Nxt Network Energy and Cost Efficiency Analysis by: Matthew Czarnek, Secondleo Who Am I? The primary author of this paper is Matthew Czarnek. I am a professional computer programmer, who has spent years learning all he could about marketing and business. I have spent a few months now doing very little other than studying Nxt in my free time. I have thrown myself into figuring out Nxt because I believe this currency has the serious potential to beat Bitcoin and become the money we are all using in the future. I foresee Nxt as acting as the ground layer of a decentralized network that will not only be a currency itself but have competing currencies built on top of it as well as enabling innovations in the field of decentralized computing. Big thank you, especially to the coauthor SecondLeo as well as to Chanc3r and bob_ggg for help writing this paper. Note the numbers used in this paper are current as of approximately May 24th 2014. Donations appreciated: NXTP289G6VE4MB7A437G Goal Determine how energy and cost efficient Nxt really is relative to Bitcoin. Intro As most of you will already know, cryptocurrencies are becoming increasingly promising lately. The cryptocurrency we believe to be the most promising is Nxt. It’s biggest competitor at the moment is Bitcoin. Originally created by Satoshi Nakamoto, who solved the long standing problem of double spending in a decentralized environment, it is now a beacon of hope for many people for many reasons all over the globe. And while bitcoin was the first and as groundbreaking as Bitcoin is, there are problems with Bitcoin and there are competitors who have tried to fix those problems. These problems lead us to believe that Bitcoin is more version 1 of a groundbreaking technology and like the first generation of any technology, there is room for improvement. In this article we will compare Bitcoin to what currently appears to be it’s biggest competitor in the long run, Nxt. This newly developed descendant of Bitcoin offers some intriguing advantages over the Bitcoin network, such as the potential for reliable instant transactions, increased security, and significant energy and cost efficiency improvements. These efficiency Hosted by Crypto Finance Analysis Consulting improvements will be the focus of this paper. To be fair to Bitcoin and show that Nxt is still superior when it comes to energy and cost efficiency, and make the superiority of Nxt compared to Bitcoin in this field obvious and undiscussable, all numbers with margins of error were chosen to give Bitcoin the benefit of the doubt. What is forging? Unlike Bitcoin which is mined, Nxt is forged. Bitcoin mining basically means that computers have to run continually while exerting as much power as they can in order to try to be the first computer to guess a random number approximately every 10 minutes. By exerting this power, they prove that they are real machines and that a lot of money has been spent on these machines in order to secure the network. Nxt has a different approach which is that every minute someone new is chosen to protect the network. The more Nxt you own, the more often you are chosen to protect the network. There are more complexities than this to help protect the network but this is the basic idea. What this means is that only one or possibly a few computers at a time are processing transactions and not wasting energy just for the sake of proving they exist. Potential Forging Machines Before we get into the exciting stuff, let’s begin by discussing a couple of potential low energy, low cost machines that are enough to power the network to be used in the calculations that follow. Raspberry Pi This machine is a very efficient tiny machine, that for now is a popular way to power the network. Processor 700 MHz ( 1 ) Power consumption 6W Memory 512MB Cost: $35 How many transactions per second can the Raspberry Pi handle? The biggest factor that is affected by the number of transactions per second Nxt needs is the encryption that is needed to confirm that the transaction was sent by the user who sent it. Nxt uses Curve25519 for its encryption; this is because Curve25519 happens to be a fast hash function and therefore very efficient. Curve25519 needs approximately 958,000 cycles to verify a Hosted by Crypto Finance Analysis Consulting transaction (2). A 700 MHz processor can handle 700,000,000 cycles per second, 700,000,000 / 958,000 = 731 verifications per second. But even if we start using multisignatures per transactions to increase security and average 2 signature verifications per transactions, as Bitcoin does, we can handle 365 transactions per second. Cubietruck The machine that should be able to sustain use in the near future, probably for a couple of years, while being very cost and energy efficient is the cubietruck. Processor 1.2 to 1.6 GHz dual core processor (3) Power consumption: Idles at 2.4 to 3 W (4) Full power is 18W Memory: 2GB Ram Cost: $95 (5) How