Democracy of Two: NEO and the Crypto 'Election' That Wasn't

What constitutes an election?

According those backing ethereum competitor neo, just one candidate and two voters.

The public blockchain project, whose tokens are valued at over $2 billion by crypto investors, went so far as to claim in a July 4 blog post that it had entered a "new era" in which its token holders will have a say in how decisions on the network are made, but even insiders are skeptical such assertions are little more than rhetoric.

Case in point, the NEO Foundation, which develops software for neo, announced this month that it had elected the first node to its network, a foundation-funded collective of NEO developers calling themselves City of Zion. Less publicized at the time, however, was that token holders were not allowed to participate in that vote.

As such, even those running the newly elected node aren't exactly convinced that neo is fully committed to running its blockchain with broad participation from users, at least at this time.

"I would personally disagree with calling it an election," Ethan Fast, a member of the City of Zion team, told CoinDesk in an interview. "That's not a word I would choose."

More broadly, such a conclusion is instructive in that neo is one of a growing number of public blockchains seeking to implement a more centralized model for how blockchains can be managed. Called delegated byzantine fault tolerance (dBFT), neo's specific idea is that by consolidating decision-making to a small group of nodes, the software can become faster and more useful.

Its a break from bitcoin's mining model in which any node operator who abides by the rules can compete to approve transactions, and one that has seen a handful of projects including EOS and Tron raise billions with big promises that it can prove viable.

In this way, neo, which has close ties to blockchain solutions company Onchain and the public Ontology project, has adopted technology it believes will address scalability issues — specifically, slow transaction speeds and controversial network upgrades.

"[The] NEO Council values efficiency (quick response and protocol upgrade) over decentralization (sometimes a crypto-political correctness) at this early stage," the project's governing body, now called the NEO Foundation, explained in a May post.

However, neo is perhaps unique in that it hasn't provided much in the way of details on how it aims to do this in a way that will add up to the democratic process its touts.

Neo's white paper and website do not provide a detailed description of its governance model, and further, the foundation has said in blog posts that it plans to maintain "decision-making power" until the "core protocol stabilizes," though it has not defined what criteria constitute stability.

Once the foundation is confident in the strength of the network, it says it "expect[s] to see one to a few dozens of consensus nodes to be elected by NEO holders." But before token holders are able to vote for candidates, the foundation plans to "elect" several private nodes, of which City of Zion is one.

A 'benevolent oligarchy'

That might be one reason why other supporting language issued by the foundation has positioned the election as the first step in a long process to relinquish some of its power to token holders.

Still, the NEO Foundation's use of the term "election" to describe the process by which City of Zion became a node at all has triggered some skepticism.

While "election" would arguably imply that a multiplicity of votes were cast, blog posts suggest that the NEO Foundation is currently the only voting entity in the ecosystem. City of Zion's Fast confirmed that "there was no one from the public that voted in this election besides the NEO Foundation." Likewise, of the foundation, only project co-founders Da Hongfei and Erik Zhang have the authority to make decisions, according to another blog post.

As such, Fast instead described NEO as "a kind of benevolent oligarchy," and said that the community has been frustrated that the foundation has been slow to surrender some of its decision-making power.

"Just a small amount of decentralization in the short term is something CoZ has been pushing for for some time," he said, adding that it "may not be happening as fast as [the community] want[s]."

Dean Eigenmann, founder of blockchain governance startup Harbour, was more critical of the foundation's "election."

"Libya had elections under Gaddafi, too," he said, explaining further of the project:

"It just seems so uninteresting because it's like they aren't even trying to decentralize their governance. They were like, hmm this seems too hard. Let's just keep it centralized."

Degrees of democracy

NEO is not the only project to be criticized for how it is going about the election of nodes.

Ethereum founder Vitalik Buterin warned in March that blockchains that use "coin voting" seem "to lead to a high risk of economic or political failure of some kind." Likewise, Kyle Samani, managing partner at crypto fund Multicoin Capital, wrote on Twitter in June that EOS and Tezos, two other project seeking to compete on governance, are both "plutocracies."

However, Richard Lee, founding partner at crypto fund Global Blockchain Innovative Capital took a more flexible position in an interview with CoinDesk, arguing that "there's different levels of decentralization."

"I think the different consensus protocols, at least right now, there's trade offs in between. Sometimes you have to sacrifice decentralization for speed and efficiency or security," he said, adding:

"Neo's trying to address scalability in a different way than ethereum is... Neo has a more centralized approach for that."

Lee said he interpreted the foundation's use of "election," "as more of, the NEO Foundation does not run all the nodes now," and added, "I don't see anything malicious or deceitful about that."

Some participants in neo community forums were nonetheless skeptical of the election, with one reddit user posting, "Decentralization goes way beyond the amount of nodes. It has to do with governance and decision making. If you still have a central entity deciding new features, etc you cannot become fully decentralized."

However, other comments reflected Lee's conclusion about the election, with many participants greeting the announcement of the election with enthusiasm.

Whether neo will follow through on its promise to empower token holders remains to be seen.

According to a timeline published in a blog post, the foundation plans to elect Dutch telecommunications company and neo partner KPN and Chinese venture capital firm Fenbushi Capital to operate the next privately held nodes in the network by the end of 2018. It intends to allow token holders to both vote for and campaign to become nodes in 2019.

The NEO Foundation did not respond to requests for comment.

Image via Neo Community Facebook