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Greener Coins
NANO (NANO), unlike many cryptocurrencies, doesn't rely on an energy-intensive mining, minting, or printing process. The coins, previously called RaiBlocks, were initially distributed via an online faucet, wherein everyday people could solve CAPTCHA ("I am not a robot") puzzles in exchange for coins. The coin's value is thus derived from a combination of the work done by a human to claim the coin, the scarcity of the coin (exactly 133,248,290 coins exist), and NANO's real-world utility.
An exemplar CAPTCHA. Source: Google ReCAPTCHA.
Unfortunately, proof-of-work, the system used to mine bitcoin, still has its necessary place within the NANO ecosystem. Accompanying each NANO transaction is a tiny proof of work token that has to be traditionally mined to prevent spam attacks. We can estimate the total energy cost associated with all NANO transactions to date. To do this, let's assume the mining took place on an Intel Core i7 4790K - a standard computer CPU.
Sources: Total transactions & Transactions per second - Nano Whitepaper (page 7 & 8). Intel Core Power consumption - Techspot.
For context, 2.3Gj is equivalent to 0.4 barrels of oil or running a lightbulb constantly for a year. A small, but non-trivial energy cost. Let's compare NANO's energy cost to Bitcoin and alternative green-coins currently available:
Source: Created by author using data from Statista, Real Simple, Voizreviews, MyCointainer, CNET, Enterprise Times, National World, Gfinity, Independent, CoinSpice, Laptop Mag.
We can see that each NANO transaction uses one-hundred-millionth of the energy of a Bitcoin transaction and has just one-tenth of a visa transaction's energy cost. Visa transactions are more energy-efficient than all the other cryptocurrencies compared here. Included in this are other green coins such as Bitcoin Cash (BCH-USD), Cardano (ADA-USD), SolarCoin (SLR-USD), and BitGreen (BITG-USD). If a digital currency were to be used to facilitate everyday financial transactions, it should have the lowest energy cost and hence environmental impact as feasibly possible.
It is important not to overlook the great work done by some of these other projects such as SolarCoin and BitGreen; promoting solar energy and green initiatives, which likely makes them better for the environment overall. This, however, does not make them more functional as a day-to-day medium of exchange and can even serve to significantly reduce their utility through the introduction of fees, a topic we will shortly discuss. But first, we should ask whether the crypto market is ready to be disrupted by new greener technology in the first place?
Bitcoin's recent crash, following a tweet from Elon Musk suggesting that he had fallen out of love with Bitcoin, wiped hundreds of millions of dollars off the market cap of many energy-intensive cryptocurrencies. In another tweet, he stated that he had "suspended vehicle purchases using Bitcoin," over concerns about the "rapidly increasing use of fossil fuels for Bitcoin mining." Mr. Musk went on to say: "We are also looking at other cryptocurrencies that use <1% of Bitcoin's energy/transaction." From the subsequent sell-off, we could infer that the market's sentiment towards the environmental damage being done by cryptocurrency mining changed. The spotlight was immediately shone towards greener more sustainable coins, many of which rallied over 100%.
This sustainability trend is only set to continue in the long run, as new, younger, more environmentally conscious market participants enter the crypto-space over the coming decade. Believing that the recent rebound in many of the more mainstream crypto-assets can be entirely attributed to speculation and not the unchanged underlying fundamentals, my conviction in the long-term upside of NANO is stronger than ever. I foresee sustainable cryptocurrencies gaining significant traction over the coming year, begging the obvious question: Which green coin will come out on top?
NANO, Free and Fast
The largest cryptocurrencies currently run close to or at their maximum capacity; millions of users all try to alter the same communal blockchains. This inevitably creates a fee-market, as some participants will be willing to pay to skip the queue. Transaction costs thus rise as congestion increases. In late April of 2021, the average Bitcoin transaction fee surpassed $60.
Source BlockChain.com
Using an advanced variation of the delegated proof-of-stake system (Open-Representative-Voting) NANO avoids incurring the high energy usage associated with digital asset mining and fees associated with moving money using many alternative cryptocurrencies. Instead of performing long complicated energy-intensive calculations to mint new coins, all the coins are already in circulation. Rather than paying a fee to alter the communal blockchain, each individual has their own chain and can update their account immediately without using the entire network.
This all sounds well and good, but what stops tech-savvy individuals from simply crediting their accounts without checking if that's alright with everyone else? Well, for a transaction to occur using NANO, the fund sender must publish a block debiting their account, and the receiver must publish a matching block charging their account. The transaction is then verified using the aforementioned open-representative-voting (ORV) mechanism, wherein representative accounts vote on the validity of the transactions they see on the network. Each account's voting weight is proportional to the quantity of NANO they own. Individuals may, at any time, delegate their vote to a representative to vote on their behalf. In essence, the community comes to a consensus on which transactions are legitimate.
