One year after its launch, Novacoin (NVC) is still one of the most interesting cryptocurrencies around. As a pioneer of the proof-of-work/proof-of-stake hybrid, the coin has shed the shadow of an early scandal and earned the respect of many miners.
Bitcoin Examiner talked with chief developer Balthazar and asked about the coin’s inspiration, the insta-mining incident and the future of NVC in a deluge of altcoins.
When you first sat down to develop NVC, what main objectives did you have in mind?
Balthazar - In fact, the main reason was disagreement with the role of proof-of-work in the PPCoin security model. I think that proof-of-work deserves a role of security provider during bootstrapping stage.
What provided the base of NVC’s design and how much have you been able to improve on it?
PPCoin is a good example of how important new ideas are for success. But, unfortunately, there are some flaws in the foundation of PPCoin. Some of them have been described by myself on the Bitcointalk.org forum and some other users have had a similar point of view.
Could you mention some of these flaws?
First, the stake generation is a cost-free process. Just like proof-of-work, the proof-of-stake system allows a stakeholder to send a signal that a specific chain fork is correct. But unlike in the proof-of-work model, sending the signal has no cost. Therefore, you could simultaneously signal for multiple forks, i.e. “play on both sides” without additional costs. This could be resolved either by costly signalling or the use of a hybrid chain. We chose the second solution.
Second, the fixed RoI (return on investment) makes a system less viable in the long-term. If you have a fixed 1/5/N% RoI then you have almost no benefits from participation in the protection of the network. Therefore, the total stakeweight of the network will be much less than optimal and the network becomes vulnerable to “cheap” double-spend scenarios, because a potential attacker wouldn’t need to worry about stake reward. We tackled this problem by adapting RoI based to the proof-of-stake difficulty.
Can you tell us something about your background? Do you work alone or you are a team of developers?
We are a small group of enthusiasts from different countries (Russia, Ukraine, Bulgaria, United States, Portugal), and we have a common idea. We have no strict leadership yet, so some roles in the project can be shared or switched. For example, in this quarter, I won’t be actively involved in kernel code development due to the large amount of work in my organization. But there are some guys who are able to take my place for this time.
In the beginning, there was quite heavy criticism fired at NVC as it quickly overtook other altcoins in many ways. By now, most of these voices have calmed down and Novacoin has many supporters. What do you think happened?
As you probably know already, any project could be faced with a small group of trolls at the beginning. There are people out there willing to pay for such services of defamation. Initially, these people may succeed pushing their opinion which then turns out to be what it has always seem: lousy talk. Because it is you who write the script of this story, and they can only follow this. They keep trying to convince you of the opposite but their only weapon is your own lack of confidence. If you trust yourself, then their defeat is inevitable, because they can’t eternally fool others. People are not stupid, they are able to see the difference between lies and reality, if not always immediately.
One year after launch, Novacoin is the 16th cryptocurrency in terms of market cap. Are you satisfied with the value of $6.5 million after 12 months?
No, of course not. That’s good for a start, but we have to develop faster.
NVC has the smallest amount of coins mined among the top 20 cryptocoins, although it has been around for a year now. What’s the reason for that?
The NVC’s model implies slow emission which therefore becomes a very prolonged process. It’s hard to predict exactly but it’s safe to say that the NVC network will continue to create new coins for a very, very long time after the end of the BTC or LTC emission processes. Just one example: under the current conditions, the value of proof-of-work difficulty would need to exceed 90,000,000,000,000,000,000 for the emission to stop.
Still, we keep hearing about NVC’s alleged pre-mine and how BTC-e had to destroy 110k donated Novacoins because they got attacked. How would you comment on all that?
There are a few things we need to clarify here. First, there is an important difference between ‘pre-mine’ and ‘insta-mine’. These coins were mined between 9 February, 1:00 am (client release) and 10 February, ~15:00 pm (official release of NVC/BTC trading pair at the BTC-e exchange).
Second, the attack on BTC-e had started a few days before the BTC-e owner even knew that Novacoin existed. Actually, BTC-e is under permanent DDoS-attack even when it runs smoothly, since the day it started its operations. It’s part of unfair competition between exchanges.
Third, the private keys of the coins were sent to the owner of btc-e.com along with step-by-step instructions [the basics for this post] on how to destroy these inputs. It was my own decision and nobody forced me to do this. Nobody, including my friend Alexey, the owner of BTC-e.
Finally, I have already talked about who writes the script for the story around any project. Without the creation and destruction of these coins we would have needed twice as much time to achieve the current results.
Many say that the future of cryptocurrencies depends on how widely they will be used in everyday commerce. Do you have plans to convince retailers to accept NVC or it remains a purely an exchange currency?
We have a few big investors in Russia and in the United States, but there are a few serious issues with initiatives published by the Prosecutor’s Office. So we have to wait some time, I guess.
Along with Peercoin, Novacoin is at in the forefront of pioneering the proof-of-stake model. Are there any lessons that practice has taught you or something that played out differently from what you expected?
Well, the proof-of-stake is a rather complex and delicately balanced system. Obviously, something always goes wrong, or doesn’t go as planned, to use other words. So we have had some issues with stake entropy calculation and software stability. But as you have seen, they have long been resolved and the system has been stable for quite a long time.
As for the future, the proof-of-stake system shouldn’t be taken for a solution that is only useful for cryptocurrencies. Along with the proof-of-work model, the proof-of-stake system is one of the approaches which could serve as the ground for the decentralized implementation of a trusted timestamp service. That trusted timestamp service could be used for currency transactions, metadata protection, voting systems or even as a notary. I believe this is our future.
Do you think that BTC can stay the most important cryptocurrency in the long-run? As BTC’s block reward drops over time, could the PoS model drive BTC-followers to Novacoin, Peercoin or other PoS coins?
I think that there are no technical differences between proof-of-stake and proof-of-work powered by ASICs. Just try to compare these scenarios: in the proof-of-stake system, someone who holds a 90 percent weight is able to generate 90 percent of blocks; in the proof-of-work system someone who holds 90 percent of the coins is able to buy 90 percent of hashing power and generate 90 percent share of the total block rate.
The only weakness of the proof-of-work systems is centralization, and by centralization I mean hardware manufacturing. That’s something a government can control, so I think BTC will become the first official cryptocurrency anyway.
There are scores of altcoins out there but many of them won’t exist for long.
The main reason of death for a typical altcoin is the “copy&paste” approach. This approach won’t work with proof-of-stake systems and that’s why almost all NVC clones are in their death throes at this moment. I think it’s worth some time reading this thread on Bitcointalk.org.
What’s your strategy to keep Novacoin among the top cryptocurrencies?
Being among the ‘top currencies’ is not our target, it’s only a side effect. We are working directly with the Bitcointalk.org community to bring something new into the world of cryptocurrencies. That’s why we’ll keep our pace of the development.