NXT 2.0 - The Good and the Bad

NXT 2.0 | The Good and the Bad

At the beginning of the month, main NXT core developer Jean-Luc proposed a radical change to the infrastructure of the NXT blockchain. Needless to say, it has caused a wave of controversy and the NXT community is now clearly split into two groups of those in support of NXT 2.0 and those in opposition. This article will go through what NXT 2.0 is and the arguments for and against it.

At the beginning of the month, main NXT core developer Jean-Luc proposed a radical change to the infrastructure of the NXT blockchain. Needless to say, it has caused a wave of controversy and the NXT community is now clearly split into two groups of those in support of NXT 2.0 and those in opposition. This article will go through what NXT 2.0 is and the arguments for and against it.

The NXT 2.0 Proposal:

NXT 2.0 in its simplest form is the splitting of the NXT token and the forging power. Using a hard fork, those holding NXT tokens will receive an additional token named “fNXT” at a 1:1 rate. Essentially “fNXT” represents a token that only forges blocks. In addition, childchains are created. Childchains are blockchains that are on the NXT network. The NXT network will not only consist of NXT and fNXT, but also childchains. Assets and the Monetary System tokens all turn into childchains. The NXT token also turns into a childchain. Entrepreneurs who wish to create blockchains on the NXT network can do so by setting their own rules, as well as using all the features that are already available such as voting and shuffling. fNXT will receive revenue from all childchains.

The Good Points:

  1. Pruning: As it currently stands, the NXT blockchain is not ready for the wide world of finance. Everyday the NXT blockchain containing transactions increases in size. As it currently stands, the blockchain is growing at a rate of 1 GB per year even with its limited usage. This is a problem akin to that which has divided the BTC community.

  2. Real Life Businesses: One of the biggest stepping stones for real life businesses wanting to use NXT as their platform are the set fees involved in making transactions and the little control they have over the future of the NXT blockchain. If NXT 2.0 is implemented, businesses could issue a childchain and set their own values and rules. Childchains have the ability to use any NXT features that are already implemented on the NXT blockchain.

  3. fNXT revenue: The creation of childchains that will suit the needs of real life businesses is an exciting prospect. Every childchain will need to execute its own Proof-of-Stake (PoS) mining process using its own tokens. The asset issuer of the childchain in return will need to pay fNXT holders to use the NXT blockchain. This will lead to speculation on fNXT as a potential investment. As childchains are created, the greater the revenue for fNXT holders.

  4. It’s Time to Think Outside the Box: Ethereum has revolutionized the way we should think about cryptocurrencies. Although we, as lovers of NXT, are critical of the “real” progress being made by Ethereum, the marketing and approach is unique which is probably the forces behind its initial success. NXT provides a unique approach for the future; one that is business ready.

The Bad Points:

  1. Liquidation of Assets: As the distribution of fNXT is only dependent of NXT holdings, current asset holders fear that there will be a mass exodus of dumping assets in order to maximise fNXT holdings. The distribution is not planned for another year so there is time for asset holders to slowly readjust their positions. With the asset markets having little liquidity, we may see promising assets, even backed assets, be reduced to pennies.

  2. NXT Value: At the distribution of fNXT, the rate is 1 fNXT for every 1 NXT in possession. If you put the two blockchains together, this doubles the supply by 2. 1+1=2. It is clear that fNXT’s value will be derived from its speculation of possible future revenue, but where does that leave NXT? Remember, every childchain has the ability to use all NXT features. NXT now has no exclusive features.

  3. Security Risk: In order for the NXT blockchain to remain secure it must have forgers. At the NXT 2.0 fork, forging will be exclusively done by fNXT. The value of fNXT is debatable. Initially it is not valuable as there are only a very limited amount of assets and businesses on the blockchain. In order for fNXT to be a good investment, there must be adoption and there is no time limit on when that will happen. A drop in the price of fNXT may see the whole NXT blockchain vulnerable to a potential security risk. fNXT being backed primarily by speculation is very dangerous and a hefty sell-off is a realistic outcome if investor expectations are not met.

  4. The necessity of a hard fork: As it stands, the current NXT client is a work of genius. NXT has by far the most advanced client in the cryptocurrency world. Do we really need NXT 2.0? Could some of the problems being addressed by NXT 2.0 be done without a hard fork? There was a huge push from the community to implement asset-to-asset trading within the client and this was ignored by the NXT developers. Assets would be bought and sold by backed assets, such as BTC, USD, EURO etc. This would have enabled the most advanced decentralized crowdfunding platform within the cryptocurrency world. This would not require a hard fork and could make NXT arguably more business friendly as these currencies are more liquid.

