Thanks to Bitcoin, our outdated centralized financial system and government-issued currencies have slowly been replaced (or improved) by decentralized peer-to-peer electronic payment systems and digital currencies safeguarded with cryptography.
However, in recent years, Bitcoin has been at the risk of underperforming. As its shortcomings are becoming more and more obvious, new crypto projects have taken the plunge to improve them.
Today we’re introducing you to one such promising project. Nano, a popular low-latency cryptocurrency, offers high scalability, blockchain performance, and low-power hardware. And on top of that, Nano is fee-free!
What is Nano
Nano was launched in 2015 by Colin LeMahieu, a software engineer with previous experience in the industry. Before the rebranding, the network and its native token used to be called RaiBlocks and abbreviated to XRB. The cryptocurrency goes under the name NANO as well.
What were the things that LeMahiu found problematic in Bitcoin?
First of all, there’s the poor scalability of the Bitcoin blockchain. There’s a limited amount of data, i.e. transactions, that a Bitcoin block can fit in and it’s nowhere near enough. This is why traders are paying high median transaction fees to get their transfer into the next block.
Next, there’s the high latency for processing a transaction. According to crypto enthusiasts, it’s unacceptable for the most popular digital ledger to experience such long wait times. On top of that, there’s the problem with power consumption.
Therefore, LeMahiu thought about the necessary changes that he should make to his cryptocurrency to solve these issues and published the solutions in The Nano White Paper, last updated in November 2017.
Delegated Proof of Stake Mechanism
Bitcoin struggles with scalability, latency, and power consumption because it relies solely on blockchain technology and the Proof of Work consensus mechanism.
Nano, on the other hand, combines blockchain with Directed Acyclic Graph (DAG) as its underlying technology and combines the Proof of Work and Proof of Stake mechanism into a Delegated PoS Mechanism.
On Nano, users create an “account” (something like a public key), and instead of downloading the whole blockchain, they only store their own blockchain (or “account-chain”). This way, transactions are processed on individual blockchains that pertain to the user in question.
To verify transactions, there’s no need for a global consensus like the one achieved on Bitcoin’s one shared ledger. Nano doesn’t need proof of work as the users’ individual blockchains operate asynchronously to the rest of the blockchains. To solve the latency problem, Nano uses its hybrid Delegated PoS consensus.
The system is initiated with a genesis account containing the genesis balance. The genesis balance is a fixed quantity and can never be increased. The genesis balance is divided and sent to other accounts via send transactions registered on the genesis account-chain. The sum of the balances of all accounts will never exceed the initial genesis balance which gives the system an upper bound on quantity and no ability to increase it. (Nano’s White Paper)
What the text above really wants to say is that as long as the number of NANO tokens from all account-chains adds up to the NANO balance in the genesis account, the network is under control.
To make sure it stays that way, the account-chains choose a Representative whose role is to determine if the incoming transactions, i.e. the broadcasted blocks, are valid. Every Representative has a reputation based on their voting weight. If you represent 5 account-chains, your voting weight equals 5.
This eliminates the possibility for double-spending because if the representatives notice that a user has broadcasted two blocks that both refer back to the preceding block, they will vote on which block to validate. The block is finally stored on the account-chain when it has been validated by an over 50% combined voting weight.
Nano’s system incurs zero fees on its users, so it becomes clear that Nano Representatives lack the economic incentive that motivates Bitcoin miners to validate transactions. On the other hand, the team behind Nano believes that such incentives lead to potential centralization (e.g. mining pools).
Nano Block Lattice
Now, what about the scalability problem? Nano’s solution is block-lattice.
The block-lattice was first introduced in Nano’s white paper (the 2014 version) as a novel type of DAG-based architecture. The “lattice” refers to the structure of Nano’s blockchain that consists of multiple account-chains as explained above.
These chains don’t have thousands of transactions bundled in a block. Every transaction represents one block on Nano’s network. This allows for more than one transaction to be processed and verified at the same time, unlike Bitcoin, where the transactions are added up in a linear fashion.
Otherwise, different nodes will end up having different versions of the blockchain.
Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.