This sounds incredibly slow, however, in practice, given the automated nature of the system and the lightweight nature of the conformation blocks, transactions are often verified at ultrafast speeds. We can compare the speeds and fees associated with trading a range of cryptocurrencies including those often considered to be the cheapest and fastest available today:
Source: Created by author using data from YCharts (2), CoinCentral, ValuePenguin, CreditCardProcessing.com, nano.org, Wikipedia, SolarCoinMedium, Medium.com, Bitni (2,3), The Motley Fool (2,3), SatangZendesk, PolkadotWiki, Kraken.com, BitInfoCharts (2), GitConnected, Markku Jantunen, Fork.lol, Ravecoin.org, Aljazeera, mg.co.za, Algorand.com, AlgorandFoundation
The data above confirms that NANO's distributed architecture, based on a Directed Acyclic Graph, significantly decreases costs and increases transaction speeds beyond that of other notoriously fast and cheap cryptocurrencies such as Polkadot (DOT-USD), Solana (SOL-USD), and Algorand (ALGO-USD). With an average cost of $0.00 and transaction time less than a second, NANO was the only coin to place in both the fastest and cheapest category. NANO is, therefore, the prime candidate for widespread digital currency adoption and retains its decentralized nature unlike other candidates, namely China's digital yuan (not compared above).
This raises the question: Why does NANO currently only sit at 117th on the largest capped cryptocurrency list, behind many slower and more expensive currencies? I hypothesize that this is due to a manufactured information gap wherein market participants are currently unaware of the faster, cheaper, and greener nature of NANO. Profitable coins, reliant on fees, are better able to market themselves and play off hype and greed through aggressive advertising and celebrity endorsem*nt. It is from this that I draw my investment thesis that NANO is undervalued and will correct upward once the current crypto frenzy subsides and investors conduct more thorough research into available cryptocurrencies, inevitably finding NANO to be the coin of greatest utility.
Ease of Use
NANO is easy to use and has already seen seamless integration into Shopping sites, Chrome Extensions, and Video Games. A NANO donation integration, for example, requires just one line of HTML code to be added to the website. Many payment processors, already used by online shopping sites, accept NANO as a payment option today. Its quick transaction speeds also make it perfect for use in fast-paced video games, for example: as an instant reward for an in-game kill.
Source: NANO CS:GO tournament - earn-nano.com
NANO offers a quick way to transfer digital assets, such as in-game items; a market currently valued at over $50 Billion. The back-and-forth trading of these digital items commonly incurs large trading fees which could, with NANO, be avoided entirely. This potential to reduce costs to consumers is yet another reason why NANO will likely see a significant uptick in adoption as its ability to facilitate instant, online, fee-less payments is realized.
The Risks
It should be noted that NANO, unlike some cryptocurrencies, does not offer the same level of anonymity; transactions are communally verified, and as a result, are transparent. It is possible to see anyone's balance at any time. Personally, I don't believe this will be problematic for NANO's growth, as it helps to fight against financial fraud and money laundering, reducing the likelihood of imminent regulatory crackdown. It is however a strange concept that may take time to become socially accepted (or might never be).
The ORV system strikes me as an excellent compromise between the costly, congested but decentralized nature of Bitcoin and the entirely centralized nature of global central banks and fiat currencies. It is, however, not perfect; it is hypothetically possible for an individual, or group of colluding individuals, to accumulate enough NANO to out-vote everyone else. At this point they could commandeer the coin, accepting or rejecting transactions as they wished. NANO investors would likely lose everything if this were to happen.
It is also always possible that new disruptive technology could nullify the current benefits of NANO. The fact that NANO's code is updated based upon the same consensus voting premise, allowing it to adapt as it grows, gives me confidence for the future, but there is no guarantee that NANO won't be outdone by some unforeseen future invention.
Final Take
It often pays to avoid the madness of crowds and check in on the fundamentals of your investments. The crypto-space is notoriously volatile, and NANO is no exception; I am holding NANO exclusively as a long position. It is possible, if unlikely, that I lose the entire investment tomorrow. I believe, however, that for widespread digital currency adoption to occur, the currency must be both fee-less and instant - and that's what NANO offers, and other cryptocurrencies don't. For the moment, NANO's eco-friendly, fast, and cheap technology represents the best the crypto-space has to offer and the ever-growing trading volume (up 400% this year) is a positive step toward widespread adoption.
Tim Cordall
Young investor of 4 years experience with a focusing on long positions in 'green' companies.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of NANO-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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