Transparent Forging

Below u'll find a short description of Nxt mining system. The description is based on text written by BCNext, I paraphrase it in my own words to protect BCNext's real identity against text style analysis (as was agreed).

I want u to pay attention to a paper titled Decentralised Currencies Are Probably Impossible But Let’s At Least Make Them Efficient.

The author writes:

To match this to the notion of “decentralised” (i.e. lacking central authority), the consensus group must be, at least, all participants in the currency. This does not present any real problem 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 US Dollar. Assuming the majority decide to behave honestly (as seems likely, after all, that is what happens now), then they should have no difficulty in forming consensus on who has how much money at what time. However, the most general notion of decentralisation does not admit such re-strictions. 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 scheme (bear in mind that knowing who is in is also a consensus problem!), then you can never get agreement.

In Nxt this problem doesn't arise coz all participants (miners) r known. This is a side-effect of 100% proof-of-stake currency. So, let's move to the most interesting part...

As u may know, Bitcoin et al. can be attacked by an entity that possesses 51% of hashing power. 2 main scenarios r possible:
1. Part of the miners leave the "legit" branch of the blockchain and start mining their own branch.
2. Someone buys/produces mining equipment and starts mining secret branch.

The 2nd scenario can't be applied to Nxt, coz no NXTs exist outside the network. Let's look closer at the 1st scenario.

Yesterday the average base target was ~700%. This means that only 1/7 of all stakeholders were generating blocks, we can't say if the rest 6/7 were hit by bus or trying to fork Nxt blockchain. This is in the current Nxt implementation. BCNext is satisfied with the results shown during last 2 weeks and now is going to adjust the mining algo 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). And this gives us superior advantages:
1. Transactions can be sent directly to the miner who will mine 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.
2. Blocks can be generated in advance and sent to most of the miners before they become valid (timestamp validation), thus greatly reducing rate of orphaned blocks.
3. Due to 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:
The network can detect which miners don't take part in block generation and act accordingly.

The last point deserves to be described with more details.

Imagine someone is going to do a "51%" attack against Nxt and he owns 90% of all coins. The adversary must stop generating blocks for legit branch coz he won't be able to compete against 100% mining power with his 90%. So he decides to "skip" his turn to generate a block. The rest 10% of the network detects this and penalizes the adversary by setting his mining power to 0 and distributing it among other miners. Now the network is back to 100% power coz everyone got 10-fold increase. The adversary can mine other branch in a secret place 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, coz the attacker will get his 90% bumped to 100% but this can be counteracted by some mechanisms of advanced consensus (still not revealed).

As a 100% PoS currency Nxt is protected against a government wealthy entity that could buy/produce a lot of ASICs, with the transparent mining it's protected even against someone buying most of the coins.

So, what does make Nxt a really next-gen currency? Not those nice features like decentralized exchange, or decentralized DNS, or decentralized app store. The transparent mining algo does, and this is only the 1st part of BCNext's plan...

Edit: BCNext pointed out that I forgot to mention Selfish Mining. Sorry. Transparent mining solves the selfish mining issue completely. Dixi.

Forkedchain. (January 2, 2014). What is NXT in the world of cryptocurrencies? Nxtcrypto Foundation Forums. Retrieved from http://goo.gl/wHnBUl