Nxt Whitepaper

Created by the Nxt community

Revision 4 Nxt v1.2.2 July 12, 2014

Abstract
Bitcoin has proven that a peer-to-peer electronic cash system can indeed work and fulfill payments processing without requiring trust or a
central mint. However, for an entire electronic economy to be based on a
fully decentralized, peer-to-peer solution, it must be able to do the following: process transactions securely, quickly and efficiently, at the rate of
thousands per hour or more; provide incentives for people to participate
in securing the network; scale globally with a minimal resource footprint;
offer a range of basic transaction types that launch cryptocurrencies past
the core feature of a payment system alone; provide an agile architecture
that facilitates the addition of new core features, and allows for the creation and deployment of advanced applications; and be able to run on a
broad range of devices, including mobile ones. Nxt (pronounced next)
satisfies all these requirements.

Contents
1 Introduction and Overview

2 Core technologies
2.1 Proof of Stake . . . . . . . . . . . . . . . . .
2.1.1 Nxts Proof of Stake Model . . . . . .
2.1.2 Contrast with Peercoin Proof of Stake
2.2 Tokens . . . . . . . . . . . . . . . . . . . . . .
2.3 Network Nodes . . . . . . . . . . . . . . . . .
2.4 Blocks . . . . . . . . . . . . . . . . . . . . . .
2.4.1 Block Creation (Forging) . . . . . . .
Base Target Value . . . . . . . . . . .
Target Value . . . . . . . . . . . . . .

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Contributors include the following members of the http://nxtforum.org/ community:

Alias, anon136, bluemeanie, Brangdon, ChuckOne, Come-from-Beyond, Daedelus, Damelon,
devphp, doctorevil, Eadeqa, EMoneyru, Forkedchain, Fry, GBeirn, gs02xzz, Jean-Luc, jl777,
joefox, kushti, l8orre, mczarnek, msin, mthcl, NCtrl, Pandaisftw, pouncer, QBTC, Rickyjames, salsacz, Sebastien256, ThomasVeil, VanBreuk, Wesleyh, and Zahlen. Sources were
compiled, organized, and edited by joefox.

2.5

Cumulative Difficulty . . . . . . . .
The Forging Algorithm . . . . . . .
Balance leasing . . . . . . . . . . . .
2.4.2 Accounts . . . . . . . . . . . . . . .
Account Balance Properties . . . . .
Wallet.dat . . . . . . . . . . . . . . .
2.4.3 Transactions . . . . . . . . . . . . .
Transaction Fees . . . . . . . . . . .
Transaction Confirmations . . . . . .
Transaction Deadlines . . . . . . . .
Transaction Types . . . . . . . . . .
Transaction Creation and Processing
Cryptographic Foundations . . . . . . . . .
2.5.1 Encryption Algorithm . . . . . . . .

3 Core Features
3.1 Advanced JavaScript
3.2 Agile architecture . .
3.3 Basic Payments . . .
3.4 Alias System . . . .
3.5 Arbitrary Messages .
3.6 Asset Exchange . . .
3.7 Digital Goods Store
3.8 Device Portability .

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4 Concerns
4.1 Proof of Stake Attacks .
4.1.1 Nothing at Stake
4.1.2 History Attack .
4.2 Distribution . . . . . . .
4.3 Transaction Fees . . . .
4.4 Whitepaper Timing . .

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5 Additional Nxt-related Papers and Resources

21

Introduction and Overview

Nxt is a 100% proof-of-stake cryptocurrency, constructed from scratch in opensource Java1 . Nxts unique proof-of-stake algorithm does not depend on any
implementation of the coin age concept used by other proof-of-stake cryptocurrencies, and is resistant to so-called nothing at stake attacks. A total quantity
of 1 billion available tokens were distributed in the genesis block. Curve25519
cryptography is used to provide a balance of security and required processing
power, along with more commonly-used SHA256 hashing algorithms.
Blocks are generated every 60 seconds, on average, by accounts that are unlocked
on network nodes. Since the full token supply already exists, Nxt is redistributed
1 Source

code for Nxt is available at https://bitbucket.org/JeanLucPicard/nxt/src

through the inclusion of transaction fees which are awarded to an account when
it successfully creates a block. This process is known as forging, and is akin
to the mining concept employed by other cryptocurrencies. Transactions are
deemed safe after 10 block confirmations, and Nxts current architecture and
block size cap allows for the processing of up to 367,200 transactions per day.
Nxt transactions are based on a series of core transaction types that do not
require any script processing or transaction input/output processing on the part
of network nodes. These transaction primitives allow core support for:
a fully-decentralized asset exchange
alias creation, transfer and sale
storage of small, optionally-encryptable strings of data on the blockchain
a digital goods store
account control features
By leveraging these primitive transaction types, Nxts core can be seen as an
agile, base-layer protocol upon which a limitless range of services, applications,
and other currencies can be built.
Ongoing Nxt development includes the implementation of a novel Transparent Forging feature which will allow a transaction processing capacity increase
of two orders of magnitude using a deterministic block generation algorithm,
coupled with additional network security mechanisms. The latest development
roadmap2 also outlines the following short-term feature additions to the Nxt
core:
a voting system
asset exchange dividend payments
a monetary system for facilitating the creation of new cryptocurrencies
and associated services that are secured by the Nxt blockchain
atomic cross-chain trading, multi-signature transactions and escrow features
additional mechanisms for securing the Nxt blockchain, including penalties
for accounts that do not behave as expected on the network3
This version of the whitepaper documents features and algorithms that are
implemented in Nxt as of version 1.2.2. Future revisions will be made to reflect
additional planned features and algorithm changes.
2 The July 5, 2014 development update is located here: https://nxtforum.org/news-andannouncements/development-roadmap-update-2014-07-05
3 This feature is known as Economic Clustering and is in discussion here:
https://nxtforum.org/news-and-announcements/economic-clustering/

Core technologies

2.1

Proof of Stake

In the traditional Proof of Work model used by most cryptocurrencies, network security is provided by peers doing work. They deploy their resources
(computation/processing time) to reconcile double-spending transactions, and
to impose an extraordinary cost on those who would attempt to reverse transactions. Tokens are awarded to peers in exchange for work, with the frequency
and amount varying with each cryptocurrencys operational parameters. This
process is known as "mining". The frequency of block generation, which determines each cryptocurrencys available mining reward, is generally intended
to stay constant. As a result, the difficulty of the required work for earning a
reward must increase as the work capacity of the network increases.
As a Proof of Work network becomes stronger, there is less incentive for an
individual peer to support the network, because their potential reward is split
among a greater number of peers. In search of profitability, miners keep adding
resources in the form of specialized, proprietary hardware that requires significant capital investment and high ongoing energy demands. As time progresses,
the network becomes more and more centralized as smaller peers (those who
can do less work) drop out or combine their resources into "pools".
Bitcoins creator, Satoshi Nakamoto, intended for the bitcoin network to be
fully decentralized[?], but nobody could have predicted that the incentives provided by Proof of Work systems would result in the centralization of the mining
process. This leads to possible vulnerabilities[8]. The GHash.io4 bitcoin pool
has reached 51% of the bitcoin mining power in the past[10], and the top five
bitcoin mining pools make up 70% of the Bitcoin networks hashing power5 .
The concept of decentralization is at risk of being completely lost.
In the Proof of Stake model used by Nxt, network security is governed by peers
having a stake in the network. The incentives provided by this algorithm do
not promote centralization in the same way that Proof of Work algorithms do,
and data shows that the Nxt network has remained highly decentralized since
its inception: a large (and growing) number of unique accounts are contributing
blocks to the network6 , and the top five accounts have generated 35% of the
total number of blocks7 .
2.1.1

