NXT: Bitcoin rival or ally?

Saturday 17 May 2014

NXT is a relative newcomer to the cryptocurrency scene but in the six months since it was launched it has steadily risen in value and profile, now claiming the fifth spot on the Coin Market Cap table.

At the time of writing, NXT has just surpassed Dogecoin with a market cap comfortably over $30 million.

NXT Asset Exchange

NXT's Asset Exchange allows direct P2P trading of digital assets

One of the reasons for NXT’s swift rise is its Asset Exchange: an innovative new platform unveiled on Monday that enables direct P2P trading of digital assets. The idea is simple but striking. The Asset Exchange does for shares in companies and other digital assets what bitcoin (and other cryptocurrencies, including NXT) do for cash. It’s not the first entrant to the market, for sure; bitshares.org, for example, is the NXT Asset Exchange’s direct competitor and was already up and running before the AE launched. But NXT’s client is an elegantly simple, easy-to-use platform, and the Exchange functionality is integrated into the cryptocurrency from the ground up. To look at it another way, NXT was conceived as the foundations of a digital economy, whereas bitcoin was originally conceived as, primarily and predominantly, a currency. Their relative timing and positioning give them each unique advantages and disadvantages.

 

NXT vs bitcoin
Many cryptocurrencies claim to be ‘the next bitcoin’, the rival that will unseat the father and grandfather of all altcoins. All of these claims have to be taken with at least a pinch of salt, and very often a truckload. The reality is that bitcoin is armoured from any such attack by a very powerful force: the network effect. Put simply, this means that the sheer number of people using and invested in bitcoin alone makes it very difficult for any contender to unseat it. The more people join a network – be that a telephone network, a social network or a currency network such as bitcoin – the more useful it becomes and so the more it cements its own position. Thus whatever the pros and cons of bitcoin vs other cryptocurrencies, whatever advantages they offer in theory, it is extremely unlikely that bitcoin will lose its top spot any time soon.

NXT


NXT is built along different lines to bitcoin, both ideologically and practically. It uses a proof-of-stake system and ‘forging’ rather than bitcoin’s proof-of-work mining system, for example – something that has drawn both admiration and controversy. This has various implications for anything from coin distribution to power consumption and the hardware needed to participate in the network. Unsurprisingly, dyed-in-the-wool bitcoin-lovers have expressed doubt about some of NXT’s flagship features; unsurprisingly, some of NXT’s cheerleaders see these same features as killer advantages.

But this is not the way to see the relationship between NXT and bitcoin. In fact, NXT offers features that can and likely will boost bitcoin’s adoption, as well leveraging bitcoin’s popularity to improve its own reach.

Adoption: the real battlefield
The rise of the altcoins demonstrates that there is room for more than one cryptocurrency. Say what you like about which is ‘better’ (whatever that means): the market has spoken. Whilst a proportion of altcoins can be considered knock-offs at best and pump-and-dump scams at worst, the market will continue to vote with its cash and those that offer genuine advantages will be left standing while the others fade into obscurity. In two, five, ten years time, which will be left? We won’t know until we get there, but it’s fair to say that of the 100-plus crypto-coins that are currently traded Cryptsy, for example, only a few will enjoy any kind of volume.

One of bitcoin’s barriers to greater adoption is its exchanges. MtGox was a fiasco that reflected poorly on bitcoin and highlighted the dangers of centralised, unregulated trading in and out of fiat. In countries like China, bitcoin trading is now all but impossible due to state regulation. One of the answers, both to state intervention and centralised control (and the consequent concentration of risk) is decentralised exchanges. Coinffeine is one such system that is already on the way, and promises big things. (It’s currently in pre-Alpha, but watch that spot.)

NXT is likely to prove another bridge to bitcoin adoption – not because it offers better or different features as a cryptocurrency, but because of the functionality built into its ecosystem.

VC money is pouring into bitcoin, but real-world use currently lags its impressive market cap. NXT’s market cap is still comparatively small, but its functionality offers something that bitcoin badly needs. As forum user Cassius states;

‘One of the biggest problems is that NXT is perceived as a challenger to bitcoin and therefore is a threat to die-hard bitcoiners. In fact, the Asset Exchange could be a huge benefit to all cryptocurrencies since it can function as a decentralised exchange. (Side point: I guess it would even be possible to come up with futures contracts, so that you could be sure your $100 of bitcoin/NXT/whatevercoin was worth $100 when you sold it for something else. That would be a huge step forward as it would avoid the need for centralised exchanges right up to the point of cashing out.)’

Crypto vs fiat
Ultimately, the world is a big place and cryptocurrency hasn’t yet been taken up by more than a fraction of one percent of the population. Like any other area of life, cryptocurrency enthusiasts have a tendency to be tribalistic. At this point, though, the real competition isn’t between bitcoin and other cryptocurrencies. It’s between cryptocurrency and fiat systems. If one cryptocurrency offers another a leg up and thereby increases the adoption of both, that’s good for everyone.

At some point in the future, a Highlander-style showdown and bid for ultimate crypto-dominance might be justified. Just not yet.

Brandon Hurst


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