NEO is a blockchain platform that claims to be much more scalable than Bitcoin and Ethereum.
But there’s a catch—it uses a controversial, centralized blockchain to achieve it. And that’s all part of the plan, NEO founder Da Hongfei told Decrypt at Consensus, New York:
“If you are comparing NEO to Bitcoin, it is more centralized. That’s intentional. We want to keep it more efficient,” he said.
NEO has been widely criticized for being centralized. Countless news articles have highlighted the fact that the NEO Foundation controls the majority of “consensus nodes” that run the network. The Foundation also holds just under half of the entire supply of NEO coins.
In June last year, however, it appeared that things were going to change. NEO posted an image showing that it was making steps to become more decentralized. But nearly a year later, few changes have been made, and the Foundation is still in control. And now, strangely, Da Hongfei thinks that’s a good thing.
Hongfei explained that any blockchain that attempts to compete with Bitcoin and Ethereum on their own grounds will struggle to match up with them. By making a compromise on the levels of decentralization, it can offer much higher transaction speeds—up to 10,000 transactions per second.
He added that there are more benefits of a centralized model, such as making it easier to implement hard forks. He also suggested that Block.one (which develops EOS) would have helped EOS grow faster if the company had taken full responsibility, rather than kept the blockchain network at arm's length.
However, Hongfei conceded that the end goal is to make NEO more decentralized. But it’s hard to see how this will happen. Since the weight of the blockchain is rapidly growing in size, it is becoming prohibitively expensive to run a consensus node.
On-chain governance is another difficult issue for NEO. It’s one that has affected many proof-of-stake blockchains, where token holders are eligible to vote on proposals for updating the blockchain. And one that EOS has been struggling with too.
Hongfei explained: “It’s difficult to incentivize the holders to vote. It is a problem in real-life governance too. We are exploring novel methods to incentivize people to vote.”
Perhaps “intentional centralization” and maintaining 43 percent of the voting power might be the issue.