many transactions per second can the Cubietruck handle? Cubietrucks dual core 1.2 GHz processor can essentially run at 2.4 GHz since splitting the verifications between cores is easy to do. So since 2.4 GHz means 2400000000 cycles/second, this means that we’ll be able to handle peaks of 2,400,000,000/958,000 = 2,505 verifications per second. Currently every transaction is signed once and Nxt should be able to handle over 2500 verifications per second. Factoring in 2 signature verifications per transactions, we can handle 1,250 transactions per second. Visa averages 2,000 transactions per second, with peaks of 10,000 transactions per second. So this much processing should last us for a long time.. ODROID Processor: 1.7GHz Quad Core Power Consumption: Idles at 2.5W (6) Full power 10W Memory: 2GB Ram Cost: $59 (7) Hosted by Crypto Finance Analysis Consulting The ODROID is a nice board that is low wattage while quite powerful. Using a 1.7GHz Quad Core processor, this means it is capable of running 6,800,000,000 cycles per second / 958,000 cycles per transaction = 7,000 transactions per second. Factor in 2 signatures per transaction and the ODROID is capable of processing 3,500 transactions per second. I would recommend this device to people looking for a forging device for now as it is energy efficient, powerful, and cheaper than the Cubietruck. Echo II Processor 3 GHz dual core to 3.5 GHz quad core Power consumption: For Intel Core i3 4130 Dual Core 3.4 GHz Idles at 18W (Source: Customer service ) Full power is 78W Memory: 8GB Ram Cost: $825.53 (8) Granted it’ll be a while but assuming we eventually get to the point where we are bigger than Visa, probably having a trillion dollar market cap by that point, we’ll need more powerful computers, but the Echo II which is designed to be energy efficient yet powerful can handle this. After talking to the company, they tell me their Dual Core 3.4 GHz machines run off of 18 Watts of power while idling. And a 3.4 GHz dual core machine means 6,800,000,000 cycles per second / 958,000 cycles per transaction = 7,100 transactions per second and when that gets too small, they also have a 3.5 Ghz Quad core version which would enable 14,600 transactions per second, or again if we factor in 2 signatures per transactions. We’ll be able to handle 7,300 transactions per second. However, that will probably never be needed because by that point we’ll have designed our own machines that do exactly what we need as energy efficiently as possible and be selling hardware that quickly and efficiently does exactly what we need similar to the route Bitcoin has gone by developing ASICs. So this seems excessive but it may make sense to promote Echo II’s instead of Cubietrucks because there are many directions the Nxt network can expand, one of which is into the field of distributed computing and storage. These would provide us with plenty of computing power for such applications. How much storage space do we need for the blockchain? Using Bitcoin’s blockchain as the basis for comparison, Bitcoin’s blockchain is currently just under 14 GB in size (9). So a 1 TB drive would be able to fit about 70 times the size of the current bitcoin block chain, and especially once block chain trimming is enacted which should Hosted by Crypto Finance Analysis Consulting allow storing the entire chain even at peaks of 10,000 transaction per second into less than 5GB. This is very easily doable. What kind of bandwidth will Nxt need? The size of a basic Nxt transaction can be up to 464 bytes (10). bytes 1 kilobyte 1 megabytes megabytes megabits megabits 2000 transaction second * 464 transaction * 1024 bytes *1024 kilobytes = 0.97 second * 8megabytes = 6.9 second 6.9 megabits per second is standard enough upload these days. If we need to handle more it’s possible to get over 100 Mbps without anything special in most parts of the country (11). In fact, the global average upload is over 7 Mbps on its steady rise and download is double that (12 ). Also, Nxt will also have to read/write a lot of data from hard drives. However, even the slowest hard drive can write at 30 MB/s, so this should not be an issue ( 13 ). These numbers may be a little bit off as there are plans to compress the format used for Nxt transactions before sending, also once instant transactions are included, that will increase the requires for bandwidth for those processing instant transactions. Which can be countered by charging extra and passing those fees onto the forgers who have higher speed internet. But we’re doing a onetoone Bitcoin to Nxt comparison, so I will save that topic for another paper. Also, please note that these numbers are not what Nxt can do at this present moment, for example Nxt has a 255 transactions per minute fixed cap at the moment. This is just what it will be able to do in the near future and by the time we reach Bitcoin’s size. More research is needed in the meantime. Nxt Network Energy and Cost