An Asset Holder’s Nightmare:

It is more obvious than ever that the NXT community is divided now more than ever. On one side we have the NXT holders who are bullish on the value of NXT and fNXT. On the other we have NXT asset holders bullish on the value of NXT assets. It is obvious that with the arrival of NXT 2.0 asset holders are receiving the raw end of the deal. NXT 2.0 disadvantages asset holders for using their NXT on assets instead of holding NXT. The goals of NXT as originally thought to be by investors have changed. Up until this point in time, the NXT asset exchange was an instrument which gave NXT life. Now we could see the NXT asset exchange suffer significantly amidst the pursuit of completely new goals.

As of now, one can only guess how the changes will effect the NXT eco-system as a whole. The important question to ask is, what is the value of NXT and fNXT post-hard fork? There are too many unknown variables. As it stands, asset issuers are now in defense mode trying to mobilize alternatives to protect their investors from losses. Here are two alternatives which may protect your investments from future losses.

Alternative 1 – Coinomat’s New Blockchain:

Coinomat, owner of the NXT asset CryptoFund and Coinomat.com, is building a new blockchain based loosely on the NXT crowdfunding model and will feature asset-to-asset trading. All of Coinomat’s assets on the NXT blockchain will be migrating over to the new blockchain. The following is Coinomat’s description of his new blockchain.

“It will be based on the following principles:

  1. It does not support scripting on a core level. New transaction types are supported through a plug-in system and soft forks. Decentralized contracts might be realized in the future based on a “proof of execution” and supernodes approach.

  2. POS consensus. Improvements to counter the “nothing-at-stake” argument will be considered, but plain-vanilla POS is deemed to be “secure enough”.

  3. Main focus is on usability and a connection to the “real world” economy.

  4. At launch, fiat and BTC assets will be supported. Fiat assets are backed by existing fiat payment systems/banks.

  5. Asset-to-asset swaps/trading is supported on a core level, which allows us to offer a quasi-stock exchange user experience with trading against fiat currencies.

  6. User-friendly interface resembling online banking or online broker interfaces realized as a browser plugin.

Basically users will have a full-scale crowdfunding/trading platform right at launch with native fiat currencies supported and the user interface will be similar to that of a typical financial website.

  1. A reputation system is considered to be vital, and will be realized soon after the launch. It will be based on a voting system which is an integral part of the core. Also account activity will be used to define the account karma (issued assets, transactions volume etc).

  2. Scalability is considered to be the main problem which will need to be tackled eventually and some basic scalability improvements will have to be made on the core level right from the start.

  3. Strict development practices. All major changes in the core should be approved by the stakers community through voting.

  4. The client will be coded in a low-level programming language (C/C++).

All things considered, the network has a “NXT Classic” feel, with improved user-friendliness, strict development practices, connection to existing fiat networks, and high-load ready.”

Alternative 2 – JL777’s Iguana and Atomic Trading:

JL777’s solution began its development well before the NXT 2.0 crisis. After SuperNET broke away from NXT after its “backward compatibility” issues, JL777 made the decision to move forward in a different direction. Currently what is being worked on is “Iguana”, a Chrome App which aims to make possible Asset/BTC trading. As BTC is the most liquid cryptocurrency, this is great news. He has also been able to sync the BTC blockchain within 30 minutes. This will be a very important selling point for using Iguana. Iguana will integrate SuperNET services such as Pangea Poker, PAX and InstantDEX. Whilst there are large delays, these were all due to NXT’s ever-changing client. Now that JL777 is separated from NXT there have been significant breakthroughs.

Iguana will also have Atomic Trading for assets. This means assets can easily move from one blockchain to another. If one is nervous about one blockchain they can move their assets to another. NXT 2.0 holders may decide to move their asset to BTCD or BTC if NXT 2.0 looks to be losing momentum.

Conclusion – CORE’s Stance

There are indeed interesting times ahead for NXT and its community. As avid observers of NXT, CORE members are keeping a close eye on developments. At the present moment, CORE remains neutral on the subject. However, we are worried about how this will affect our investors. There is no doubt this will shake up the existing NXT eco-system. On the other hand, CORE isn’t completely against the idea of childchains. CORE investors should keep an open mind and consider that CORE may need to take steps to protect them from losses. As stated above, Coinomat and JL777 are providing exciting alternatives. We will be keeping a close eye on these developments.