Nxts Proof of Stake Model

Nxt uses a system where each "coin" in an account can be thought of as a

tiny mining rig. The more tokens that are held in the account, the greater
the chance that account will earn the right to generate a block. The total
4 Located

at https://ghash.io/

5 https://blockchain.info/pools

as of July 8, 2014

6 https://nxtforum.org/general/network-analysis/
7 https://nxtblocks.info/#section/blockexplorer_charts

as of July 8, 2014

"reward" received as a result of block generation is the sum of the transaction

fees located within the block. Nxt does not generate any new tokens as a result of
block creation. Redistribution of Nxt takes place as a result of block generators
receiving transaction fees, so the term "forging" (meaning in this context "to
create a relationship or new conditions"8 ) is used instead of mining.
Subsequent blocks are generated based on verifiable, unique, and almost-unpredictable
information from the preceding block. Blocks are linked by virtue of these connections, creating a chain of blocks (and transactions) that can be traced all the
way back to the genesis block.
Block generation time is targeted at 60 seconds, but variations in probabilities
have resulted in an average block generation time of 80 seconds, with occasionally very long block intervals. An adjustment to the forging algorithm has been
suggested by mthcl and modeled by Sebastien256 on NxtForum.org9 .
The security of the blockchain is always of concern in Proof of Stake systems.
The following basic principles apply to Nxts Proof of Stake algorithm:
A cumulative difficulty value is stored as a parameter in each block, and
each subsequent block derives its new difficulty from the previous blocks
value. In case of ambiguity, the network achieves consensus by selecting
the block or chain fragment with the highest cumulative difficulty. This
is covered in more detail in 2.4.1 on page 8.
To prevent account holders from moving their stake from one account to
another as a means of manipulating their probability of block generation,
tokens must be stationary within an account for 1,440 blocks before they
can contribute to the block generation process. Tokens that meet this
criterion contribute to an accounts effective balance, and this balance is
used to determine forging probability.
To keep an attacker from generating a new chain all the way from the
genesis block, the network only allows chain re-organization 720 blocks
behind the current block height. Any block submitted at a height lower
than this threshold is rejected. This moving threshold may be viewed as
Nxts only fixed checkpoint.
Due to the extremely low probability of any account taking control of the
blockchain by generating its own chain of blocks, transactions are deemed
safe once they are encoded into a block that is 10 blocks behind the current
block height.
2.1.2

Contrast with Peercoin Proof of Stake

Peercoin uses a coin age parameter as part of its mining probability algorithm.
In that system, the longer your Peercoins have been stationary in your account
8 Oxford

English Dictionary. http://www.oxforddictionaries.com/us/definition/american_english/forge

forum
thread:
https://nxtforum.org/proof-of-stake-algorithm/basetargetadjustment-algorithm/
9 Full

(to a maximum of 90 days), the more power (coin age) they have to "mint" a
block. The act of "minting" a block requires the consumption of coin age value,
and the network determines consensus by selecting the chain with the largest
total consumed coin age.
When Peercoin blocks are orphaned, the consumed coin age is released back
to the blocks originating account. As a result, the cost to attack the Peercoin
network is low, since attackers can keep attempting to generate blocks (referred
to as grinding stake) until they succeed. Peercoin minimizes these and other
risks by centrally broadcasting blockchain checkpoints several times a day, to
"freeze" the blockchain and lock in transactions[11].
Nxt does not use coin age as part of its forging algorithm. An accounts "chance"
to forge a block depends only on its effective balance (which is a property of each
account), the time since the last block (which is shared by all forging accounts)
and the base target value (which is also shared by all accounts).

2.2

Tokens

The total supply of Nxt is 1 billion tokens, divisible to eight decimal places. All
tokens were issued with the creation of the genesis block (the first block in the
Nxt blockchain), leaving the genesis account 10 with an initial negative balance
of 1 billion Nxt.
The existence of anti-tokens in the genesis account has a couple of interesting
side effects:
the genesis account cannot issue transactions of any kind, since its balance
is negative and it cannot pay transaction fees. As a result, the private
passphrase for the genesis account is free for anyone to use11 .
any tokens sent to the genesis account are effectively destroyed, since that
accounts negative balance will cancel them out. Several thousand Nxt
tokens have been burned in this manner.
Nxt assets may also be burned by transferring them to the genesis account.
The choice of the word tokens is intentional due to Nxts intention to be used
as a base protocol that provides numerous other functions. Nxts most basic
function is one of a traditional payment system, but it was designed to do far
more.

2.3

Network Nodes

A node on the Nxt network is any device that is contributing transaction or

block data to the network. Any device running the Nxt software is seen as a
node.
10 The

genesis account address is NXT-MRCC-2YLS-8M54-3CMAJ

the genesis account by using the passphrase It was a bright cold day in April, and
the clocks were striking thirteen.
11 Access

Nodes can be subdivided into two types: hallmarked and normal. A hallmarked
node is simply a node that is tagged with an encrypted token derived from
an accounts private key; this token can be decoded to reveal a specific Nxt
account address and balance that are associated with a node. The act of placing
a hallmark on a node adds a level of accountability and trust, so hallmarked
nodes are more trusted than non-hallmarked nodes on the network. The larger
the balance of an account tied to a hallmarked node, the more trust is given
to that node. While an attacker might wish to hallmark a node in order to
gain trustworthiness within the network and then use that trust for malicious
purposes; the barrier to entry (cost of Nxt required to build adequate trust)
discourages such abuse.
Each node on the Nxt network has the ability to process and broadcast both
transactions and block information. Blocks are validated as they are received
from other nodes12 , and in cases where block validation fails, nodes may be
blacklisted temporarily to prevent the propagation of invalid block data.
Each node features built-in DDOS (Distributed Denial of Services) defence
mechanisms which restrict the number of network requests from any peer to
30 per second.