Analysis We are going to analyze Nxt assuming it grows to be the same size as Bitcoin and has similar statistics. We will do this analysis using the Cubietruck, given that it should be easily able to support the network at that size and not that we expect to be running that fast at Bitcoin’s size but it can handle up to 1,250 transactions per second. It’s not the most efficient solution but it’s a solid one and would be a reasonable average. At Nxt’s current size of just over one transaction per minute ( 14 ), we don’t need to worry about the Echo II for a little while. Keep in mind though that once more features are implemented for Nxt, such as distributed computing, it may be that we can pay forgers in Nxt for their processing power, during the times that they are not being paid to forge. Meaning some Nxters may prefer more powerful machines. Hosted by Crypto Finance Analysis Consulting How many forgers will be forging for Nxt? Estimating how many forgers will be forging for Nxt is a tricky problem and only time will give us an exact number. However, to estimate how many forgers Nxt will have when it gets to Bitcoins size, I would suspect that better than looking at the number of miners forging for Bitcoin, we should look at the number of forging pools Bitcoin has going for it as an upper limit. This is because the current plan is to allow people to lease their forging power to other people and allow them to forge as a pool. This means that even if multiple people are forging as a pool, they are counting as if forging on an individual machine. Bitcoin currently has peaks of approximately 8000 nodes online at any given point in time ( 15 ). A node counts as either an individual miner mining on its own or a pool of miners. There are a couple of factors that make Nxt different from Bitcoin when it comes to forging. First of all, there is a lower financial incentive to forge. As of May 22nd, Bitcoin miner are making approximately $2,172,000 per day ( 16 ). On a per minute basis, this means approximately $2,172,000/ 1440 minutes per day = $1,508 per minute. Secondly, when you buy miners, you are buying physical hardware that you have to plug in and mine with and leave on 24 hours a day versus letting someone else deal with it for you. In order to invest in forging you are actually buying the coins. We suspect you may be more likely to join a forging pool rather than a mining pool for this reason. Assume Nxt has similar transaction rates as bitcoin at that size ( 17 ). In other words, approximately 60,000 transactions per day. Given 1 minute blocks this works out to 60,000 transactions per day / 1440 blocks per day = approximately 42 transactions per block. Because Nxt is doing so many more transactions that it currently is, this will allow Nxt to lower the transaction fee per block. As of May 24th, Nxt’s transaction fee is 1 Nxt, which is approximately $0.036 each. Once we reach that size, odds are we’ll be able to lower our transactions fees more than this, let’s say we set the transaction fee at $0.03 per transaction. At $0.03 each, this leads to 42 * $0.03 per transaction = $1.26 per block. This means that the Bitcoin network is paying their miners approximately $1,508/$0.42 = 1200 times more money. If we were going with purely financial motives, this would lead to the 8000 nodes Bitcoin uses/1200 = approximately 7 forging nodes. But of course there will be more forgers on the network than this because there are also other reasons to forge for Nxt such as those who have large numbers of Nxt who want to protect their own investment. Nxt is also talking about restricting the size of forging pools, so that no forging pools can be larger than approximately 1% of all Nxt (unless you actually own more than 1% of all Nxt). If this happens, then the low end case becomes closer to 100 Nxt forgers. The other restriction that goes along with this is that you need to own enough Nxt to be able to protect the network a reasonable amount of the time or it seems worthless to even forge. Hosted by Crypto Finance Analysis Consulting Let’s say that the average person would want to be able to forge at least once every other week in order to feel like they are actually helping protect the network. Seems like a reasonable amount of time, if anything probably an overestimate, especially when you consider that many people who have significantly larger numbers of Nxt than that will be leasing their forging power. How many Nxt do you have to own so that on average you forge once every other week? There are 1440 blocks per day * 7 days per week * 2 weeks = 20,160 blocks per 2 weeks. Therefore, if you own 1,000,000,000/20,160 Nxt = 49,603 Nxt then you are likely to average forging once per two week period. Now we need to figure out how many people will be holding onto at least 49,603 Nxt. As of this moment, Bitcoin has a marketcap of $6,795,986,239. When Nxt reaches this size, each Nxt will be worth approximately $6.80 each. Therefore 49,603 Nxt * $6.80 each = $337,302. Nxt has continued to become more and more evenly distributed across accounts. So, we assume that Nxt will have a similar distribution to Bitcoin and go look through the richest Bitcoin addresses, and as of this moment find here: http://bitinfocharts.com/top100richestbitcoinaddresses23.html that the 2234th address has $336,999 worth of Bitcoin. We round up a little bit to be safe, and for our calculations we’ll use 2,500 forgers. Note that the reason that Bitcoin has more nodes than this on the network is that the hashing power is more evenly distributed across nodes. So, assume that we have 2,500 Cubietrucks powering the network, and remember that Cubietrucks cost $100 each, use 3 W while idling and up to 18 W while forging. Since there has been talk about multiple forgers operating at the same time to keep each other honest and therefore increase security, let’s assume we run 3 forgers at full power at a time. This means that we would be using 3W * 2497 + 3 * 18W = 7,491 W + 54 W = 7,545 W of power at a time to secure the transactions. We will assume a reasonable average rate of 12 cents per kilowatt hour and a 5 year lifetime for cubietrucks for the following calculation. What about DDOS protection? One thing about Nxt is that given that Transparent Forging allows you to see who is currently forging, Nxt is more prone to DDOS attack than Bitcoin. It should be possible to build some level of DDOS protection into the network. This paper assumes that should be enough. It is possible that some of the nodes will need to run some type of DDOS protection, for example, cloudflare or will require more powerful machines. This would influence these calculations, potentially doubling the energy usage of Nxt. Hosted by Crypto Finance Analysis Consulting Cost of electricity to power the network per year h 365.25 day 0.001 kW = 66, 139 kWh ≈ 66 MWh 7, 545 W * 24 day * year * W year year $ 66, 139 kWh year * 0.12kWh = $7,937 per year Cost of hardware per year $100 5 year = $20 per year 2500 cubietrucks * $20 = $50, 000 Total cost for forgers per year $7,937 per year + $50,000 per year = $57,937 per year. Nxt will use approximately 66 MWh of electricity and cost the forgers $60,000 per year when it reaches Bitcoin’s size How much energy and money does it take to power the Bitcoin network? First of all let’s estimate how many machines Bitcoin currently operates, to determine how many machines we believe are mining for Bitcoin.The number of machines on the network is equal to the total hashing power of the network / the hashrate of an ‘average’ machine mining for the network. As of May 24th, Bitcoin’s current hash rate is approximately 99,300,000 GH/s ( 18 ). It’s tricky to determine what would be an ‘average’ Bitcoin miner is in terms of hashing power, but let’s be generous to Bitcoin and assume everyone hashing is using one of the most energy and cost efficient machines on the market. So we go to http://thegenesisblock.com/mining/, sort by efficiency and pick the Cointerra TerraMiner II. The numbers we care about at the moment are that it runs at 1000 GH/s, it costs $3500, meaning $3.5/GH, and runs off of 600W, in other words 0.6 W/GH. Assuming Bitcoin miners are using the most efficient machines out there, 99,300,000/1000 = 99,300 Bitcoin miners powering the network. Note that even if this number is off because we have machines with higher hash rates or price that are more powerful, these energy and cost efficiency calculations still work out because 0.6 W/GH and $3.5/GH are still very good numbers for Bitcoin miners. Hosted by Crypto Finance Analysis Consulting Therefore the amount of energy used per machine would be 0.6W/GH * 1000GH = 600W Assume the same reasonable average rate of 12 cents per kilowatt hour and a 5 year lifetime for the mining machines for the following calculation. Cost of electricity to power the network per year 600W * 99, 300 machines = 59, 580, 000 W h 365.25 day 0.001 kW = 522, 278, 280 kWh ≈ 520, 000 MWh 59, 580, 000 W * 24 day * year * W year yr $ 522, 278, 280 kWh year * 0.12kWh = $62,673,000 per year Cost of hardware per year $3,500 5 year = $700 per year 99, 300 machines * $700 = $69, 510, 000 Total cost of hardware per year $62,673,000 per year + $69,510,000 per year = $132,183,000 per year. Bitcoin uses approximately 520,000 MWh of electricity and costs the miners $130,000,000 per year One more thing to touch on; some people who own Bitcoin mining machines claim that they use their miners as space heaters and therefore they are more energy efficient. While true that this may somewhat account for the energy during the winter and in colder climates, it could be argued that this also leads to more energy being spent on air conditioning during the summers or in warmer climates. So maybe that slightly increases the energy efficiency but we feel like this more or less cancels itself out. And our energy