The Nano Ledger (which has since received the poor rating of D+ by some reviewers) was previously designed to serve as a distributed ledger has proven to not necessarily serve as a blockchain based one.
Initially, Nano was conceived of as being a payment solution for users, with transactions operating in a strictly peer to peer setting. Meaning that these payments would be sorted between the remitter and receiver with no outside influences needed.
So how was it supposed to work? According to its development team, and the way that it was sold - it's supposed to operate in such a way that every participant on its network has their own miniature blockchain. This allows these same users to have a personal ledger of their own records, along with all transactions that they were involved in, whether or not it was as the remitter or receiver.
All of this information is then recorded with the use of its data architecture that the developers behind Nano refer to as the 'Block Lattice.'
If we were to judge this product entirely on its theoretical application, then there's no doubt: it sounds like a great concept to try. Both the remitters and receivers are otherwise empowered to keep a robust record of their own transactions over time. And considering the fact that they are the only ones that will be aware of these transactions the entire architecture of the system would be highly decentralized in nature.
In addition to this, it would provide a highly innovative way for this product to scale. If we were to compare it to the majority of cryptocurrencies out there, the whole ledger behind them do not have the means or system . available in order to process all of the activity on the network. This is positive for this particular ledger, as this allows its individual processes to be sped up significantly.
So, this is what Ledger operates like in theory. But how does it actually fare in practice? Well...
Nano was created in order to create an effective cryptocurrency network with each of its users can efficiently and fairly verify other users on the network - all without any kind of central coordination - which is an admirable task in itself.
But upon delving deeper into just what the Nano team are trying to create, we're left with the ever-stronger impression that the developers have well and truly understated the difficulty of this task.
This was better illustrated by the time when they came into some otherwise unexpected roadblocks, the Nano developers decided upon 'resolving' these issues with a range of panacea solutions. And the end result was simply kicking the problematic can down the road. And has since resulted in them being haunted by these shortcomings.
Where is it that this is best illustrated? Here are three examples of the challenges that have emerged.
So, if only the remitter and receivers are required to be aware of the transactions, with no one else having to oversee it, then isn't it a real possibility that these same two parties could collaborate in such a way as to cheat the Nano system?
The short answer to that is - absolutely. With no-one overseeing the entire process, this raises some seriously vulnerability questions -
What would actually prevent a self-interested entity from enacting a double-spend? Any Nano user could actually spend the same amount repetitively, all without anyone else in the ecosystem being any the wiser.
So with this being a possibility, what exactly would prevent someone from simply forging their account balance? The network would simply be unable to verify that any user actually had the funds that there were trying to spend, making it even more problemmatic to try and counter scammers.
There are a number of crypto projects out there that have seriously had to contend with these issues. This is especially the case with crypto projects that don't directly leverage blockchain. The reason is pretty apparent: without leveraging a single blockchain as a means to verify all of its transactions, developers were hard pressed to come forward with a creative framework of rules in order to prevent cheating.
This is one of the reasons why IOTA resolved itself to rely on an external co-ordinator for such a long period of time. And has also only just started to map out a plan to steadily phase this co-ordinator system out. On another not, this is why another non-blockchain leveraged cryptocurrency, known as Holochain, offers no consensus solution whatsoever. Holochain simply operates off a trust mechanic, where members of the community to police every member that they interact with on the system.
So while these are some of the solutions offered by the likes of IOTA and HoloChain. How exactly does Nano address this issue? By adding an additional layer of delegated proof of Stake (DPoS).
While this is an interesting kind of solution, this brings with it an interesting kind of dilemma: Nano had a scarce number of options other than to introduce a group of validators (which it refers to as 'Representatives') to provide a verification solution for any and all activities taking place on the Ledger.
As we ordinarily see in Proof of Stake solutions, token holders provide votes for all candidates, allowing them to fulfill that particular role. The validators in this kind of system can then use the tokens that were delegated to them in order to vote on the validity of transactions on the ecosystem.
While this kind of system is effective for blockchain solutions like TRON. It's only effective for one reason that makes Nano more problematic.
One of the outstanding issues with regards to the introduction of the Distributed Proof of Stake solution is that transactions on the Nano ledger are completely free, and all tokens in circulation that will ever be in existence and in circulation were created from the very first day.
Once again, when it comes to the application of this solution in theory, was the fact that this made pretty solid sense for a peer to peer solution; it made it a much more lightweight system that was relatively inexpensive for people to use. In addition to this, if there are no validators in the system, then why would there need to be a reward system in place with new tokens?
With this logic in mind, it seemed to be something that fit quite well.
But this neat looking theory fell apart almost immediately when the Nano development team decided on the stop-gap measure of cobbling up this new Proof of Stake layer.
While, in the past, the Nano ecosytem had no validators. Now that it does, once you attach the fact that there are no new tokens being issued, along with no fees being on the ledger at all, this raises the glaring question - how on earth can you expect these validators to do their job if they simply don't get paid for the work that they do?
This brings us to the third and final issue that Nano must now confront.
Now, considering the fact that the only real reason that these validators would have for participating in running a node would be out of the goodness of their own heart. The reality is that this is no way to keep a network running, and it will only be a matter of time before it grinds to a halt.
Inevitably, what's going to happen?
According to the most recent observations of the ecosystem, one third of Nano stake is owned by a collection of 11 accounts, with two of these accounts having one third of the stake delegated to them specifically. Within a Proof of Stake system, this means that there is no way that we can consider the Nano ledger to be a decentralized system. Instead, it has become a monopoly in the hands of these 11 powerful stakeholders.
The developers have effectively dug a grave for their product months and even years in advance.
So, let's take a quick step back in order to find out more about what exactly happened.
Nano was initially created in order to be one of the most decentralized ledger solutions available for users. But thanks to the underlying challenges that it faced. and the respective slap-dash solutions and patches that they introduced have only resulted in it becoming relegated to a semi-centralized ledger, with two major representatives.
So who are these representatives exactly? While one of them is, as yet unknown, one of them is none other than the digital currency exchange - Binance. Both of which hold more than enough power to censor the network entirely.
Nano itself started off as a very radical and innovative ledger solution - promising its community an interesting approach towards decentralization, along with supporting peer to peer transactions along with its block lattice system for aiding scalability. Theoretically, these made it sound pretty cool in theory.
But when it comes to practical application - it has fallen far short of the kind of lofty expectations that it espoused early on. Now, Nano has to ultimately admit defeat, pulling back to the old approach of the tried and tested.