Clarification on NEO, GAS and Consensus Nodes

There has been some confusion about NEO and GAS, how they are different and which one to actually buy. Moreover, there have been a lot of questions about bookkeepers, how to become one, and what the benefits are. This article will hopefully clear out most of the confusion.

Firstly, bookkeepers and consensus nodes are the same thing. Bookkeeper is the term used in earlier versions of the whitepaper, and it was decided in later whitepapers that “consensus node” is a better description of what the node actually do. I will be referring to consensus nodes in this article.

To understand the difference between NEO and GAS, you have to remember that NEO is not just an altcoin, it’s not just a cryptocurrency, and it’s not just a platform for smart contracts. NEO is smart economy, a future with efficient digitized economy, where the boundary between real assets and digitized assets are removed. NEO is open source and everyone who holds NEO will be able to influence the future and be part of revolutionizing the global economy.

Each NEO token give a voting right, which is used to vote for consensus nodes. Consensus nodes are the nodes that will generate blocks and make decisions for the blockchain, for example setting the service fees for the blockchain. Moreover, each NEO token will slowly mint a new GAS during 22 years.

GAS is the token to pay for all the service fees on the blockchain. Any company that desires to register or change assets on the blockchain will have to acquire GAS to pay for the service fees. The service fee for registering or changing assets will be distributed proportionally to all NEO holders, so GAS is never destroyed. Currently the transaction fee for using the blockchain is set to zero. It’s free. Consensus nodes have the power to introduce a transaction fee in the future. This transaction fee will then be distributed among consensus nodes only, and not to all NEO holders.

With the possibility to collect transaction fees, an often occurring question is how to become one. To get straight to the point, the number of consensus nodes is likely to be small enough that it’s not reasonable for the average NEO holder to expect to become one. The reason to arrange it like this is to align with the NEO vision of smart economy and to separate concerns:

1. NEO holders gain their extra gas from registration and changing of assets, and not from transaction fees. Thus, it is in the interest of NEO holders that many new assets are being registered on the blockchain.

2. Consensus nodes can set a transaction fee to be distributed among them. High transaction fees will lead to fewer users interested in joining the blockchain, resulting in fewer registered assets. This is against NEO holders’ interest, so they will vote in new consensus nodes that represent their interest better.

3. Because of point 2, consensus nodes will set transaction fee as low as possible. It is currently set to zero. The possibility to change it is to be able to cover future costs of running consensus nodes.

4. Because transaction fees are free or close to free, more users will join the blockchain.

5. More users joining the blockchain will lead to more assets being registered, resulting in more GAS being distributed to NEO holders. This is distributed proportionally, so it doesn’t matter if you are holding 1 NEO or 1000 NEO in terms of percentage gain.

6. Because NEO holders will force transaction costs to be kept at zero, there is no economic incentive to becomes a consensus node. Thus, the only incentive to become a consensus node is to uphold the honesty of the network. This is a separation of concerns unique to NEO.

7. If consensus nodes start to charge transaction fees and NEO holders object to that decision, then they will vote out that consensus node.

Summarizing, setting higher transaction fees will lead to other consensus nodes being voted. Transaction fees thus be kept as low as possible.

Low transaction fees = more users = more assets registered = more GAS to NEO holders

This model is aligning interests on all levels. Both NEO holders and consensus nodes have incentives to keep transaction fees to zero or close to zero, and instead focus on getting more users to join the blockchain. This will strengthen the whole ecosystem. From user perspective, the blockchain incentives are very transparent and they can be certain that transaction fees will always be kept as low as they possibly can be.

NEO’s goal is to build up the ecosystem. Hopefully this clarifies the economic model for early adopters who values certainty that transaction fees will be low or non-existent.

The icing on the cake is that you don’t even need to be connected or “mining” to gain GAS as a NEO holder. You will receive it even if you are offline or store it in a paper wallet, since confirmations are done by the consensus nodes. Instead of having computers running all over the world, NEO achieve a secure, efficient, and environmental friendly decentralized network.