to the community when we identified/solved problems. Because the number of NEO projects is still very small, especially compared to Ethereum, you can have a very large impact on the NEO ecosystem.
So far, we’ve talked about the many advantages of NEO, but let’s also talk about some of the downsides, compared to Ethereum, if you are looking to launch a new project.
The biggest downside is that the development community is MUCH smaller. The resources at your disposal are minuscule, compared to Ethereum, because there simply have not been that many projects running on NEO so far (though that is getting better each month).
The other big downside for a NEO project is that the number of cryptocurrency exchanges that support NEP-5 tokens is very small. If you have a project on Ethereum, there are plenty of exchanges where you can list your token. You can pretty much be guaranteed that your token will have a liquid marketplace from Day One.
Because there are only a handful of crypto exchanges that support NEP-5, you will likely have to pay more to get your token listed. The good news though is that that number of NEP-5 friendly exchanges is increasing… and some very good decentralized NEO exchange options are appearing- Switcheo (already live) and NEX (coming later this year). Established (centralized) exchanges that support NEP-5 tokens include: Kucoin, Gate.io, and Binance.
Finally, to actually launch your token on NEO, you have to pay significant fees to NEO. It costs 490 GAS to launch a smart contract on NEO. For us, that was nearly $50,000 at the time of our token sale. With the recent pullback of crypto prices, it’s much cheaper at the moment, but still a significant expense that you just don’t have with Ethereum.
(As an aside, I actually see this smart contact deployment fee as a positive for NEO projects. It deters frivolous projects… which is a huge problem on Ethereum. Most of the NEO projects that have launched have been very high quality IMO.)
How To Store NEP-5 Tokens
There are a number of quality wallets for storing NEO and NEP-5 tokens, including NeonWallet, Neotracker, O3 (mobile-only), and MorpheusWallet. All of these support NEP-5 tokens and are very easy to use.
I always recommend using hardware appliances to secure your crypto accounts, and Ledger Nano supports NEO and NEP-5 tokens. You can use your Ledger in conjunction with Neon and MorpheusWallet.
To transfer NEP-5 tokens, you technically need 1 drop of GAS (GAS is the transactional token for NEO) in your account, but that fee is actually refunded back to you when your transaction completes. One drop of gas is equal to 0.00000001 GAS, so we are talking about a VERY small amount. Also, if you have any NEO on you account, you will automatically earn GAS.
Why Consumers May Prefer NEO-Based Tokens
One reason consumers may take interest in NEO-based projects is that if you own NEO you automatically earn NEOGas (GAS), the transactional token of NEO. By simply holding NEO in your wallet, you can claim GAS tokens, which accrue based on the overall balance of NEO in your account.
Currently, transactions on NEO are free, but that may change in the future. If it does, the fact that you can earn GAS automatically to cover transaction fees is a nice perk. And, as stated earlier, this can help you cover your “1 drop of GAS” requirement when sending NEP-5 tokens, as well.
The bottom line for consumers is that using NEP-5 tokens in transactions carries no cost; whereas, in Ethereum, ERC-20 tokens always require a fee, paid in Ethereum.
Transactions overall are much faster than with Ethereum, where network bottlenecks are quite common and can result in long processing delays. Just as with Ethereum, you can track transactions using a NEO blockchain browser like Neotracker or Neoscan.
The average block time (when a group of transactions are “settled” on the blockchain) for NEO is a little more than 20 seconds currently, which means that there is very little waiting around to confirm that a particular transaction went through.
The China Question
Some people refer to NEO as the “Ethereum of China”. While it’s true that NEO was created by Chinese developers, it’s not a project that is limited to China by any means. And thus, even though China has had an up-and-down relationship with cryptocurrencies in general, there is no reason to think this has any impact on NEO as a platform. NEO is truly worldwide in scope now, a top-10 blockchain project based on cryptocurrency market cap.
The NEP-5 Landscape
The NEP-5 protocol was introduced in 2017, but the uptake by quality projects has been impressive. Some of the earliest NEP-5 projects were Red Pulse and Deepbrain Chain, both of which had token sales late in 2017 and early in 2018 and have already achieved market valuations over $100 million, even though they are very early in their development plans.
We have seen an increasing number of new NEP-5 projects come to market in the first quarter of 2018, including TheKey, Moonlight, Thor, Trinity, Switcheo, Qlink, NEX, Concerge.io, and our own project, Narrative.
And of course, the well publicized Ontology project is also a NEP-5 token.
While I expect the vast majority of new blockchain projects to continue to be launched on Ethereum due its overall market dominance and the established resources available, NEO actually has many advantages that new projects should consider and fully evaluate before making a decision.
It’s getting easier to launch projects and conduct token sales on NEO, thanks to the pioneering efforts of the City of Zion and the NEP-5 projects listed above.
NEP-5 tokens can be stored in a NEO wallet, just like ERC-20 tokens are stored in Ethereum wallets, yet they are in many ways easier to transact with due to the speed and low transaction costs. And you can store NEP-5 tokens securely, as well, through the Ledger hardware appliance.
The fact that NEO developers must pay a significant fee to deploy a smart contract should also give consumers more confidence that the project is not being released “on the fly”.
If you have a new blockchain project, I’d highly recommend considering the many advantages of NEO.
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