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Weekly Deep Dive – Nano: Cryptocurrency as Currency

As some of you may have seen, I recently [posted a poll](https://np.reddit.com/r/CryptoCurrency/comments/lt0zxs/weekly_deep_dives_which_coin_to_start_with/) asking the community which coins they would like to see discussed in detail. Unsurprisingly, one of the most talked-about coins came out on top – Nano! So the first in what I hope will be a series of deep dives will discuss the history, technical overview, potential and challenges surrounding Nano. As per the rules regarding differences in the Moon vs popular vote, next week’s deep dive will be on Cardano (ADA).

## Disclosure & Liability Statement

Each deep dive contains a disclosure statement wherein I state if there is any stake that I currently or have recently held in the coin discussed. This is to ensure transparency and provide clarity on potential conflicts of interest related to the work. However, for privacy and security reasons, I will not be providing evidence to support the disclosure statement.

I currently hold, or have I recently held some amount of NANO.

While every effort is made to ensure accuracy and objectivity of the content provided herein, I cannot guarantee the factual accuracy of any claims made in this piece, nor should this be considered an exhaustive account of the available relevant information. It is highly recommended that readers engage in their own due diligence prior to determining if or what amount to invest in the coin or token described. No statements or claims made within this work are to be interpreted as financial advice. When seeking financial advice, it is recommended to seek consultation with a registered fiduciary in your area of residence where possible.

## Introduction & History

The advent of cryptocurrencies and blockchain technology came with the goal of performing cash transfers in a secure, decentralized manner. While Bitcoin (BTC) is the coin of the first blockchain, its utility in performing convenient transfers of wealth has become increasingly dubious as its value has grown exponentially and its technology has become dated. Many other coins – most notably Litecoin (LTC) – have worked to mitigate the issues around relatively slow transaction speeds and high fees through various improvements to the original Bitcoin architecture, but for a long time, none had achieved what could be considered the gold standard of a true cryptocurrency: Instantaneous payments with zero fees. Enter… RaiBlocks (XRB).

First published in December of 2014 by Colin LeMahieu, Nano was originally called RaiBlocks, and set out to do what hadn’t been convincingly done up to that point – create a cryptocurrency with incredibly low latency and near-zero fees. Success could mean realization of Satoshi Nakamoto’s vision of a global digital currency that did not rely on a central authority. To achieve this, RaiBlocks described a network architecture based on a block-lattice structure (more on that later) which would essentially mean that your transactions were recorded on what amounts to your own blockchain. With a sound technical approach and a solid developer community backing it, RaiBlocks was distributed between 2015 and 2017 via a CAPTCHA-solving faucet, with the core team retaining about 5% of the total supply and the remaining supply burned. Interestingly, this was in direct and intentional contrast to the practice of initial coin offerings common at the time, with the goal of avoiding bots or wealthy individuals taking control of the coin.

With its promising technical framework and man-of-the-people approach to distribution of its coins, RaiBlocks had all the right ingredients to become one of the darlings of the so-called “alt season” of early 2018, wherein investors quickly flocked to the coin’s attractive value proposition as essentially everything Bitcoin is but better. This was best evidenced by its incredible price movement (from under one cent in early 2017 to a peak of $37.62 USD per coin) and frequent mentions, as evidenced by its community-driven awarding of a Binance listing at the time. Around this time, the team decided that RaiBlocks was not an especially marketing-friendly name, and changed the name to Nano, with the eponymous NANO coin, in January of 2018.

However, like all coins at the time, Nano was not immune to the rapid price collapse that occurred as the 2017/2018 bull run came to a close, dropping to around $1.10 by August of 2018 before eventually bottoming out well under $1.00 through the following bear market. A dark cloud was cast over the project in February of 2018 when one of its most prominent exchanges, BitGrail, lost a reported 17 million coins, worth $170 million USD at the time, due to a security breach. The ensuing lawsuit revealed the exchange’s sore lack of security and failure to report significant losses dating back several months before the breach.

While such a painful saga could have sent the development the way of many other coins from this period that eventually folded, the Nano foundation’s developers and supporters had already been established. Developments have continued and updates to the work difficulty, voting mechanism and block architecture, as well as myriad minor updates were made and continue to be made to this day.

## Technical Details

In a standard block chain, a single chain of transactions is generated, with each block containing a cryptographic hash of the previous block in the chain. While this works well for immutability of the block chain (as a practical matter, you cannot reverse previously accepted blocks), it also has an obvious bottleneck in that blocks can only contain so much information, creating an inherent barrier to scalability. Nano effectively solves this with what is called a *directed acyclic graph* (DAG).

