How Can NewSD Square Against Libra?

Technology and Decentralization

Nexty Platform unveiled their plan on developing a stablecoin, namely NewSD, in Q1 of 2019, along with the mission of decentralized payment gateway. This includes the release of NewSD and new consensus for the platform. Not long after, Facebook plans on releasing its cryptocurrency called Libra, which could potentially reshape the landscape of the world banking system. NewSD and Libra share a common purpose, but will they walk together on the same path or the opposite direction?

Technology

If you are still alive in the 21st Century, you probably have posted your last holiday photos on your Facebook news feed. Since Facebook was founded in 2004, the tech colossus gained traction to evolve to the biggest social media network in human history. Libra is the company’s maneuver to cryptocurrency, even though the first attempt at Facebook payment wasn’t successful. So what’s the difference this time?

Libra is considered to be a stablecoin, backed by a reserve of multi low-risk fiat currencies i.e USD, EUR, and JPY. Libra also runs on a blockchain with a consensus, Practical Byzantine Fault Tolerance (pBFT). pBFT works similarly to a castle siege. Imagine each validator node is a general commanding a division of troops, and among them there’s a leader. The army’s main objective is to destroy the castle and the process is overseen by the leader. The leader then sends a raven message to all the generals to lay siege on the castle. However, there could be treacherous generals in the army, even the leader himself. The order is only carried out successfully only if there are maximum number of f traitors among the ranks of generals with the minimum of 3f+1 generals including the leader. After the siege, the loyal generals can replace the current leader if they question his legitimacy if the majority of them agree on the same result.

Communication Complexity

The advantage of pBFT is lower confirmation time than Proof-of-Work. In the case of Bitcoin, every node in the network must verify all the transactions before adding a new block to the blockchain, while pBTF blockchain does not require multiple confirmations. Moreover, in Libra Association, where multiple members can set up validator nodes, pBFT is the ideal consensus.

When the network grows, the major setback of pBFT is scalability. Let’s do a simple calculation from the castle siege example. If we have 10 generals (including the leader), then in order to successfully carry out the siege order, there can be only a maximum of 3 traitors. The leader then pass out the orders to the rest 3f generals, then moves on to the messaging phase. According to a calculation from Nolan, we have the minimum of the message count of 4 phases as following:

1 + 3f + 3f(3f — f) + (3f — f + 1)(3f + 1) + (3f — 1)

In the case of 3 maximum traitors, the minimum message count is:

1 + 9 + 54 + 70 + 8 = 142

This gives the minimum total of the message counts is 142 messages for 1 order when there are 3 traitors. The number will definitely increase if there are more faulty nodes in the network, as well as more people use Libra for money transferring. Therefore, scalability would be an obstacle for Libra blockchain.

Foundation Consensus

Nexty was forked from Ethereum source code and utilized smart contracts to govern the activities on its blockchain. Nexty uses a new consensus, Dual Cryptocurrency Confirmation System (DCCS), that works similarly to Proof-of-Stake (PoS). Essentially, there are 2 coins involved in sealing block, NTY and NTF. NTF is distributed during the ICO of Nexty and has the total supply of 10,000,000. Whoever possesses 50,000 NTF will have the ability to participate in sealing blocks on Nexty blockchain.

Essentially, there are n eligible NTF holders enter the sealing round. They will be numbered from 0 to n-1 as the sealing id, and each id is calculated based on a hash to ensure the randomness. Then the sealer will be picked by the following formula:

σ ≡ (ν − block) mod Π
v is the current block number that is being sealed.
block is the canonical block number when the sealing round started.
Π is the total number of authorized sealer when the sealing round started.

If the σ number equal to the sealing id, then who has that sealing id will seal the block, followed by the subsequent sealers based on the order.

This consensus model allows nodes to seal block quickly, and handle up to 1800 tps. Moreover, becoming a sealer is difficult because the amount of NTF required to do so is enormous, and there are a limited number of sealers available in the network. Unlike PoS, DCCS tries to solve the decentralization issues by making NTY holders the rightful voters instead of NTF holders, and divides the responsibilities for each type of token holders clearly.

The only drawback of DCCS is that comparing to Proof-of-Work, it is less secure because it has a lower number of validation from coin holders. If a Sybil attack happens with many NTY holders, the governance system will be compromised, although it is extremely expensive to do so.

