The Token Duality Problem. Image credit: Photo by Chris Sabor on Unsplash

The Token Duality Problem

Lior Yaffe
Jan 21, 2018 · 3 min read

The existing single blockchain, single token model does not scale

In June 2015 shortly after we released Nxt 1.5 with groundbreaking features like Phasing, Account Control and Data Pruning, which almost three years later are still unmatched in their functionality and simplicity, we started looking into the next steps. What is now evident and accepted by most, was already clear to some of our devs already. That the token duality model of existing blockchains cannot scale.

By “token duality”, I mean the fact that a single ledger token (the real thing, not an ERC20 token or the like) has a dual purpose:

  1. Transfer of Value
  2. Security of the network

Why is it a problem? For several reasons:

The more successful your ledger becomes, the more expensive your token becomes, and the more expensive transaction fees become for your users. Take for example the Bitcoin transaction fees which reached a peak of over $10 around December 2017.

Any transaction with a transfer of value, affects the ledger state and therefore has to remain in the ledger forever, long after it is required in the real world. For example, my Bitcoin Wikipedia donation from 2014.

All transactions from all types of applications have to be stored on a single ledger, so anyone interested in a specific application domain still has to process all other transactions as well. For example, CryptoKitties.

So back in Mid 2015, we started designing a solution to this problem. A pragmatic solution, which does not rely on off chain transactions or cryptographic “magic”.

Fast forward to January 2018, and the Ardor platform is launched to production with all features which already exist in Nxt and more, refactored into a groundbreaking parent chain architecture responsible for the security of the network, and multiple child chains, each with their own token, used for the transfer of value and as building blocks for decentralized applications.

Ardor is a production release built on top of dozens of man-years invested into the development of Nxt itself, and then the parent-child chain architecture as well. Ardor was developed by one of the most experienced dev teams in the industry. Unlike many others, it is not a vague promise, a Whitepaper or a testnet release; it’s a working product.

Why does Ardor solve (or will it solve) the token duality problem?

In Ardor your end users pay the transaction fee in the child chain token, and as long as it makes sense from a business perspective, this fee can be zero. Fee payment of the parent token is off loaded from the user to the “bundler” which can be a business responsible for the child chain. This could be used by exchanges, merchants, payment processors, startups, etc.

In Ardor, the child chain transactions will be pruned, i.e. they will be removed from the blockchain once they are stored deep enough. However, anyone who is still interested in recording the full transaction history will be able to setup an archival node and store it, but it will no longer be part of the blockchain itself. This solves the problem which has come to be known as Blockchain Bloat.

Each child chain will deal with its own applications and will be much less dependent on the rest of the applications deployed on the platform.

Please visit our website to learn more about the Ardor technology.

Lior Yaffe

Written by

Co-Founder and Managing Director of Jelurida. Ardor and Nxt core-developer