2.4

Blocks

As in other cryptocurrencies, the ledger of Nxt transactions is built and stored

in a linked series of blocks, known as a blockchain. This ledger provides a
permanent record of transactions that have taken place, and also establishes
the order in which transactions have occurred. A copy of the blockchain is kept
on every node in the Nxt network, and every account that is unlocked on a node
(by supplying that accounts private key) has the ability to generate blocks, as
long as at least one incoming transaction to the account has been confirmed
1440 times. Any account that meets these criteria is referred to as an active
account.
In Nxt, each block contains up to 255 transactions, all prefaced by a 192-byte
header that contains identifying parameters. Each transaction in a block is
represented by a maximum of 160 bytes, and the maximum block size is 32KB.
All blocks contain the following parameters:
A block version, block height value, and block identifier
A block timestamp, expressed in seconds since the genesis block
The ID of the account that generated the block, as well as that accounts
public key
12 All possible block parameters are verified, including the effective balance of the block
generators account. This proves that the generating account actually contains the effective
balance (stake) that won it the right to generate the block.

 The ID and hash of the previous block The number of transactions stored
in the block
The total amount of Nxt represented by transactions and fees in the block
Transaction data for all transactions included in the block, including their
transaction IDs
The payload length of the block, and the hash value of the block payload
The blocks generation signature
A signature for the entire block
The base target value and cumulative difficulty for the block13
2.4.1

Block Creation (Forging)

Three values are key to determining which account is eligible to generate a block,
which account earns the right to generate a block, and which block is taken to
be the authoritative one in times of conflict: base target value, target value and
cumulative difficulty.
Base Target Value In order to win the right to forge (generate) a block, all
active Nxt accounts compete by attempting to generate a hash value that is
lower than a given base target value. This base target value varies from block
to block, and is derived from the previous blocks base target value multiplied
by the amount of time that was required to generate that block.
Target Value Each account calculates its own target value, based on its current effective stake. This value is:
T = Tb S Be
where:
T

is the new target value

Tb

is the base target value

is the time since the last block, in seconds

Be
13 See

is the effective balance of the account

2.4.1 for an explanation of these parameters and how they are used.

As can be seen from the formula, the target value grows with each second that
passes since the timestamp of the previous block. The maximum target value
is 1.53722867 x 1017 and the minimum target value is one half of the previous
blocks base target value.
This target value and the base target value are the same for all accounts attempting to forge on top of a specific block. The only account-specific parameter
is the effective balance parameter.
Cumulative Difficulty The cumulative difficulty value is derived from the
base target value, using the formula:
Dcb = Dpb +

264
Tb

where:
Dcb

is the difficulty of the current block

Dpb

is the difficulty of the previous block

Tb

is the base target value for the current block

The Forging Algorithm Each block on the chain has a generation signature parameter. To participate in the block forging process, an active account
cryptographically signs the generation signature of the previous block with its
own public key. This creates a 64-byte signature, which is then hashed using
SHA256. The first 8 bytes of the resulting hash gives a number, referred to as
the accounts hit.
The hit is compared to the current target value. If the computed hit is lower
than the target, then the next block can be generated. As noted in the target
value formula, the target value increases with each passing second. Even if
there are only a few active accounts on the network, one of them will eventually
generate a block because the target value will become very large. The corollary
of this is that you can estimate the time that will be required for any account
to forge a block by comparing that accounts hit value to the target value.
The last point is significant. Since any node can query the effective balance for
any active account, it is possible to iterate through all active accounts in order to
determine their individual hit value. This means it is possible to predict, with
reasonable accuracy, which account will next win the right to forge a block.
A shuffling attack could be mounted by moving stake to an account that will
generate the next block, which is another reason why a Nxt stake must be
stationary for 1440 blocks before it can contribute to forging (via the effective
balance value). Interestingly, the new base target value for the next block cannot
be reasonably predicted, so the nearly-deterministic process of determining who
will forge the next block becomes increasingly stochastic as attempts are made
to predict future blocks. This feature of the Nxt forging algorithm helps form
9

the basis for the development and implementation of the Transparent Forging
algorithm. Since this algorithm has not yet completely been implemented, and
because its implications on the Nxt network are significant, it will be outlined
in a separate paper.
For an in-depth analysis of the mathematics and probabilities related to Nxt
block forging, see mthcls paper, The math of Nxt forging, which is located at
http://www.docdroid.net/e29h/forging0-5-2.pdf.html
When an active account wins the right to generate a block, it bundles up to 255
available, unconfirmed transactions into a new block, and populates the block
with all of its required parameters. This block is then broadcast to the network
as a candidate for the blockchain.
The payload value, generating account, and all of the signatures on each block
can be verified by all network nodes who receive it. In a situation where multiple
blocks are generated, nodes will select the block with the highest cumulative
difficulty value as the authoritative block. As block data is shared between
peers, forks (non-authoritative chain fragments) are detected and dismantled
by examining the chains cumulative difficulty values stored in each fork.
Balance leasing Since the ability for an account to forge is based on the
effective balance parameter, it is possible to loan forging power from one account to another without giving up control of the tokens associated with the
account. Using a transaction of the account control type, an account owner
may temporarily reduce an accounts effective balance to zero, adding it to the
effective balance of another account. The targeted accounts forging power is
increased until the end of a time period specified by the original account owner,
after which the effective balance is returned to the original account.
Accounts with leased forging power generate blocks more often and earn more
transaction fees, but those fees are not automatically returned to lease accounts.
With a bit of coding, however, this system allows for the creation of nearlytrustless forging pools that can make payouts to participants. The most notable
current implementation of this idea can be found at http://pool.nxtcrypto.org/
2.4.2

Accounts

Nxt implements a brain wallet as part of its design: all accounts are stored on
the network, with private keys for each possible account address directly derived
from each accounts passphrase using a combination of SHA256 and Curve25519
operations.
Each account is represented by a 64-bit number, and this number is expressed
as an account address using a Reed-Solomon14 error-correcting notation that
allows for detection of up to four errors in an account address, or correction of
up to two errors. This format was implemented in response to concerns that
14 For