Relay Supported Consensus

In the future, Nexty will support Relay Protocol that allows different token to transfer inside the network. However, supporting the whole blockchain is proven to be feasible due to excessive size. As a result, light client is made to effectively reduce the size of the network involved.

The light client only contains the relevant blocks (cross-link), that affect the consensus, and ignores the rest of them. Cross-link is a block that contains consensus metadata necessarily to verify the blocks followed. Every block is cryptographically linked to a cross-link, and each cross-link is linked to the last cross-link. A cross-link block is created when there’s an active change in the sealer queue, e.g. sealer joins or leaves.

The cross-link chain only contains block #6, #8 and #11

Anchor is the cryptographic link between cross-link blocks that share the super-majority (2/3) common sealers. Anchor chain allows any block n can be relayed, or verified by light client with much less data than n headers.

The anchor chain grows at most 1 block for each N/3 sealer application (i.e. join or leave). Realistically, from the past data of PoS chains, the anchor chain size is often less than 1 over a million of block headers. This is optimal for PoS chain with short block time and less frequent change of sealers.

Decentralization

Most of the current blockchain projects often aim for decentralization, which means everyone in the network has the power over the network, instead of a governmental entity that regulates everything inside. Surely, both Libra and Nexty blockchain is decentralized, but what is the authority distribution for each one of them?

Nexty announced the development of Nexty Governance last year, and released it with Thang Long (literally translated to “Ascending Dragon”) hardfork. It allows people to set up a sealer with a sufficient amount of NTF (50,000). Even though, NTF holders does not have the rights to vote on the network, it is still not decentralized enough, because right now only the NTF holders are participating in sealing NTY. Thus, later in Q1 2020, Governance 2.0 will be released, which will give NTY holders the ability to vote on the system.

NewSD, the upcoming so-called decentralized trustless stablecoin, is another step towards decentralization of Nexty. Typically, when a company issues a stablecoin, it’ll be backed by a reserve of a stable fiat currency or asset i.e USD, EUR, Gold. But no user of the network could ever know that the company has enough fiat currency in the reserve to retain the 1:1 peg. The Tether’s controversy raised an alarm for this type of stablecoin, so NewSD has to tread a different path. NewSD is an elastic supply stablecoin, which means it’ll back by Nexty existing cryptocurrency, NTY, following the Quantity Theory of Money.

Any fluctuations that affect the price of NewSD will be absorbed by NTY. For example, the price of NewSD will be pegged to 1 USD. If price of NewSD goes beyond $1.00, then an x% increase in NewSD supply will lower the price, which will initiate market orders to sell x% of NTY for NewSD and burn them. The process requires no intermediaries to facilitate trust between the sellers and the buyers. Everyone can view the transactions as it happened on the explorer. However, for the time being, NewSD is limited by the market capitalisation of NTY, which means it cannot mint more than approximately 3 million USD worth of NewSD.

Its counterpart, Libra is backed by reserve of multiple assets which have stable value, and only the members of Libra Association can have the permission to create a validator node. Every time a user wants to exchange Libra into local currency, that amount of Libra will be burnt concurrently and the local currency will be transferred to the user through ATMs setup in convenience stores. Notably, this process is controlled by Libra “authorized resellers”. Users cannot view the transactions as well as how much of assets are actually in the Swiss reserve. The assets are not locked in the bank, but can be moved freely, similar to how banks encourage people to deposit money into the bank. Moreover, in the case of global economic meltdown, Libra will take heavy damages due to its centralized nature.

Is it safe to assume anything now?

With the support of a myriad of powerful corporations, Facebook Libra seems to be formidable giant on the market. Considering the delay in releasing this stablecoin due to regulatory blockage, Nexty NewSD will have a fair chance in establishing its name and attracting investors. Although it is not conclusive that NewSD can have its name among the ranking of prominent stablecoins i.e. Tether, USDC, PAX, or DAI, the project is promising given the fact that no other elastic supply stablecoin has succeed in doing so. NewSD might even be the next big thing that happens in crypto space.

Thank you for reading !

Resources

• PBFT — Bitcoin Wiki
• What is Practical Byzantine Fault Tolerance? Complete Beginner’s Guide
• pBFT — Understanding the Consensus Algorithm
• Nexty: A Consensus to Get Zero Transfer Fee and Instant Transfer Blockchain

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• Email: support@nexty.io
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