NEO Blockchain’s Centralization Is Built For Scalability And Competition With Bitcoin

Neo Blockchain: Centralized For Scalability And Competition With Bitcoin

There's a blockchain platform that aims to compete with both Bitcoin and Ethereum and it's called Neo. The claims surrounding Neo are that is is much more scalable than either Bitcoin or Ethereum, but there is a catch in those claims. The catch is that it uses a very centralized blockchain implementation to achieve this and it has been very controversial, to say the least.

NEO Founder Speaks At Consensys

Decrypt caught up with the founder of NEO, Da Hongfei, at the Consensys Summit in New York and he had the following to say about the controversy. Namely, he said that the point was to compete with both Ethereum and Bitcoin and this was only possible by making a centralized blockchain that he believes is more efficient. It is an intentional decision so that NEO would actually be able to scale and compete.

There has been widespread criticism of the approach used by the NEO Foundation with many a news article highlighting their control over the majority of the consensus nodes. These consensus nodes that run the network are not the only way that NEO has centralized, the foundation also holds about half the supply of NEO coins.

While NEO did seem to be on the path to changing their ways last year in June, nothing has been done about the steps they outlined to become more decentralized. It is barely a year later and Da Hongfei thinks that it is actually a good thing.

His rationalized the move towards centralization as the only way to compete with Bitcoin and Ethereum. If a company or a project tried to compete with the two largest coins' terms, then they would ultimately fail to match them. However, if a project or a company was willing to compromise on the level of decentralization then better and faster transaction volumes were possible. In NEO's case, this meant up to around 10 thousand transactions a second.

Other Benefits To Centralization, Not Just Speed

He went on to say that there were multiple benefits that centralization offered blockchain projects. The main benefit, in his eyes, was that it was far easier for a more centralized project to create a hard fork. Incidentally, during the discussion, he mentioned another competing blockchain platform Block.one. He said that if they had taken a stronger hand in controlling the development of EOS that the platform would have been much further along than it is today.

Further to that thought, he said if full responsibility is taken with a project's blockchain instead of keeping it at arm's length then the potential gains int he future were much higher. Hongfei does admit he would like to see NEO become more decentralized int he future, but from the outside looking in it might seem like a pipe dream. The weight of the blockchain is growing in size so rapidly that it will soon be prohibitively expensive to run a proper consensus node.

Another difficult issue for NEO regards on-chain governance. This is nothing new to blockchains that have looked to Proof-of-Stake (POS) as their go-to protocol instead of Proof-of-Work. Token holders in a POS system are all eligible to vote on any proposals for updating said blockchain. Hongfei explained the issue as having difficulties with incentivizing the holders to vote. He says that the problem isn't just with blockchain, it is a major problem in real life too. How many people actively participate in elections or simply local boards such as school or sports clubs?

He says that NEO is exploring various methods to incentivize people to vote, but that it will continue to be a problem until human nature fundamentally changes. EOS has also faced problems of on-chain governance but maybe the problems NEO is facing is not due to human nature being immutable rather something else.

Maybe people would be incentivized more if there was actual decentralization and one entity didn't hold almost 43% of the voting power.