Not simply a coin, NXT is a 2nd generation scalable crypto offering a novel method of eco-friendly mining and features outside the scope of other simple “coins”.
In the world where Bitcoin is king, altcoins only change parameters of the original Bitcoin code such as hashing mechanism, time between blocks, starting difficulty, and so on. NXT brings much more to the table and was designated a second generation cryptocurrency for a number of reasons; five of the most interesting ones follow:
1. It is not an altcoin such as litecoin, peercoin, or others who have their code based on Bitcoin’s source code. It is brand new from scratch with its own code.
2. NXT implements a new feature called “Transparent Forging” which will allow NXT to approach Visa/Mastercard rates of transactions. No other cryptocurrency can scale this high; this is possible with NXT because the transparency provided in the protocol will allow each user’s client to determine which node will generate the next block. Other nodes can then send their transactions directly to that node. This also allows additional fees to be realized for immediate/priority transactions. An equally important feature of Transparent Forging is a security mechanism to prevent forked chains from being forged by high-stake nodes. This prevents against even a 90% majority owner of all NXT branching out and forcing a fork.
3. It provides built-in support for planned extra decentralized features such as a peer-peer exchange, colored coins, messaging/chat, DNS, and options for expedited transactions. Bitcoin must rely on future additional coins to integrate their code into the bitcoin blockchain in order to provide these services. NXT can do it all on its own. More information on these services follows this list of 5.
4. It utilizes a 100% proof of stake (PoS) mechanism versus the proof of work (PoW) mechanism other coins are based on. This effectively removes a security risk inherent in other coins, as the issue of a 51% attack and other vulnerabilities inherent to PoW coins become non-issues. Another plus here is how “green” its protocol is (not a reference to colored coins, that will come later) in power consumption, since 100% PoS mechanisms don’t require massive amounts of hashing power like Bitcoin/altcoins do. Any 100% PoS cryptocurrency must distribute all coins at genesis, or until all coins are mined it is vulnerable to a sybil attack; however, this 100% PoS from the start of the blockchain has raised huge outcries from detractors. They say it is completely unfair for the original investors to have what has amounted to so far as a 6000% return on the investment, and for other newcomers to not be able to mine. However, keep the following in mind, the fact that for #5 …
5. It was announced six weeks in advance, unlike mere hours like altcoins usually are. The 73 original stakeholders are responsible for distributing the 1 billion NXT coins that were ejected from the genesis block via an injection of their donated Bitcoin, 21 BTC total, into the genesis block. This is a requirement for any 100% PoS system to work and this distribution is now in progress. NXT is listed on https://coinmarketcap.com/ currently in 6th place and people are trading on a 1-on-1 basis in the forums as well as on BTC/NXT exchanges such as https://www.nxtchg.com and https://www.dgex.com. It is even traded as the Ripple/NXT pair on https://www.peercover.com.
Decentralized Exchange: How are coins currently traded? Well, you have to sign up for an account on a centralized platform such as Cryptsy/BTC-E/Bter/etc, transfer your BTC to them, and pay them a varying percentage fee for transactions, sometimes along with a fee to withdraw. This method comes with the risk of unregulated centralized exchanges or marketplaces stealing funds, which actually occurred recently when the Sheep Marketplace absconded with 96,000 BTC, resulting in one of the largest thefts in history. NXT is developing a peer-peer exchange into the protocol to allow for decentralized trading which will eliminate this trust point and to reduce trading fees to regular network transaction fees.
Colored Coins: NXT (pun intended) is one of the more curious services, colored coins, which go hand in hand with a decentralized exchange. First though, some background: With the Bitcoin blockchain, transactions can be traced. Not to a person mind you, but what is meant is that an individual coin or pieces of that coin can be traced back on a transaction by transaction basis. Since this is the case, then if it was possible to expand the protocol to allow a person to designate or “color” a particular coin, we could build a bridge from the virtual crypto currency world to the physical world. That colored coin can then be used to represent some physical entity here on earth. Property, stocks/bonds, commodities, or any concept that can be concretely identified could be colored. This additional realization of NXT’s blockchain is exactly what is being built into the code to allow for decentralized trading of real property. Coupled with a decentralized exchange, colored coins become a very powerful next generation currency.
Other Decentralized Services: But let’s not stop there. If you can have a decentralized exchange based on the peer-to-peer model then what else is possible? Well, quite a bit as it turns out; the developers are also building in a decentralized DNS system and messaging/chat support as well. Think of what this will allow: all decentralized anonymous websites and payments, to go with an anonymous support system in the chat/messaging feature, all 100% secure, encrypted, and irreversible.
Compare to NXT and BTC operation
Green & Earth Friendly
Let’s talk more about NXT and efficiency. Everyone knows Bitcoin is based on Proof of Work. That is, there are thousands of miners around the world crunching away at hashes and gobbling up TONS of power. Proof of Stake doesn’t involve ‘mining’ per se, so it’s important to realize that unlike Bitcoin exists currently, and like Bitcoin will exist in 2140 when all of it is mined, all NXT that will ever exist already exists, so client wallets now forge (in NXT the term ‘mining’ is replaced with ‘forging’) for transaction fees. Since this can be done on a client wallet loaded on a PC (CPU forging), it is MUCH more environmentally friendly and power efficient, and is also immune to CPU zombie forging.
More on Proof Of Stake Forging
Now, on to the nuts and bolts of NXT’s implementation of PoS. It is elegantly simple: block generations with their transaction fees are competed for proportionally to all active forging wallets based on the amount of NXT a wallet has. So if a wallet has 1 million NXT, then they have 1/1000 of a chance of forging any block and receiving any transaction fees in that block. The math here is 1 million (amount the client has) divided by 1 billion (total NXT in existence) is 1000, so that is 1/1000 of a chance. An even added bonus is that it is your NXT balance that forges for you, not ASICs that requires lots of power, maintenance, and that depreciates in value and processing power. Instead of buying equipment to mine with, you just buy NXT to forge for more NXT with.
The current NXT client is a brain wallet, a very long and secure passphrase MUST be used to generate your account but there is nothing stopping a traditional wallet.dat wallet from being written and utilized. This brain wallet also comes with some criticism, as using too simple of a passprase has already resulted in theft via offline cracking of the NXT blockchain.
The client is based on java, which is another source of contempt from naysayers. However, this allows the development team to quickly push updates to all systems during this beta phase. There is nothing keeping anyone from writing a client in whatever language they choose.
To forge (AKA mine) for transaction fees, your client must be running and unlocked on your machine.
The NXT official thread in Bitcointalk.org is here.
The NXT block explorer is available at https://22.214.171.124/nxt/nxt.cgi?action=10.
Additional info is available on the website https://www.nxtcrypto.org or on the fourms site at https://forums.nxtcrypto.org.