Privacy on all blockchains via a set of tools for crypto developers — NIX Platform
NOTE: NIX platform has pivoted into Mute/Voice, some links in this article may not be working.
Privacy has gained increasingly more attention in society. The data scandal of Facebook and the data mining efforts of Google are arguably pretty creepy. Now that payments are increasingly done through our phones, via Apple Pay for instance, tech giant are also collecting information about our economic behavior. What if there would be a new type of privacy protocol that would anonymize some or all of your online transactions? Enter NIX.
NIX Platform is building a set of privacy tools that enables any blockchain project or decentralized application to implement “layered optional privacy” in transactions and interactions.
The privacy toolkit, named the ‘Ghost Protocol’, should offer “truly anonymous and decentralized transfer of assets for the cross-chain era”. It might be an impressive statement, but what does it mean?
In this write-up I will dive deep into the NIX project to gain a better fundamental understanding of this technological innovation.
A fundamental analysis framework has been developed to structure research and information by asking some critical questions for blockchain projects. This method is utilized to analyse NIX Platform through a fundamental lens.
CONTENT
- About the project
- Adoption
- Competition
- Token Economics
- Team & Community
- Funding & Governance
- Status & Critiques
- Conclusion
If you have any comments, thoughts for improvements, or critiques in the analytical framework or the analysis of this protocol, please let me know :)
Main sources: Website | Whitepaper | Youtube
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ABOUT THE PROJECT
Which key problem does the project solve?
Private and anonymous digital asset transactions for all blockchain systems.
What valuable aspect of human nature is the protocol serving?
Privacy is a valuable aspect of human nature. Using digital money in 2018, via plastic cards, smartphones, or online payments, results in the flow of valuable personal information from an app or store, to the banks, and ultimately the governmental intelligence agencies. NIX enables to privatize these types of transaction data in a world build on blockchain-based systems.
“The NIX protocol will offer layered optional privacy that will enable people to create a medium of communication and dApp’s between blockchain channels, for whichever purposes each channel stores” (source).
What is the Massively Transformative Purpose (MTP) of the protocol?
According to the whitepaper: “NIX aims to grant the means and resources that will empower people across the world to achieve independence in their social, economic, and global structure […] these assets span from financial security and freedom to private data management and even social content autonomy”.
It can be argued that this purpose is rather noble, yet perhaps a tad broad and vague. In the perspective of a world in which blockchain technology is an underlying fabric of society, an extension of the day-to-day internet, NIX’s statement starts to make some more sense. The NIX protocol can potentially make all types of transactions of digital assets on blockchain-based systems anonymous, private and untraceable.
The types of privatized transactions endless, some basic examples include:
- Buying something with digital cash or online currency like Bitcoin or Dash.
- Using Ether or NEO on a (decentralized) exchange to purchase tokens issued via a ICO on their platform.
- Utilizing an utility token in privacy, for instance to anonymously store data on a decentralized cloud storage service.
- Blockchain-enabled IoT devices making private transactions to each other. For instance a hardware wallet issuing an one time code to log in a service.
What are some key applications of the protocol?
The NIX team is focusing on two main developments; 1) the Ghost Protocol itself and 2) a DEX manager as its first decentralized application. NIX’s main-net, including the Ghost Protocol, has launched in June 2018.
The Ghost Protocol, a privacy toolkit for blockchains, is NIX’s main product.
- NIX’s protocol is native SegWit, meaning that it supports atomic swaps, also known as atomic cross-chain trading. In plain English, utilizing SegWit’s atomic swaps technology allows “the exchange of one cryptocurrency to another cryptocurrency, without the need to trust a third-party” (source).
- Using some code of the Zerocoin Protocol provides important extra functionality, as it enables to anonymously spend the NIX token. The cryptographic proof only reveals that the person is eligible to spend the token without telling which specific token it is (source).
- Bulletproofs technology conceal the amount of spend tokens in the transaction. “Instead of obscuring the entirety of a blockchain, bulletproofs only conceals the quantities sent within a transaction — the sender and recipient’s address are still visible, but the amount being sent is not” (source).
- The technology used from Stealth Outputs ensures complete privacy of receiving payments (source).