more information: http://en.wikipedia.org/wiki/ReedSolomon_error_correction

10

a mistyped account address could result in tokens, aliases, or assets being irreversibly transferred to erroneous destination accounts. Account addresses are
always prefaced by NXT-, making Nxt account addresses easily recognizable
and distinguishable from address formats used by other cryptocurrencies.
The Reed-Solomon-encoded account address associated with a secret passphrase
is generated as follows:
1. The secret passphrase is hashed with SHA256 to derive the accounts
private key.
2. The private key is encrypted with Curve25519 to derive the accounts
public key.
3. The public key is hashed with SHA256 to derive the account ID.
4. The first 64 bits of the account ID are the visible account number.
5. Reed-Solomon encoding of the visible account number, prefixed with NXT, generates the account address.
When an account is accessed by a secret passphrase for the very first time, it
is not secured by a public key. When the first outgoing transaction from an
account is made, the 256-bit public key derived from the passphrase is stored
on the blockchain, and this secures the account. The address space for public
keys (2256 ) is larger than the address space for account numbers (264 ), so there
is no one-to-one mapping of passphrases to account numbers and collisions are
possible. These collisions are detected and prevented in the following way: once
a specific passphrase is used to access an account, and that account is secured
by a 256-bit public key, no other public-private key pair is permitted to access
that account number.
Account Balance Properties For each Nxt account, several different types
of balances are available. Each type serves a different purpose, and many of
these values are checked as part of transaction validation and processing.
The effective balance of an account is used as the basis for an accounts
forging calculations15 . An accounts effective balance consists of all tokens
that have been stationary in that account for 1440 blocks. In addition,
the Account Leasing feature allows an accounts effective balance to be
assigned to another account for a temporary period.
The guaranteed balance of an account consists of all tokens that have been
stationary in an account for 1440 blocks. Unlike the effective balance, this
balance cannot be assigned to any other account.
The basic balance of an account accounts for all transactions that have
had at least one confirmation.
15 See

2.4.1 on page 8 for more information on how this balance is used.

11

 The forged balance of an account shows the total quantity of Nxt that
have been earned as a result of successfully forging blocks.
The unconfirmed balance of an account is the one that is displayed in Nxt
clients. It represents the current balance of an account, minus the tokens
involved in unconfirmed, sent transactions.
Guaranteed asset balances lists the guaranteed balances of all the assets
associated with a specific account.
Unconfirmed asset balances lists the unconfirmed balances of all the assets
associated with a specific account.
Wallet.dat Bitcoin and related currencies often use an encrypted file, called a
wallet, to store generated addresses for receiving tokens. The core design of Nxt
does not mimic this functionality, but also does not preclude it. As has been
demonstrated by the Offspring client16 and the online wallet service provided by
nxtblocks.info17 , it is possible for client developers to implement a system where
a group of private keys for Nxt accounts are stored in an encrypted, offline file.
2.4.3

Transactions

Transactions are the only means Nxt accounts have of altering their state or
balance. Each transaction performs only one function, the record of which is
permanently stored on the network once that transaction has been included in
a block.
Transaction Fees Transaction fees are the primary mechanism through which
Nxt are recirculated back into the network. Every transaction requires a minimum fee of 1 Nxt; currently, the only exception is the fee for issuing an asset
on the Nxt Asset Exchange, which is 1000 Nxt. When a Nxt account forges
a block, all of the transaction fees included in that block are awarded to the
forging account as a reward.
Until the size of all the transactions in a block exceeds the current 32 kilobyte
block size limit, the minimum fee will be sufficient for all transactions to be
included in blocks. In situations where the number of unconfirmed transactions
exceeds the number that can be placed in a block, forging accounts will likely select transactions with the highest fees. This suggests that transaction processing
may be prioritized by including a fee that is higher than the minimum.
16 Offspring was funded and created by the team behind DGEX, and can be found at
http://offspring.dgex.com/
17 https://nxtblocks.info/#wallet/options

12

Transaction Confirmations All Nxt transactions are considered unconfirmed

until they are included in a valid network block. Newly-created blocks are distributed to the network by the node (and associated account) that creates them,
and a transaction that is included in a block is considered as having received one
confirmation. As subsequent blocks are added to the existing blockchain, each
additional block adds one more confirmation to the number of confirmations for
a transaction.
If a transaction is not included in a block before its deadline, it expires and is
removed from the transaction pool.
Transaction Deadlines Every transaction contains a deadline parameter,
set to a number of minutes from the time the transaction is submitted to the
network. The default deadline is 1440 minutes (24 hours). A transaction that
has been broadcast to the network but has not been included in a block is
referred to as an unconfirmed transaction.
If a transaction has not been included in a block before the transaction deadline
expires, the transaction is removed from the network.
Transactions may be left unconfirmed because they are invalid or malformed, or
because blocks are being filled will transactions that have offered to pay higher
transaction fees. In the future, features such as multi-signature transactions
may be able to take advantage of deadlines as a means of enforcing an expiry
date.
Transaction Types Categorizing Nxt transactions into types and subtypes
allows for modular growth and development of the Nxt protocol without creating
dependencies on other base functions. As features are added to the Nxt core,
new transaction types and subtypes can be added to support them.
The following five transaction types and associated subtypes are supported by
Nxt. Each type dictates a given transactions required and optional parameters,
as well as its processing method.
1. Payment: used for sending Nxt tokens from one account to another
Ordinary payment
2. Messaging: used by messaging, alias, voting, and account info features
Arbitrary message
Alias assignment
Poll creation
Vote casting
Account info

13

3. Colored coins: an implementation of the colored coins concept[1], which

enables the Nxt Asset Exchange
Asset issuance
Asset transfer
Ask order placement
Bid order placement
Ask order cancellation
Bid order cancellation
4. Digital Goods: transactions that enable the Nxt Digital Goods store
Listing
Delisting
Price change
Quantity change
Purchase
Delivery
Feedback
Refund
5. Account control : transactions that place limits on how accounts may or
may not be used.
Effective balance leasing
Transaction Creation and Processing The details of creating and processing a Nxt transaction are as follows:
1. The sender specifies parameters for the transaction. Types of transactions
vary18 , and the desired type is specified at transaction creation, but several
parameters must be specified for all transactions:
the private key for the sending account
a specified fee for the transaction
a deadline for the transaction
an optional referenced transaction
18 See

2.4.3 on the previous page

14

2. All values for the transaction inputs are checked. For example, mandatory
parameters must be specified; fees cannot be less than or equal to zero; a
transaction deadline cannot be less than one minute into the future; if a
referenced transaction is specified, then the current transaction cannot be
processed until the referenced transaction has been processed.
3. If no exceptions are thrown as a result of parameter checking:
(a) The public key for the generating account is computed using the
supplied secret passphrase
(b) Account information for the generating account is retrieved, and
transaction parameters are further validated:
The sending accounts balance cannot be zero
The sending accounts unconfirmed balance 19 must not be lower
than the transaction amount plus the transaction fee
4. If the sending account has sufficient funds for the transaction:
(a) A new transaction is created, with a type and subtype value set to
match the kind of transaction being made. All specified parameters
are included. A unique transaction ID is generated with the creation
of the object
(b) The transaction is signed using the sending accounts private key
(c) The encrypted transaction data is placed within a message instructing network peers to process the transaction
(d) The transaction is broadcast to all peers on the network
(e) The server responds with a result code:
the transaction ID, if the transaction creation was successful
an error code and error message if any of the parameter checks
fail.