calculations don’t account for the large cooling systems many mining farmers require. Hosted by Crypto Finance Analysis Consulting How does Nxt compare to Bitcoin when it comes to energy and cost efficiency? Nxt will require 66 MWh while Bitcoin requires 520,000 MWh per year. 520,000 MWh / 66 MWh =7,878 Therefore, Bitcoin uses approximately 8000 times more energy to power the network As previously calculated, Nxt’s costs will be $60,000 whereas Bitcoin’s costs are $130,000,000 per year. $130,000,000 / $60,000 = 2,167 This means Bitcoin costs approximately 2200 times more than Nxt to power the network How much energy is this? Kilowatts and megawatts may not mean a lot to you on their own, so let’s try to quantify this much energy. Again, by these calculations, Bitcoin currently uses 520,000 MWh of energy currently per year. We estimate Nxt will likely use 66 MWh per year when it reaches Bitcoin’s size. Google used 3,324,818 MWh last year or in other words, only about 6 times as much as Bitcoin but 50,000 times as much as our Nxt predictions ( 19 ). Facebook used 704,000 MWh last year, only 1.4 times as much as Bitcoin but 10,700 times as much as our Nxt predictions ( 20 ). But won’t Bitcoin get more efficient over time? The Bitcoin community has seen Bitcoin go from being mined on CPUs, to being mined on GPUs to being mined on ASICs and the common argument is that Bitcoin miners will continue to increase in energy efficiency with time. Unfortunately, ASICs are as efficient as you can get given current technology. Nxt could also go the route of designing ASICs for forging for the Nxt network. For example, hardware that quickly and very efficiently does over 30,000 curve25519 operations per second is in the early stages ( 21 ), curve25519 being the signing algorithm used by Nxt. From there on out, yes, mining machines will continue to increase in efficiency but only at the same rate as computers or the sure to eventually be released ASICs that will forge Nxt. Hosted by Crypto Finance Analysis Consulting In fact relative to Nxt, Bitcoin will likely continue to decrease in efficiency because leasing Nxt doesn’t involve adding more machines to the network. Bitcoin however will likely continue to add more miners to the network, assuming the price of Bitcoin and therefore mining rewards continue to increase with time. Additionally, as long as the amount of electricity per hash remains the biggest cost of running a machine, then Bitcoin miners becoming more efficient most likely just means more miners will join the network, the hash rate will increase, consuming approximately the same amount of electricity. Summary Nxt is very energy efficient, which should appeal to the environmentally friendly crowd, as well as just about everyone who figures, why support the waste of 6,700 times more energy using a coin, especially when you have to pay for it! And since specialized super powerful machines don’t earn you anything extra, Nxt machines can be used for other purposes during any blocks they are not forging on or after being retired from Nxt forging. Being cheaper to keep the network up and running, Nxt is capable of running off of significantly lower sustainable transaction fees without the need to introduce significant inflation into the system like Bitcoin does. In fact, users can earn small amounts of interest on their accounts as generated by forging without actually needing to forge. One of the advantages of Nxt is that you can simply point your forging power at another forger, who will do the actual forging, and still earn interest. From an energy consumption and cost efficiency perspective this is even an advantage over other Proof of Stake cryptocurrencies. Bitcoin was once defended on the basis that our current monetary system uses very large amounts of energy and material to run. With that said it should become clear that Nxt holds the same huge advantage over Bitcoin that Bitcoin holds over the current system. And these numbers will only get worse with times as Bitcoin continues to add more powerful miners as it’s value continues to increase, making it continually more profitable to mine. See why Nxt has so much potential? Go buy some Nxt from DGEX.com or Cryptsy.com Or learn more at: NxtCommunity.org or NxtForum.org We’ve spent a whole lot of time writing this, donations would be much appreciated. Please send Nxt here, all donations to be split between authors: NXTP289G6VE4MB7A437G Hosted by Crypto Finance Analysis Consulting Works Cited 1 “FAQs | Raspberry Pi” Web. 1 Apr 2014. <http://www.raspberrypi.org/faqs> 2 "Speed Reports for Ellipticcurve Cryptography." Speed Reports for Ellipticcurve Cryptography. Web. 11 Mar. 2014. <http://cr.yp.to/ecdh/reports.html>. 3 "CortexA7 Processor." ARM. Web. 11 Mar. 2014. <http://www.arm.com/products/processors/cortexa/cortexa7.php>. 4 "Meet the Cubietruck (aka Cubieboard3)." Digits Domotica Blog. 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