While the mathematics behind this can get complicated, in very simple terms, a DAG is a series of start and end points, with the path from start to end drawn between them (this is what makes it “directed”). While different starting points can connect to the same end point, in a DAG, there is no way to return from a given end point to its corresponding starting point, regardless of how you traverse between points in the graph (this is what makes it “acyclic”). [Here](https://cryptonewmedia.press/wp-content/webpc-passthru.php?src=https://www.statisticshowto.com/wp-content/uploads/2016/04/directed-acyclic-graph.png&nocache=1) is a graphical representation of such a structure.

The fundamental design of a block chain (blocks containing cryptographic hashes of the prior block validated by a consensus mechanism) is combined with a DAG architecture to create what the Nano team describes as a “block-lattice”. With this structure, whole block chains can be added into the graph network without compromising the consensus model or violating immutability. As such, the scalability of a traditional block chain is effectively circumvented, while the isolation of transactions to what could be thought of as their own “private” block chain allows for significantly faster processing.

Nano also avoids the power-hungry proof of work (PoW) model pioneered by Bitcoin, and instead utilizes a delegated proof of stake (dPoS) consensus called Open Representative Voting (ORV). In contrast to PoW, where consensus is achieved through cryptographic processing (hashing) by distributed machines, a PoS model allows for voting to be performed by network members based on their allocation of coins. First described in 2012 by Peercoin, the PoS model is believed to be secured by incentive, where stakeholders would not vote to compromise the network since doing so would devalue the stake that they hold and used to vote. Nano implements the PoS model, with the modification that rather than having to routinely achieve consensus among the entire network, representative nodes are elected by the network via delegation of individual stakes. Transactions are then largely verified by the representative nodes by achieving quorum and voting. This design model maintains the byzantine fault tolerance and decentralization of traditional PoS, while shedding the demands of requiring a large number of individual nodes to be connected and voting.

NANO coins are limited supply, and all available coins exist. The total and circulating supply are 133,248,297 coins. Its market capitalization is therefore the current price of a single NANO multiplied by 133,248,297. Its diluted price is equivalent to its actual price.

## Use Cases & Roadmap

Nano’s philosophy is to do just one thing and do it right and Nano does not mince words about its purpose. Its sole intention is to serve as a truly functional and versatile digital currency for a digital worldx. Nothing more. Nothing less.

Given this focus and given that much of the utility to achieve this goal is built into the root architecture of the network, Nano’s roadmap is largely aimed at adding stability and quality of life improvements to their network. The only future major protocol update listed on the foundation’s website is an update to the PoW algorithm used as part of the transaction validation (note that this is not PoW for consensus, but rather simply to compute and fill part of the cryptographic hash and prevent network spam, and its computing requirements are comparatively trivial). Their more detailed roadmap on Github is similarly sparse on major changes. Consequently, it can be concluded that for the foreseeable future, Nano will continue to operate in its current form.

## Optimistic View

With a clear use case, strong technical fundamentals, and tight developmental focus, there is certainly a lot to like about Nano. It continues to see active development to improve the performance of the network and interest among investors. Popular forks and offshoots like Banano and WeNano have also bolstered awareness of the currency.

The inherent value of an instant, feeless payment system has always been evident, but has perhaps been no more evident than with the recent surge in Ethereum gas fees. Indeed, Nano has sometimes been suggested as a good medium of exchange with which to move funds around without needing to pay unreasonably high fees or wait to have the transaction executed.

The lack of major development updates, although perhaps initially sounding like a negative sound bite, can be interpreted quite positively. For all intents and purposes, Nano has already demonstrated to be readily capable of the types of transactions it claims to be capable of. Thus, from a technical and use case standpoint, there is little to speculate on. Nano already does what it claims to be capable of doing and is now merely looking for its audience. Successfully reaching mass adoption could be the last real barrier in Nano’s growth path.

## Pessimistic View

While the value of Nano is attractive, there are a number of concerns around the project which may impact its medium and long term prospects.

The feeless nature of Nano often loudly trumpeted by the team and their supports means that node operators do not receive direct incentives for participating in consensus. While Nano has released documentation seeking to address this issue and why they believe participants would see indirect incentives for node operation, it could be argued that these indirect incentives are directly tied to Nano adoption itself. Since Nano adoption lacks direct incentive, it could then be viewed as its own barrier to fully realizing the indirect incentives. Additionally, these incentives such as savings on credit card transaction fees (paid by merchants) and a larger customer base do not incentivize private node operators and businesses that do not typically transact in a fee-paying manner already (e.g. cash businesses).

Another aspect that is often glossed over with Nano as a currency is its economic model. Value volatility and a fixed supply of coins are attributes of Nano that do not naturally lend themselves to the vision of becoming a global digital currency. These attributes tend to be disincentives to routine spending of an asset and there are complex economic reasons why nearly all major currencies these days are deliberately inflationary. Since its entire model and path to success are based on its adoption and use for transactions, these factors may again inhibit its ability to reach the mass adoption required for Nano’s success. However, given the potential price shocks that could occur by making the coin’s supply uncapped or by converting it into a stablecoin (i.e. an asset-backed coin of fixed value), such changes could result in massive backlash from current holders of NANO and compromise available funds for continued development on the project.