2.5

Cryptographic Foundations

Key exchange in Nxt is based on the Curve25519 algorithm, which generates

a shared secret key using a fast, efficient, high-security elliptic-curve DiffieHellman function20 . The algorithm was first demonstrated by Daniel J. Bernstein in 2006[14]. Nxts Java-based implementations were reviewed by DoctorEvil in March, 2014[7].
19 This is defined as the accounts current balance, minus amounts related to all unconfirmed,
sent transactions. In general, this is the account balance that is displayed in real-time in a
Nxt client interface.
20 For more information: http://en.wikipedia.org/wiki/Diffie%E2%80%93Hellman_key_exchange

15

Message signing in Nxt is implemented using the Elliptic-Curve Korean Certificatebased Digital Signature Algorithm (EC-KCDSA), specified as part of IEEE
P1363a by the KCDSA Task Force team in 199821 .
Both algorithms were chosen for their balance of speed and security for a key
size of only 32 bytes.
2.5.1

Encryption Algorithm

When Alice sends an encrypted plaintext to Bob, she:

1. Calculates a shared secret:
shared_secret = Curve25519(Alice_private_key, Bob_public_key)
2. Calculates N seeds:
seedn = SHA256(seedn-1 ), where seed0 = SHA256(shared_secret)
3. Calculates N keys:
keyn = SHA256(Inv(seedn )), where Inv(X) is the inversion of all bits
of X
4. Encrypts the plaintext:
ciphertext[n] = plaintext[n] XOR keyn
Upon receipt Bob decrypts the ciphertext:
1. Calculates a shared secret:
shared_secret = Curve25519(Bob_private_key, Alice_public_key)
2. Calculates N seeds (this is identical to Alices step):
seedn = SHA256(seedn-1 ), where seed0 = SHA256(shared_secret)
3. Calculates N keys (this is identical to Alices step):
keyn = SHA256(Inv(seedn )), where Inv(X) is the inversion of all bits
of X
4. Decrypts the ciphertext:
plaintext[n] = ciphertext[n] XOR keyn
Note: If someone guesses part of the plaintext, he can decode some part of
subsequent messages between Alice and Bob if they use the same key pairs.
As a result, its advised to generate a new pair of private/public keys for each
communication.
21 For

more information: http://grouper.ieee.org/groups/1363/P1363a/contributions/kcdsa1363.pdf

16

3
3.1

Core Features
Advanced JavaScript client

A second-generation, user-friendly client application22 is built into the Nxt

core software distribution, and can be accessed through a local web browser.
The client provides full support for all core Nxt features, implemented such
that users private keys are never exposed to the network. It also includes an
advanced administrative interface23 and built-in javadoc documentation24 for
Nxts low-level Applications Programming Interface.

3.2

Agile architecture

First-generation cryptocurrencies were primarily designed as payment systems.

Nxt recognizes that decentralized blockchains can enable a broad range of applications and services, but is not prescriptive about what those services should be
or how they should be built. By design, Nxt strips away unnecessary complexity
in its core, leaving only the most successful components of its predecessors intact.
As a result, Nxt functions like a low-level, foundational protocol: it defines the
interfaces and operations required to operate a lightweight blockchain, a decentralized communication system, and a rapid transaction processing framework,
allowing higher-order components to build on those features.
Transactions in Nxt make simple adjustments to account balances instead of
tracing sets of input or output credits. In addition, the core software does
not support any form of scripting language. By providing a set of basic, flexible transaction types that can quickly and easily be processed, Nxt creates a
foundation that does not limit the ways in which those transaction types can be
used, and does not create significant overhead for using them. This flexibility is
further amplified by Nxts low resource and energy requirements, and its highly
readable, highly organized object-oriented source code25 .

3.3

Basic Payments

The most fundamental feature of any cryptocurrency is the ability to transmit

tokens from one account to another. This is Nxts most fundamental transaction
type, and it allows for basic payment functionality.

3.4

Alias System

The Nxt Alias System allows any string of text to be permanently associated
with a specific Nxt account. Since its inception, a convention for the format
22 Accessible

via local web browser at http://127.0.0.1:7876/

via local web browser at http://127.0.0.1:7876/admin.html
24 Accessible via local web browser at http://127.0.0.1:7876/doc/
25 Source code for Nxt is available at https://bitbucket.org/JeanLucPicard/nxt/src
23 Accessible

17

of these strings, using JSON26 notation, has been formalized. As a result, an

alias can currently be human-friendly text alias for an account address or a
Uniform Resource Identifier (URI)27 .
The ability to store any URI on the Nxt blockchain enables the creation of any
number of decentralized services that rely on small, persistent strings of text,
such as a distributed Domain Name Server (DNS) system. One example of a
simple implementation of this concept is the browser extensions developed by
wesleyh of http://nxtra.org/28

3.5

Arbitrary Messages

Arbitrary strings of data up to 1000 bytes in length can be stored on the Nxt
blockchain using the Arbitrary Messages feature, and these strings may optionally be AES-encrypted29 . These messages are intended to be removable, in
the future, when blockchain size needs to be reduced; nonetheless, they form a
critical building block for a number of next-generation features.
At the basic level, the system can be used to transmit human-readable messages
between accounts, creating a decentralized chat system. However, advanced
applications can use this feature to store structured data, such as JSON objects,
that can be used to trigger or facilitate services built on top of Nxt. The most
notable current implementation is the Nxt Multigateway (MGW)30 , part of the
NXTServices layer, which employs the Arbitrary Messaging system to drive a
nearly-trustless method for automatically transforming Bitcoin, Litecoin, and
other cryptocurrencies into Nxt assets (based on the colored coins concept) that
can be traded, bought, and sold on the fully-decentralized asset exchange.

3.6

Asset Exchange

An entire class of Nxt transactions is used to implement a fully-decentralized

and automated asset exchange that operates on the Nxt blockchain. Using the
colored coins concept, Nxt assets may be issued and tracked on the Nxt ecosystem, supported by transactions and processing that allow for asset transfer, bid
and ask order placement, and automatic order matching.
Since its inception, the Nxt Asset Exchange has been used for fundraising &
IPO offerings, tipping tokens, and the development of advanced services such
as the Multigateway (MGW) system.
By combining the features of the Nxt Asset Exchange with other features such
as the Arbitrary Messaging System, value-added services can be created. Most
notably, another feature of the NXTServices layer is a system for the automated
26 JavaScript

Object Notation. See http://json.org/

more information: http://en.wikipedia.org/wiki/Uniform_resource_identifier
28 To download the extensions, go to: http://nxtra.org/alias/
29 For more information: http://en.wikipedia.org/wiki/Advanced_Encryption_Standard
30 Development
and
testing
of
this
feature
is
being
tracked
here:
https://nxtforum.org/nxtservices-releases/
27 For

18

calculation and disbursement of dividends based on the performance of existing

Nxt assets31 .

3.7

Digital Goods Store

The Nxt Digital Goods store gives account owners the ability to list assets
for sale in an open, decentralized market place. Goods can be purchased, discounted, delivered, refunded, and transferred, using a dedicated class of transaction types that manage and secure store listings on the decentralized blockchain.