- Lastly, touting the transaction through the Tor Network provides an added layer of anonymity via Onion Routing, hiding the identity of client that interacts with a server of the application. These activitites take place outside the application layer of the OSI Model, as mixnets are operating from the network layer thereby offering additional privacy protection on various domains of the internet*.
*It should be noted that the Tor mixnet has its limitations due to centralization vulnerabilities, a challenge the Loki Network is tackling as I covered in a previous previous write-up.
According to NIX’s whitepaper: “In general, privacy for payments are separated into two properties: (1) anonymity, hiding the identities of sender and receiver in a transaction and (2) confidentiality, hiding the amount transferred”. The NIX team has achieved both types of privacy through mixing existing and proven tools that are continued to be developed and updated.
NIX’s combinatoric technology stack creates a robust privacy solution, a protocol that can be leveraged by other blockchain projects to offer more privacy features for their users.
As stated by Crypto Araz in an article about NIX: “The Ghost protocol encompasses an innovative selection that has not been implemented in the market. This custom protocol guarantees that transactions are anonymous in several ways: value, traceability and location” (source).
As the protocol build by NIX is a piece of software, it will receive future updates with new features. Thus, it would be interesting to see a possible Lokinet integration in the future to address some of the privacy flaws of the Tor mixnet used in Ghost Procotol tech-stack.
By leveraging and building upon existing open-source anonymity tools, the NIX project can move fast without reinventing the wheels for their privacy protocol.
Decentralized Applications
The first decentralized app on NIX’s protocol is a DEX manager, an application that hooks together various decentralized exchanges, allowing to trade the combinatoric assortment of coins privately in one place. The first decentralized exchange added to the DEX manager will be Blocknet. The DEX manager is essentially a ‘meta-exchange’ including the optional privacy features of the Ghost Protocol.
“The trading process for the DEX manager is simple: Coin A is swapped to NIX, then the Ghost Protocol is applied, offering privacy and un-traceability to finally re-swap these NIX coins into coin B and have it sent to the new user through privacy smart contracts on the NIX network” (source).
Third party developers can integrate NIX’s protocol in their projects, adding privacy and cross-chain interoperability features in their systems and dapps.
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ADOPTION
Why would the protocol reach super dominance?
NIX leverages the user adoption and network effects of existing blockchain projects by offering a cross-chain protocol for privacy. The project is arguably further developed than competitor Wanchain (see competition section).
How does the protocol track and increase its network effects?
(Developer Ecosystem / Marketplace / Speculation & Hype)
Network effects can be observed from three perspectives; 1) contributions from the open-source developer community, 2) the market adoption of Ghost Protocol by other blockchain projects, and 3) the hype around NIX.
Developer ecosystem network effects
By looking at the GitHub activity, information can be collected regarding the developer ecosystem. With over 500 contributors working on the NixCore repository in GitHub, it can be stated that many developers have an interest in the NIX project. Activities and commits seem frequent, indicating active development.
Marketplace network effects
As the NIX project is still young, officially launching in June 2018, the amount of projects using the protocol is limited. Blocknet, a respectable decentralized exchange will be the first partner to implement NIX’s privacy tools.
Speculation and hype network effects
NIX is mostly under the radar as it is such a new project, officially announced on April 30, 2018. Some hype was generated during the announcement of the airdrop of NIX for Zoin holders, and during the actual snapshot for the airdrop on June 6, 2018.
As the team is working on new exchange listings, further development and community building, new hype cycles may be generated.
How does the protocol tackle the blockchain trilemma?
(Decentralization / Security / Scalability)
Decentralization: By deploying a hybrid mining (PoW) / masternode (PoS) system for transaction verification and protocol operations respectively, the ownership of the computing hardware in the network is arguably more decentralized than a single ‘proof-of-something’ mechanism.
- The individuals or organizations that contribute to the network via mining operations, ensure that the transactions on the blockchain are verified, which are registered in new blocks. Every 120 seconds, a new block is created. There is no information regarding block size provided by NIX.
- The Lyra2REV2 algorithm is used for mining, which combines seven different hash functions after each other. This sequential approach makes the algorithm more resistant against ASIC mining, which has resulted to centralization in the Bitcoin network. According to a developer of Vertcoin, a cryptocurrency project that utilizes the same mining algorithm as NIX: “Using memory dependent algorithms like Lyra2REv2 acts as a deterrent to ASIC manufacturers as it makes the ASIC more expensive to produce” (source).
