Nxt — A Chain Abandoned

26.07.2018

TL;DR. Ecology:2. Technology:2. Decentralization:2. Valuation:2. Rating:2/10

Introduction

Nxt was introduced with a bitcointalk.org thread posted by user BCNext back in 28th of September, 2013. BCNext's stated goals of initiating Nxt are vague but one main aspect seems to be the energy efficiency of Proof of Stake (PoS) that Nxt planned to utilize. By this time, PoS was extremely new and the Nxt implementation of it can be regarded as one of the first. Later on in the project, features such as voting, coin shuffling and messaging were added as well.

The genesis block coin allocation was proposed to be proportional to the amount of BTC contributed to BCNext's personal Bitcoin wallet. Another aspect of the coin worth noting is the proposed zero inflation policy, which means that all Nxt, 1 000 000 000 of them, were to be issued in the genesis block. Users were to pay transaction fees for taking up block space, but PoS miners would not be incentivized with any regular block rewards.

Mainnet launched on 24th of November 2013, coordinated mainly by user Come-from-Beyond as BCNext had slowly stepped back due to fear of authorities, but kept developing the Nxt client. A new BCT thread was produced just after mainnet, running for a good 2000 pages. Nxt tokens were quickly contributed to technical bug bounties. The client was initially unstable, and the main reason was likely the novel code base. In December 2013, a serious integer overflow bug was exploited, resulting in newly minted coins that were later invalidated in a chain rollback. In line with Bitcoin's birthday, the Nxt client code was made public finally on the 3rd of January 2014. By March/April, Come-from-Beyond announced his intention of leaving the project for other cryptocurrency ventures. The last BCT ANN thread was posted on the 27th of April 2014, and continues to this very day. In May that same year, a decentralized Asset Exchange was integrated in to the main Nxt client, making it possible to trade tokens.

The pace of the Nxt community slowed down somewhat under 2015 and 2016 as new altcoins like Ethereum attracted interest. On 23rd of May 2016 however, Nxt 2.0 was announced by user Damelon. Focus was put on expanded utility, like customizable child chains. A plan was also put in place to introduce two tokens on the Nxt 2.0 blockchain, instead of one, while keeping the 1.X blockchain going as usual. Nxt 2.0 had a planned launch for Q3 2017 and its main token was named Ardor. The second child-chain token was named Ignis. This analysis however concerns the older Nxt 1.X chain that is still active.

As the time for snapshots (in preparation for Ardor genesis block allocation) drew closer, the Nxt price increased. After the snapshots had been conducted, price promptly declined again. Ardor and Ignis went live on 1st of January 2018, and ever since that date, the main focus has been on that chain rather than Nxt. The Nxt BCT ANN-thread is extremely inactive.

Ecology

As Ethereum launched in 2015, it stole a lot of the thunder from semi-similar projects like Nxt. Nxt had asset issuance functionality for example, similar to Ethereum's ICOs which quickly become the industry standard.

The Nxt community is almost vanished since the launch of Nxt 2.0 - Ardor. Very low activity is seen on Reddit, and also on BCT. The developer team hinted before the re-launch/re-brand that the old chain was to be maintained, but there is not much evidence of this coming to fruition.

Looking at a block explorer, there is still some transactions happening. BD Ratings is not sure whether most of those are related to block producing nodes, but looking at a second block explorer, the number of unconfirmed transactions over time is minimal.

Maybe the only unique thing Nxt has going for itself is being one of the, if not the, first PoS cryptocurrencies. But it seems it is not enough to keep users from moving on.

Grade: 2

Reasons: Chain abandoned by main developers. Low on-chain activity. Low community activity.

Technology

BD Ratings won't put too much weight on events occurring back in 2013, but they are worth listing anyway. The founder of Nxt claimed that the coin is a descendant of Bitcoin, whatever that means. He attempted to model certain characteristics after Bitcoin, for example the fixed supply, but went straight for it instead of implementing an issuance schedule. This is essentially skipping any block producer subsidies and works best if there is already considerable on-chain activity on the chain - enough to aggregate enough transaction fees in each block to incentivize stakers to maintain the chain. BCNext himself seems to have realized this was bad construction after noticing that many of the genesis block accounts didn't care to stake.

Most of the serious attacks on the chain that exploited bugs happened during its infancy. By not developing on a Bitcoin clone and instead code from scratch, BCNext took the bold decision to walk a uniqueness - security trade-off line. Completely new code combined with an open source environment attracts attackers. As of today, the code base seems stable enough as the chain has not been attacked for a long time.

The code base is open source but is also no longer heavily developed, and any updates seems likely to be byproducts of Ardor development. More evidence of the Ardor focus can be seen here. This means that the readiness to adapt the client to possible future exploits remains lower than before the re-launch/re-brand.

Grade: 2

Reasons: Few incentives for nodes to create and propagate blocks. No dedicated developer team.

Decentralization

In a BCT-post back in 2014, Come-from-Beyond seems to admit that in the Nxt source code, a trap had been planted so that forks could be killed off. The trap, or traps, also intended to get developers to find other, real bugs as bug bounties were tied to them. This is not really staying true to open source ethos. BD Ratings recalls that Come-from-Beyond used a similar strategy with IOTA, for which he received heavy criticism. Such code traps are indications that the developers don't care about open source best practices. At the same time, the bug bounties tied to the injected bugs will lead to people looking out for real ones, so the idea is in this aspect not stupid.

The decision to take Nxt 2.0 to a new blockchain while leaving the old one seems to have come from a point where the community had not discussed it. Even the name was changed, eroding certain money properties that need stability. Any developer team that makes such drastic changes reveals that they have a large degree of control over the whole project. Even more concerning was the team's decision to allocate 50% of the supply of one of these new tokens, IGNIS, to themselves, most of which was to be sold at an ICO. The ICO collected NXT that was later sold for BTC, USD and ARDOR.

The migration over to the Ardor chain does not leave much of a team for Nxt, resulting in an even worse decentralization grade.

Grade: 2

Reasons: Centralized chain migration decision. Confiscation of wealth through the IGNIS token.

Valuation

With a valuation of over USD 100M, Nxt is severely over valued. There are multiple less valued blockchains with large teams, smart ideas and great resources. For Nxt to get higher ratings, a team of developers needs to assemble, on-chain activity needs to increase, and the tragedy-of-the-commons effect resulting from non-profitability of validating nodes ought to be addressed.

Grade: 2

Reasons: Weak fundamentals overall.