3.8

Device Portability

Due to its cross-platform, Java-based roots, its Proof of Stake hashing and its
future ability to reduce the size of the block chain, Nxt is extremely well suited
for use on small, low-power, low-resource devices. Android and iPhone applications are currently in development, and the Nxt software has been ported
to low-powered ARM devices such as the RaspberryPi32 and CubieTruck platforms.
The ability to implement Nxt on low-powered, always-connected devices such
as smartphones allows us to envision a scenario where the majority of the Nxt
network is supported on mobile devices. The low cost and resource consumption
of these devices significantly reduce network costs in comparison with traditional
Proof of Work cryptocurrencies.

4
4.1
4.1.1

Concerns
Proof of Stake Attacks
Nothing at Stake

In a nothing at stake attack, forgers attempt to build blocks on top of every

fork they see because doing so costs them almost nothing, and because ignoring
any fork may mean losing out on the block rewards that would be earned if that
fork were to become the chain with the largest cumulative difficulty.
While this attack is theoretically possible, it is currently not practical. The Nxt
network does not experience long blockchain forks, and the low block reward
does not provide a strong profit incentive; further, compromising network security and trust for the sake of such small gains would make any victory pyrrhic.
31 Development
and
testing
of
this
feature
is
being
tracked
here:
https://nxtforum.org/nxtservices-releases/nxtservices_div-test-release-for-dividendcalculations-at-any-block/
32 See
this
guide
for
help
installing
Nxt
on
a
Raspberry
Pi:
https://wiki.nxtcrypto.org/wiki/How-To:InstallNRSRaspberryPi

19

As part of Nxts development roadmap33 , a feature called Economic Clustering

will provide further protection against attacks of this nature by forcing transactions to include hashes of previous blocks, and by grouping nodes into clusters
that can detect unusual behavior on the network and impose penalties (in the
form of temporary loss of the ability to forge).
4.1.2

History Attack

In a history attack, someone acquires a large number of tokens, sells them,

and then attempts to create a successful fork from just before the time when
their tokens were sold or traded. If the attack fails, the attempt costs nothing
because the tokens have already been sold or traded; if the attack succeeds, the
attacker gets their tokens back. Extreme forms of this attack involve obtaining
the private keys from old accounts and using them to build a successful chain
right from the genesis block.
In Nxt, the basic history attack generally fails because all stake must be stationary for 1440 blocks before it can be used for forging; moreover, the effective
balance of the account that generates each block is verified as part of block
validation. The extreme form of this attack generally fails because the Nxt
blockchain cannot be re-organized more than 720 blocks behind the current
block height. This limits the time frame in which a bad actor could mount this
form of attack.

4.2

Distribution

Because blocks may only be generated based on existing stake, at least some
of the token supply must be available when a Proof of Stake network is bootstrapped. As a result, Nxt issued and distributed its full supply of tokens with
the creation of the genesis block.
The initial supply of Nxt was distributed to 73 original stakeholders, most of
whom have been incentivized to further disperse their stake through the use
of giveaways, contests, and bounties. Eight months after its creation, Nxts
largest single account contains 5% of Nxts total supply34 . By contrast, Satoshi
Nakamoto is thought to hold almost 9% of Bitcoins total supply after more
than five years of that networks existence[13].
It will never be possible for Nxts proponents to dispel the distribution concerns
raised by the wider community. Relative to the levels of profit achieved by early
investors in IBM, Apple, Google, Facebook, and Bitcoin, the amount of inequality present in the Nxt blockchain is not out of line. Distribution of the available
token supply is progressing and can be tracked at http://charts.nxtcrypto.org/cDistribution.aspx
33 The July 5, 2014 development update is located here: https://nxtforum.org/news-andannouncements/development-roadmap-update-2014-07-05
34 Nxt blockchain explorer at http://blocks.nxtcrypto.org/nxt/nxt.cgi?action=30&switch=1,
as of July 8, 2014

20

When asked: "How would you solve the problem with scam accusations leveled
against the unfair distribution of Nxt to 73 big stakeholders?", BCNext (Nxts
creator) answered: "This problem can not be solved. Even if we had a million
stakeholders the [other] seven billion people would call this unfair. A world with
the [sic] money can not be perfect."35

4.3

Transaction Fees

As the value of Nxt increases, the cost of minimum transactions fees, expressed
in fiat terms, also increases. Plans are underway to reduce the minimum fee,
scaled according to transaction byte-size, in order for micro-transactions to be
practical. This will be implemented after changes to Nxts internal database are
made, and that development is planned for version 1.3.0 of the Nxt software.

4.4

Whitepaper Timing

Most cryptocurrency creators issue a whitepaper before their currency is bootstrapped. Nxts first formal whitepaper was created for version 1.2.2 of the Nxt
software, almost eight months after the creation of the genesis block.
The core development team has always been of the opinion that Nxts source
code is its whitepaper: since Java is human-readable and the full source is
available36 , anyone is welcome to gain an understanding of Nxts mechanics
by examining the source. This whitepaper can be seen as a translation of key
components of the Java source code into English, and it was created in order
to make the design and function of Nxt more accessible to people who do not
possess programming skills.

Additional Nxt-related Papers and Resources

The math of Nxt forging, by mthcl
http://www.docdroid.net/e29h/forging0-5-2.pdf.html
What are the economic parameters of Nxt?, by HassenBlasques
https://docs.google.com/file/d/0BwAGADgnQcrtdXE5MkF5S05oaHM
Nxt Network Energy and Cost Efficiency Analysis, by Matthew Czarnek
and secondleo
http://www.nxtcommunity.org/nxt/nxt/nxt-network-energy-and-costefficiency-analysis

35 https://bitcointalk.org/index.php?topic=345619.msg4383169#msg4383169
36 Source

code for Nxt is available at: https://bitbucket.org/JeanLucPicard/nxt/src

21

 Nxt: A cybernetics perspective Proof of X

https://mega.co.nz/#!yYwD2ArL!aaalNHwQ_RveCKM4Z1x9w0hRI4U6y6119PxQg2RRNA
Why Nxt ought to be taken seriously, by anon136
https://docs.google.com/document/d/1E_ToOMG2l1XThx6YnyXEajXaf6H1k2yjq8XkAF0ScB4
Nxt Myths: What we should know about Nxt generation PoS cryptocurrency, managed by salsacz
https://docs.google.com/file/d/0BwAGADgnQcrtM3g1cU1VSHZtTGM