- Via the masternode (Ghost Node) system, the NIX Platform incentivizes individuals and organizations to stake large amounts of tokens in the network. This has two effects.
- First, network actors staking the tokens can operate a node to power the Ghost Protocol transactions. Essentially, by locking 40.000 NIX, a ‘license’ is activated to use computing hardware to contribute to the network in exchange for block rewards. Masternodes are commonly run via a VPS.
- Second, by locking-in these tokens, the liquidity of the digital asset is reduced, thus effectively increasing the price of the next node. This approach makes it prohibitively expensive to own a majority of the nodes in the network, decentralizing the network and combating 51% attacks.
Security: By utilizing the hybrid PoW (mining) / PoS (masternode) system, the amount of single points of failure are reduced, securing the network.
Scalability: By utilizing SegWit’s functionality in the native technology stack, and picking the best features from the PoW/PoS systems, scalability issued might be mitigated:
- According to the whitepaper, “NIX will adopt multiple privacy mechanisms, scaling solutions, smart contracts integration, sidechain utilities, and ease of use towards the end consumer specifically in speed and environment”. However, it is unspecified which ‘multiple scaling solutions’ are implemented.
- The hybrid PoW/PoS is a popular mechanism to balance scaling and decentralization, thus it would be useful to get more detailed information on this process from the NIX team.
- Being a native SegWit project, “thus reducing transaction size as a solution to scalability; this implementation along with a lightning network integration looks forward to providing users from different existing coins with really fast transactions, forgetting about block confirmation times” (source).
In what programming languages can developers build on top of the protocol?
No information about this can be found. Leveraging widely adopted programming languages is recommended to attract developers and create a healthy open-source devoloper ecosystem.
Is the protocol interoperable with other blockchains?
Yes, that is the entire point of NIX; creating a cross-chain protocol for optional privacy layers.
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COMPETITION
Does the protocol have centralized and/or distributed competition?
Why does the protocol have a good chance at beating those competitors?
Other privacy coins and projects in the domain to privatize transactions exist, it is a big market in the crypto space.
However, instead of competing against the other privacy coins for market adoption, NIX plans to release their protocol as a privacy tool for other blockchain projects:
“We think it is going to affect the privacy market extremely. If we are going to be able to privatize bitcoin and litecoin, and all these other very widely adopted currencies, what is the point of having a private coin that does that but will never be as adopted as Bitcoin or all these other guys? […] We see Nix as a platform that will essentially disable the privacy coin market and shift it towards giving [privacy] tools and resources to other successful digital currencies that are already widely adopted in the world” (source).
Wanchain also has the goal of being a cross-chain privacy solution, but lacks the privacy or the cross-chain features on its current live main-net (source). In addition, the WAN project does not allow optional privacy measures, an important feature for flexibility.
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TOKEN ECONOMICS
If this protocol has its own token, why does it need it?
First, the NIX token enables economic incentives for people and organizations to operate the necessary mining rigs and Ghost Nodes for the hybrid PoW/PoS consensus mechanism. These incentivized nodes form the physical hardware in a decentralized global network to run the privacy protocol.
Second, the NIX token is used to exchange coin A for coin B in a private manner in the Ghost Protocol. Without the NIX token, the privacy protocol would not function.
How does this protocol generate and capture value?
The value is generated by offering cross-chain privacy tools for other blockchain systems. The value is captured by earning a small fee of 0.25% for each transaction that goes through the Ghost Protocol.
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TEAM & COMMUNITY
Why is the team credible?
- NIX has previous experience in blockchain projects, which is very important. Until June 2018, the team was working on Zoin, a privacy-driven community project. During the year that as core developer team for Zoin, it grew in value and outreach.
- Since building the concepts for NIX from scratch was better compared to rewriting Zoin, the team decided to start a new project, allowing the Zoin community to form a new core team.
- During the airdrop process from Zoin to NIX, the team acted very professional and the entire procedure went quite smooth. The team was promptly available and friendly on Discord to offer claim support.
- The lead cryptographer (Andrea Cerulli) is legit with a PhD and MSc in cryptography and over 10 peer-reviewed academic publications. Update: July 26, 2018 in Discord, “NIX team announces that Andrea Cerulli will no longer collaborate on NIX project. Their day-to-day responsibilities did not leave them time to actively participate in NIX development. This will not have any consequences in development or delays for NIX as a whole.”
