The NEO cryptocurrency traded 17.2% higher on Monday morning, according to a reading from Coinmarketcap at 11 AM EST. On a day when most of the major digital currencies were up no more than 7%, that's a significant jump. So what's going on with this large, but not terribly well-known, e-currency today?
What is NEO?
NEO is the sixth-largest cryptocurrency currently, sporting a $8.7 billion market cap. The tokens are worth $135 each as of this writing, up from $0.11 a year ago. That's a 1,200% return over 52 weeks. It's safe to say that NEO caught the broader market's cryptocurrency fever in 2017.
The digital coin's design is closer to Ethereum than bitcoin. NEO's stated goal is to create a smart economy based on a decentralized network of blockchain contracts and digital assets. In other words, NEO isn't meant to replace traditional currencies as much as it intends to modernize how money flows through the global economy. In particular, the support for smart contracts is the basis of a programming platform that lets developers build applications with direct support for NEO coins and their digital contracts.
Diving just one level deeper, a smart contract lets buyers and sellers set up specific terms that must be met before transferring money from one side to the the other. For example, a billing system with smart contracts could be set up to release payments when both the buyer and seller have confirmed that the gizmo in question has been shipped and received.
Bitcoin doesn't support anything more complicated than a simple send-and-receive system, though the sender can include a note with each transaction. Ethereum and NEO, on the other hand, provide oodles of computer-based processing of more complicated contracts. If you can program a set of conditions, it can be built into transactions on these platforms.
The biggest difference between Ethereum and NEO is their intended target audiences. Ethereum is a worldwide effort, started in Russia and managed out of offices in Switzerland at the moment. NEO, on the other hand, was created by a Chinese group for the Chinese market. The currency is managed by a local team, with just a handful of China-based servers processing NEO's blockchain and its transactions.
This makes NEO more centralized than Ethereum or bitcoin, though founder Da Hongfei hopes to change it into a more distributed model someday soon. For now, a more close-knit operation lets NEO process transactions very quickly without opening security holes, but at the cost of staying at arm's length from the ideal of a decentralized system.
What's going on with NEO today?
The Ethereum of China just received a fantastic grade from investment ratings bureau Weiss Ratings. The firm, which has been grading everything from insurance plans to financial services since 1971, is perhaps the most respected authority on the quality of individual cryptocurrency models today.
At the end of January, Weiss gave NEO a respectable B- grade. In a world where Ethereum had to settle for a B and market leader bitcoin only gets a C+, that's a pretty strong rating.
But in the latest report, Weiss gave NEO it's first-ever rating above B+, more specifically an A-. The grade was issued a few days ago, but many cryptocurrency enthusiasts are only now catching wind of this development.
Weiss specializes in separating financially stable investments from risky gambles, placing a premium on high-quality operations and a long-term view. For example, bitcoin's low grade comes from a less sophisticated technology and high speculation risks. NEO is seen as a more advanced platform with much less speculation going on.
That's why NEO is rising on a generally muted day on the cryptocurrency markets.
So it's time to buy NEO coins by the boatload, right?
NEO is the first coin to get an "excellent" grade from Weiss, rising above the "good" and "fair" ratings of its better-known rivals or alternatives. A few digital coins do have to settle for a D rating these days, translating into a "weak" investment according to Weiss' criteria. The only major name in this category is Bitcoin Gold, a recently forked bitcoin version meant to let high-speed graphics cards from AMD and NVIDIA get into the cryptocurrency mining game again.
That's good news for NEO buyers, but even Weiss concedes that there is no such thing as a completely safe cryptocurrency today. "Every grade issued by any rating agency is ultimately an opinion, to be used by the public in the context of opinions from analysts, developers and users," according to the firm's documentation. NEO's grade can also drop again for many reasons, since the cryptocurrency market is prone to quick and unexpected changes.
Buying NEO today is a bet on smart contracts gaining ground in China. It's the frontrunner in this specific market right now, but could be overtaken by Ethereum or a newer alternative somewhere down the road.
So the strong Weiss grade is not a signal to back up the truck and start shoveling your life's savings into NEO coins. Rather, it's one bullish opinion from a respected source -- in a rapidly changing market that just isn't set up for betting the entire farm on any particular currency. That might come later (but we don't even know that much yet) and NEO may or may not be among the winners in the end.
Please invest accordingly, in small batches that you can afford to lose if something goes wrong. This goes for NEO and all other cryptocurrencies, and really for any type of investment at all.
Anders Bylund has no position in any of the stocks mentioned. He owns some Ethereum, bitcoin, and Bitcoin Gold tokens, but holds no position in any other cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Nvidia, and has no position in any of the cryptocurrencies mentioned here. The Motley Fool has a disclosure policy.