References
[1] Bitcoin: a Peer-to-Peer Electronic Cash System. (n.d.). Retrieved July 06,
2014, from https://bitcoin.org/bitcoin.pdf
[2] Bitcoin Is Broken. (n.d.). Retrieved July 06,
2014,
http://hackingdistributed.com/2013/11/04/bitcoin-is-broken/

from

[3] Bitcoin Miners Ditch Ghash.io Pool Over Fears of 51% Attack. (n.d.).
Retrieved July 06, 2014, from http://www.coindesk.com/bitcoin-minersditch-ghash-io-pool-51-attack/
[4] Bitcoin needs to scale by a factor of 1000 to compete
with Visa. Heres how to do it. (n.d.). Retrieved July
06,
2014,
from
http://www.washingtonpost.com/blogs/theswitch/wp/2013/11/12/bitcoin-needs-to-scale-by-a-factor-of-1000-tocompete-with-visa-heres-how-to-do-it/
[5] Bitcoin security guarantee shattered by anonymous miner with
51% network power. (n.d.). Retrieved July 06, 2014, from
http://arstechnica.com/security/2014/06/bitcoin-security-guaranteeshattered-by-anonymous-miner-with-51-network-power/
[6] Cohen, R. (2013, November 28). Global Bitcoin Computing Power Now 256
Times Faster Than Top 500 Supercomputers, Combined! Retrieved July 06,
2014, from http://www.forbes.com/sites/reuvencohen/2013/11/28/globalbitcoin-computing-power-now-256-times-faster-than-top-500supercomputers-combined
[7] Crypto Review of Curve25519.java & Crypto.java. (n.d.). Retrieved July
06, 2014, from https://gist.github.com/doctorevil/9521116
[8] Eyal, I., & Gun Sirer, E. (2013). Majority is not Enough: Bitcoin Mining is Vulnerable. Unpublished manuscript. Retrieved July 06, 2014, from
http://arxiv.org/pdf/1311.0243v5.pdf
22

[9] Learn Cryptography 51% Attack. (n.d.). Retrieved July 06, 2014, from
http://learncryptography.com/51-attack/
[10] Losing to win. (2014, June 23). Retrieved July 03, 2014, from
http://www.economist.com/blogs/schumpeter/2014/06/bitcoin
[11] Peercoin.
(n.d.).
Retrieved
http://www.peercoin.net/whitepaper

July

06,

2014,

from

[12] Qin, W., & Zhou, N. (2010, 12). New concurrent digital signature scheme
based on the computational Diffie-Hellman problem. The Journal of
China Universities of Posts and Telecommunications, 17(6), 89-100. doi:
10.1016/S1005-8885(09)60530-6
[13] The Well Deserved Fortune of Satoshi Nakamoto, Bitcoin creator, Visionary and Genius. (n.d.). Retrieved July 06, 2014, from
http://bitslog.wordpress.com/2013/04/17/the-well-deserved-fortune-ofsatoshi-nakamoto/
[14] Yung, M., Dodis, Y., Kiayias, A., Malkin, T., & Bernstein, D. J. (2006).
Curve25519: New Diffie-Hellman Speed Records. Public Key Cryptography, 2006, 207-228. doi: 10.1007/11745853_14

Appendix: Bitcoin Problems Addressed by Nxt

Nxt was created as a cryptocurrency 2.0 response to Bitcoin. Nxt adopts
features that have proved to work well in Bitcoin, and addresses aspects that
are cause for concern. This appendix addresses issues with the Bitcoin protocol
and network that are mitigated by Nxt technology.

Blockchain Size
The Bitcoin blockchain is the complete sequential collection of generated data
blocks containing the electronic ledger book for all Bitcoin transactions occurring since its launch in January 2009. Four years later in January 2013, the size
of the Bitcoin blockchain stood at 4 gigabytes (GB) about the amount of data
required to store a two hour movie on a DVD disk. Eighteen months later, in
July 2014, the size of the Bitcoin blockchain had swelled by almost a factor of
five to 19 gigabytes (GB)37 . The Bitcoin blockchain is undergoing exponential
growth and modifications to the original Bitcoin protocol will be required to
deal with it.
37 http://blockchain.info/charts

23

Nxt Solutions
Nxt block size is currently capped at 32KB. Since its inception, almost 181,000
blocks have been generated38 and the blockchain takes up 390MB of space. In
the future, Nxt will implement a Blockchain Pruning feature (still under discussion) that will reduce blockchain size by selectively removing information on
permanent blocks, and by deleting other non-persistent data, such as Arbitrary
Messages.

Transactions per Day

In late 2013, the number of transactions being processed on the Bitcoin network
was peaking at 70,000 per day, which is about 0.8 transactions per second (tps).
The current Bitcoin standard block size of one megabyte, generated every ten
minutes (on average) by full node clients, limits the maximum capacity of
the current Bitcoin network to a about 7 tps. Compare this with the VISA
networks capacity to handle 10,000 tps and you will see that Bitcoin cannot
compete as it exists today.
Increasing public use of the Bitcoin system will cause Bitcoin to soon hit its
transaction-per-day limit and halt further growth. To forestall this, Bitcoin
software developers are working on the creation of thin clients 39 that employ
simplified payment verification (SPV)40 . To handle greater throughput in the
same 10-minute-average time, SPV thin clients will not perform a full security
check on the larger blocks they process. They will instead examine multiple
hashed blockchains from competing miners and assume that the blockchain version generated by the majority of miners is correct. In the words of Bitcoins
Mike Hearn, Instead of verifying the entire contents, [SPV] just trusts that
the majority of miners are honest. . . . As long as the majority is honest, [SPV]
works. . . [However],the full node does give you better security. If youre running
an online shop for example, it makes sense to run a full node.[4]
Nxt Solutions
In its current state, the Nxt network can process up to 367,200 transactions
per day more than nine times Bitcoins current peak values. The planned
implementation of Transparent Forging will allow for near instant transaction
processing, drastically increasing this limit.

Transaction Confirmation Time

Transaction confirmation times for Bitcoin ranged from 5 to 10 minutes for most
of 2013. After the late 2013 announcement that Chinese banks would not be
38 https://nxtblocks.info/#section/blockexplorer_blocks
39 https://en.bitcoin.it/wiki/Thin_Client_Security
40 https://en.bitcoin.it/wiki/Scalability#Simplified_payment_verification

24

allowed to process Bitcoins, the average Bitcoin transaction time significantly

increased to 8 to 13 minutes, with occasional peaks of 19 minutes41 . Confirmation times have since resettled in the 8 to 10 minute range. Nonetheless, since
multiple verifications are required to finalize a Bitcoin transaction (six confirmations is generally preferred), one hour can easily pass before a sale of assets
paid for by Bitcoin is complete.
Nxt Solutions
The average block generation time for Nxt has historically been shown to be
about 80 seconds, putting the average transaction processing time at the same
value. Transactions are deemed safe after ten confirmations, meaning that transactions are permanent in less than 14 minutes.
The implementation of Transparent Forging will allow for nearly-instant transactions, which will further reduce this time.