## Conclusions

Since its inception as RaiBlocks, Nano has strived to fully overcome the real and potential issues that could prevent Bitcoin’s use as a transactional digital currency. Using an innovative block lattice structure, a novel take on the PoS consensus model, and a laser focus on doing its one task as perfectly as possible, Nano has created a distinct and resonant niche in the cryptocurrency space. As any Nano enthusiast will tell you (probably unprompted in a totally unrelated conversation), it is fast, feeless and energy-conscious compared not only to Bitcoin, but the vast majority of its competitors. Its relative maturity for its use case and the recent spotlight on the pain of transaction fees in combination with a greater focus on outreach give this coin great potential. However, questions surrounding its ability to truly reach mass adoption cast a long shadow over Nano’s future.

## References

For any massive nerds out there like me, I decided it was only appropriate that these citations be put into ACS Nano format.

Binance.com. 2018. *Binance January Community Coin – RaiBlocks (XRB)*. [online] Available at: <https://support.binance.com/hc/en-us/articles/115003874552> [Accessed 27 February 2021].

CoinMarketCap. 2021. *Nano price today, NANO live marketcap, chart, and info*. [online] Available at: <https://coinmarketcap.com/currencies/nano/historical-data/> [Accessed 27 February 2021].

Croman, K., Decker, C., Eyal, I. and Gencer, A., 2016. *On Scaling Decentralized Blockchains*. National University of Singapore.

GitHub. n.d. *Nano Roadmap*. [online] Available at: <https://github.com/orgs/nanocurrency/projects/5> [Accessed 27 February 2021].

Gogo, J., 2019. *Italian Court Orders Bitgrail Founder to Refund $170M of ‘Missing’ Cryptocurrency*. [online] Available at: < https://news.bitcoin.com/italian-court-orders-bitgrail-founder-to-refund-170m-of-missing-cryptocurrency/> [Accessed 27 February 2021].

King, S. and Nadal, S., 2012. *PPCoin: Peer-to-Peer CryptoCurrency with Proof-of-Stake*. [ebook] Available at: <https://whitepaper.io/document/139/peercoin-whitepaper> [Accessed 27 February 2021].

LeMahieu, C., 2015. *Nano: A Feeless Distributed Cryptocurrency Network*. [ebook] Available at: <https://docs.nano.org/whitepaper/english/> [Accessed 26 February 2015].

Litecoin.org. 2011. *Litecoin – Open source P2P digital currency*. [online] Available at: <https://litecoin.org/> [Accessed 26 February 2021].

Medium. 2018. *The Incentives to Run a Node*. [online] Available at: <https://medium.com/nanocurrency/the-incentives-to-run-a-node-ccc3510c2562> [Accessed 28 February 2021].

Medium. 2018. *Nano Rebrand Announcement*. [online] Available at: <https://medium.com/hackernoon/nano-rebrand-announcement-9101528a7b76> [Accessed 27 February 2021].

Medium. 2018. *The Nano Faucet*. [online] Available at: <https://medium.com/nanocurrency/the-nano-faucet-c99e18ae1202> [Accessed 27 February 2021].

Nakamoto, S., 2009. *Bitcoin: A Peer-to-Peer Electronic Cash System*. [online] Available at: <http://satoshinakamoto.me/bitcoin.pdf> [Accessed 26 February 2021].

Nano Docs. n.d. *Network Upgrades*. [online] Available at: <https://docs.nano.org/releases/network-upgrades/> [Accessed 27 February 2021].

Reddit. 2021. *10000 Nano Transfer Video*. [online] Available at: <https://np.reddit.com/r/nanocurrency/comments/lth900/10000_nano_transfer_video_you_guessed_it_still/> [Accessed 28 February 2021].

Tutorialspoint.com. 2021. *Directed Acyclic Graph (DAG)*. [online] Available at: <https://www.tutorialspoint.com/directed-acyclic-graph-dag> [Accessed 27 February 2021].

Vigna, P., 2018. Cryptocurrency Worth $170 Million Missing From Italian Exchange. *The Wall Street Journal*, [online] Available at: <https://www.wsj.com/articles/cryptocurrency-worth-170-million-missing-from-italian-exchange-1518241679> [Accessed 27 February 2021].

## Further Reading

For more information regarding nano, refer to their [documentation page](https://docs.nano.org).



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  1. I’ll say it a million times over, if Nano was as accessible to purchase as BTC or ETH, it would absolutely eventually overtake BTC as **the** store of value….

    It’s a waiting game at this point, but I’m still very bullish towards Nano.

  2. I see people say there is no incentive to run Nano nodes because there are no fees, but bitcoin and ethereum nodes dont provide their owners any fees either. There is no fee incentive to run nodes on any crypto that I’m aware of.

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