What Is Transparent Forging In Nextcoin (NXT)?

This is the first video from a two-hour long interview that Leon Fu and I had with one of the most popular NXT crypto currency ambassador in the crypto currency world, we speak with Aaron who goes by the display name “Anon136” on BitcoinTalk.org.

In this video, we will discuss one of the key revolutionary features of the NXT crypto currency protocol known as “Transparent Forging” which allows the NXT network to process nearly 1,000 transactions per second versus Bitcoin’s 7 transactions per second.

What Is NXT Transparent Forging?
By NXT Core Developer “Come-From-Beyond”

In addition to Aaron’s video description above, I also want to include a text description of NXT Transparent Forging by Come-from-Beyond who was hired by BCNxt to be a core developer for NXT.

The information was originally from BitcoinTalk.org and I have edited and reformatted it quite a bit so it will be easier to read for non-technical people.

In a true “decentralised” currency, (i.e. lacking central authority), the consensus group must be, at least, all participants in the currency.

This does not present any real problems when that group is known.

For example, it would be possible to define the group as “all people currently in the United States”– where the currency would be something akin to the U.S. dollar.

If we assume the majority behaves honestly then there should be no difficulty in forming a consensus as to the correct account balance of each person in the network at any given time.

However, the most general notion of decentralisation does not allow such restrictions.

After all, in some sense, placing any such restriction simply pushes the central authority back a layer: instead of controlling the currency, the authority controls membership of the consensus group. A system like this must allow any entity to participate, and to join and leave the scheme at will.

And here lies the problem. If you can never know who is in the network (bear in mind that knowing who is in the network is also a consensus problem!), then you can never get an agreement or consensus.

In NXT this problem does not exist because all the participants (miners/users) in the network are known.

This is the side-effect and benefit of a 100% Proof Of Stake currency.  So, let’s move on to the most interesting part…

As you may know, Bitcoin can be theoretically attacked by an entity that possesses 51% of hashing power.

Two possible scenarios can occur:

Scenario #1 – Part of the miners leave the “legit” branch of the blockchain and start mining their own branch.
Scenario #2 –  Someone buys/produces mining equipment and starts mining a secret branch.

The 2nd scenario can’t be applied to NXT because there are no NXT that exist outside the NXT network.

Let’s take a look closer at the 1st scenario.

For example, if the average base target was ~700% this means that only 1/7 of all stakeholders were generating blocks.

We can’t say if the remaining 6/7 were hit by a bus or trying to fork the NXT blockchain.  This is in the current NXT implementation.

Originally, BCNext was satisfied with the results from 2 weeks of early testing and has adjusted the mining algorithm a little bit to make it transparent.

What does this transparency mean?

It means that anyone can predict (with very high probability) who and when will generate next block(s).  This high probability gives NXT some superior advantages:

1. Transactions can be sent directly to the node that will “forge” the next block (if he decides to reveal his location on the Internet), thus saving traffic and coming much closer to VISA/MasterCard processing volumes/speeds.

2. Blocks can be generated in advance and sent to most of the participating nodes before they become valid (timestamp validation), thus greatly reducing rate of orphaned blocks.

3. Due to the ability to predict timestamps of future blocks (rate of blocks) it becomes possible to set appropriate fees to assure quick confirmations for important transactions (without paying too much for inclusion into a block).

And the most important feature:

4. The network can detect which nodes don’t take part in block generation and act accordingly.

The last point deserves to be described with more details.

Imagine someone (the “attacker”) is going to do a “51%” attack against NXT and he owns 90% of all available NXT coins.

The attacker must stop generating blocks for the legit branch because he won’t be able to compete against 100% forging power with his 90% stake.

So he decides to “skip” his turn to generate a block.

The remaining 10% of the network detects this and will penalize the attacker by setting his forging power to zero and redistributing it’s hashing power among other participating nodes. Now the network is back to 100% power because everyone has received a 10-fold increase in hashing power.

If a non-mining stakeholder misses their chance to mine a block they will be temporarily penalized for their “lack of participation” which affects their ability to forge the next block of transactions.

The NXT system is set up so that stakeholders are encouraged to use the coins they own to protect the NXT network and not just sit on it.

A stakeholder is anyone who owns at least 1 smallest unit of NXT.

In addition, the attacker (seeking to harm the NXT network) can mine another branch (fork) in secret but it won’t be able to replace the legit branch.

Of course, the 2nd branch will have 100% “hashing” power tied to it as well, because the attacker will get his 90% bumped to 100% but this can be counteracted by some mechanisms of advanced consensus.

As a 100% Proof Of Stake currency, NXT is protected against a government or corporate entity that has the ability to buy or produce a large number of ASIC and use it to attack a network.

By using transparent forging, the NXT network is protected even against someone who attempts to buy 90% of the available NXT coins.

So, what makes NXT a true next generation currency?

It’s not the nice features like a decentralized exchange, or decentralized DNS, or decentralized app store.

Its the transparent forging algorithms that make NXT a 2nd generation cryptocurrency… and this is only the 1st part of BCNext’s plan…

Keep in mind that in order to forge NXT, you have to invest in NXT and not in computer hardware.   When you sell some of your NXT for Bitcoin (or any other cryptocurrency), you lose that “amount” of your ability to forge.

This Proof of Stake process helps to eliminate the typical “pool hopper” as well as “pump and dump” miners who come and go and are really not interested in helping to process transactions and secure the NXT protocol.

A pool hopper is a person who mines in a pool during the good times but leaves during the bad times which allows them to get more out of the pool than the value they contributes to it.

Pool hopping increases the individual’s rewards at the expense of other miners.  Sometimes, this process may be referred to as “selfish mining”.

In order to forge, a new miner/forger has to support the price of NXT by buying and holding.  If the new miner/forger decides to cash out early, then they lose their ability to forge.

So there’s no jumping in and out of the NXT forge like many pool hoppers do in other Proof of Work coins.  This kind of “pool hopping” disruption does not happen in NXT.

It’s also less unfair than the usual mining setup because it doesn’t reward centralization.  If you some amount in mining Nxt, you get the same mining power per money invested as someone who invests any other amount in Nxt, where with most PoW coins you get substantially more than a fair share of blocks as you invest more money.

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You can support and donate to our efforts on our donations page.

If you would like to donate to Aaron’s (aka – Anon136) research efforts in the crypto currency world, you are welcome to send him donations directly at the following addresses:

NXT = 14075156995145364873
BTC = 1J68eajnyueiLeYdaBUiVySFhPiwpafzmY

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