Centralization Concerns
The increasing difficulty42 and combined network hashrate43 for Bitcoin has created a high barrier to entry for newcomers, and diminished returns for existing
mining rigs. The block reward incentive employed by Bitcoin has driven the
creation of large, single-owner installations of dedicated mining hardware44 , as
well as the reliance on a small set of large mining pools45 . This has resulted in
a "centralization" effect, where large amounts of mining power are concentrated
in the control of a decreasing number of people. Not only does this create the
kind of power structure that Bitcoin was designed to circumvent, but it also
presents the real possibility that a single mining operation or pool could amass
51% of the networks total mining power46 and execute a 51% attack[9]. Attacks
requiring as little as 25% of total network hashing power also exist[2].
In early January, 2014, GHash.io began voluntarily decreasing its own mining
power because it was approaching the 51% level[3]. After a few days, the pools
mining power was reduced to 34% of the total network power, but the rate
immediately began to increase again, and once more reached dangerous levels
in June 2014[5].
Nxt Solutions
The incentives provided by Nxts Proof of Stake algorithm provide a low Return
on Investment of approximately 0.1%. Since no new coins are generated with
41 https://blockchain.info/charts/avg-confirmation-time
42 https://blockchain.info/charts/difficulty
43 https://blockchain.info/charts/hash-rate
44 http://money.cnn.com/gallery/technology/2013/12/17/bitcoin-mine/index.html
45 https://blockchain.info/pools
46 For some historical statistics, see http://organofcorti.blogspot.ca/2014/06/166-fiftypercent-club.html

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each block, there is no additional mining reward that incentivizes combining

efforts to generate blocks. Data shows that the Nxt network has remained
highly decentralized since its inception: a large (and growing) number of unique
accounts are contributing blocks to the network47 , and the top five accounts
have generated 35% of the total number of blocks48 .

Proof of Works Resource Costs

Confirming transactions for existing Bitcoins, and creating new Bitcoins to go
into circulation, requires enormous background computing power that must operate continuously. This computing power is provided by so-called "mining rigs"
operated by "miners". Bitcoin miners compete among themselves to add the
next transaction block to the overall Bitcoin blockchain. This is done by "hashing" - bundling all Bitcoin transactions occurring over the past ten minutes
and trying to encrypt them into a block of data that also coincidentally has
a certain number of consecutive zeros in it. Most trial blocks generated by a
miners hashing effort dont have this target number of zeros, so they make a
slight change and try again. A billion attempts to find this "winning" block
is called a gigahash, with a mining rig being rated by how many gigahashes it
can perform in a second, denoted by GH/sec. A winning miner who is first to
generate the next needle-in-a-haystack, cryptographically-correct Bitcoin block
currently receives a reward of 25 newly-mined Bitcoins - a reward worth, at the
time of this writing, around $15,750USD49 . This competition among miners,
with its hefty reward, repeats itself over and over and over every ten minutes or
so. By early 2014 over 3500 bitcoins per day are generated, worth around $2.2
million US dollars per day.
With so much money at stake, miners have supported a blistering arms race in
mining rig technology to better their odds of winning. Originally Bitcoins were
mined using the central processing unit (CPU) of a typical desktop computer.
Then the specialized graphics processing unit (GPU) chips in high-end video
cards were used to increase speeds. Field programmable gate array (FPGA)
chips were pressed into service next, followed by mining rigs specialized application specific integrated circuits (ASIC) chips. ASIC technology is the top of the
line for Bitcoin miners, but the arms race continues with various generations of
ASIC chips now coming into service. The current generation of ASIC chips are
the so-called 28nm units, based on the size of their microscopic transistors in
nanometers. These are due to be replaced by 20nm ASIC units by late-2014. An
example of an upcoming state-of-the-art mining rig would be a Butterfly Labs
"Monarch" 28nm ASIC card, which is to provide 600GH/sec for an electricity
consumption of 350 watts and a price of $2200USD50 .
The mining rig infrastructure currently in place to support ongoing Bitcoin
47 https://nxtforum.org/general/network-analysis/
48 https://nxtblocks.info/#section/blockexplorer_charts

as of July 8, 2014
of July 5, 2014, bitcoinaverage.com places the price per bitcoin at around $630USD
50 http://www.butterflylabs.com/monarch/
49 As

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operations is astounding. Bitcoin ASICs are like autistic savants - they are
able to do only the Bitcoin block calculation and nothing more, but they can
do that one calculation at supercomputer speeds. In November 2013, Forbes
magazine ran an article entitled, "Global Bitcoin Computing Power Now 256
Times Faster Than Top 500 Supercomputers, Combined!"[6]. In mid January
2014, statistics maintained at blockchain.info showed that ongoing support of
Bitcoin operations required a continuous hash rate of around 18 million GH/sec.
During the course of one day, that much hashing power produced 1.5 trillion
trial blocks that were generated and rejected by Bitcoin miners looking for one
the magic 144 blocks that would net them $2.2 million USD. Almost all Bitcoin
computations do not go towards curing cancer by modeling DNA or to searching
for radio signals from E.T.; instead, they are totally wasted computations.
The power and cost involved in this wasteful background mining support of Bitcoin is enormous. If all Bitcoin mining rigs had "Monarch" levels of capability
as described above - which they will not, until they are upgraded - they would
represent a pool of 30,000 machines costing over $63 million USD and consuming over 10 megawatts of continuous power while running up an electricity bill of
over $3.5 million USD per day51 . The real numbers are significantly higher for
the current, less-efficient mining rig pool of machines actually supporting Bitcoin today. And these numbers are currently headed upward in an exponential
growth curve as Bitcoin marches from its current one transaction per second to
its current maximum of seven transactions per second.
Nxt Solutions
Analysis of the cost and energy efficiency of the Nxt network shows that the
entire Nxt ecosystem can be maintained for about $60,000USD per year, which is
currently almost 2,200 times less expensive than the cost of running the Bitcoin
network52 .

Proof of Works Resource Costs Pertaining to Coinholders

In addition to massive electrical costs, there is a hidden fee for simply holding
Bitcoins. For each block found, the entity that generates the block receives a
stipend. At the time of writing, this stipend is 25 BTC, producing 10% inflation
in the total Bitcoin supply this year alone. For each $1000USD worth of Bitcoin
someone owns, that person is paying $100USD per Bitcoin this year to "pay"
miners for keeping the network secure.
51 http://blockchain.info/stats
52 Nxt
Network
Energy
and
Cost
Efficiency
Analysis
http://www.nxtcommunity.org/nxt/nxt/nxt-network-energy-and-cost-efficiency-analysis

27

Nxt Solution
Since the complete supply of Nxts 1 billion coins was created with the genesis
block, there is no inflation in Nxt. Deflationary pressures are likely to affect Nxt
in the future, and a planned feature called Antideflation (design in progress) will
address that problem.

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