- Based from the website, the team seems like a diverse group of people, with various backgrounds. This is a positive indicator as blockchain projects are inherently multi-disciplinary.
- The project has been registered in the USA, but due to the uncertain market conditions in the States, NIX might register in Europe too (source).
- Not doing an ICO saves a lot of time to build an actual product.
How is the community engagement?
The community engagement and growth is solid. The main Telegram group has over 4000 members, and there are several language-specific groups with regular activity. The Discord channel is also active. The community managers seem responsive and competent.
The public GitHub shows a developer ecosystem of several hundred people.
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FUNDING & GOVERNANCE MODEL
How and when was the protocol funded?
The project is self-funded. An initial circulation of NIX was provided to Zoin holders via a claimed airdrop in June 2018. The unclaimed NIX from the airdrop were stored as development funds. Since the main-net is live, further development expenses are financed through 7% of the block reward fees in NIX’s merit-based market network.
Instead of doing an ICO, which can take months to prepare and execute, the team rethought the funding process for NIX and utilized the Zoin community for the initial supply through an airdrop.
Are the technology and governance model both decentralized?
(Architectural / Political / Logical )
NIX does not provide much information about governance structures of the project. There is an economic model how the block rewards are shared among the network actors, but insights in the political decentralization are lacking.
Technology / Architectural decentralization
The project is open-source and combines mining operations with Ghost Nodes for more decentralization. The Lyra2REV2 algorithm maintains ASIC resistance due to the sequential hash functions in the software.
Governance / Political decentralization
Unfortunately, there is no official graphic of NIX’s governance model. From what can be understood from the whitepaper, the economic governance for the block rewards are shared among the miners (65%), the Ghost Nodes (28%), and the developer community (7%). The governance structure concerning decision-making for the future of the project is unclear.
System / Logical decentralization
There is only one Ghost Protocol system being build right now, so it is centralized. Logical centralization, according to Vitalik Buterin, is a key characteristic for a blockchain projects, due to the one state of the blockchain for which consensus has been reached.
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STATUS & CRITIQUES
What is the current status of the protocol?
- Listed on Coin Market Cap since July 28, 2018.
- Listings on a handful exchanges.
- Main-net and Ghost Protocol are live.
- Working on DEX manager in partnership with Blocknet.
- Working on better design for desktop wallets.
- Working on mobile wallets with Ghost Protocol integration.
Critiques / Flaws / Disadvantages?
- No information regarding the programming languages developers can use to integrate the Ghost Protocol in decentralized applications and systems.
- A master node system is useful to get a decentralized network of incentivized computing units. However, most nodes are hosted via centralized VPS companies. What is the risk of one VPS service providing 51% of the network?
- There are no metadeterministic operations / semantics for on-chain forking without disturbing the underlaying system, like Bismuth. In other words, a hard-fork generates a new blockchain.
- There are no audits to verify the integrity and security of the NIX wallets.
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CONCLUSION
NIX Platform is a compelling new technology, that aims to generate and capture value by offering a set of privacy tools for other blockchain systems and decentralized apps. Enabling anonymity in value, traceability and location in digital asset transactions caters to a real human need.
Leveraging the open-source community, using existing privacy tools and combining them in a handy package for other blockchain developers, is a clever value proposal. This strategy allows NIX to hook into existing network effects of widely adopted blockchain projects.
Even though there is an active open-source developer community for the NIX protocol, it remains to be the question to what extend third party developers will implement this technology for their own platforms and dApps. If the software is easy to use, then it might just become a default privacy solution in the blockchain industry.
The whitepaper has a pleasing design and manages to express the technical nature of the project in a fairly understandable language. Detailed information about the political governance structure is currently lacking, hopefully this will provided in the near future.
Overall, NIX Platform is a refreshing new blockchain project, as the team did not spend valuable brain juice on hyping an ICO, but instead focused on delivering a solid and clever privacy product as well as professional community management and understandable communication.
It will be interesting to see how this project ages.
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Thank you for reading this! Have I forgotten certain information or developments? Or do you have identified flaws or bias in my story and reasoning? Please let me know, I’m open for discussion, feedback and critique.
