Introduction

Money has no intrinsic value. Moreover, money is not backed by any object, such as gold. Usually, the state is the central authority for regulation and controlling the respective currency. The price or value of the currency is kept stable by central banks. The basis for the value of money is the population's trust in the state and in the central banks appointed by the state. If the population loses confidence in the state and thus in the central banks and/or for other reasons no longer believes in the value of money, an inflation can occur that exceeds normal levels. Such inflation is then no longer controllable, or at least very difficult to control. This was seen, for example, in the hyperinflation in Germany in 1923. The reasons at that time were, among others, the already high level of debt, the further printing of money by the Reichsbank beginning in 1914 and the reparation payments after the lost war. In recent years, a similar hyperinflation can be seen in Venezuela. However, the reasons - in contrast to Germany of the early 20th century - are a national economy unilaterally designed for oil production, lower production volumes due to outdated equipment, the collapse of oil prices from 2013 and an increase in food prices. Again, the state decided to print money. The printing of money and the loss of the population's faith in the value of the bolivar subsequently led to a strong and still persistent inflation.

In the 21st century, the ongoing speculation of some banks (among other things, in the real estate market), triggered a global financial crisis. In Europe, both banks and entire states were rescued with taxpayers' money distributed by the European Central Bank. Meanwhile, the pseudonym Satoshi Nakamoto published the document "Bitcoin: A Peer-to-Peer Electronic Cash System." The pseudonym's goal was to create a decentralized currency that could exist independently of banks and regulations of government entities. For the first time the technical basis of Bitcoin was described. According to the document, Bitcoin transactions are to be carried out in the form of encrypted information via a decentralized network. Users can therefore send this virtual currency without an intermediary entity - such as a bank. The development of Bitcoin was followed by that of many other virtual currencies, whereby Bitcoin, as the first decentralized cryptocurrency, remains the best known and most widely used.

Cryptocurrencies

Cryptocurrencies are exclusively virtual currencies. Thus, they differ from conventional currencies such as the euro or the dollar. Cryptocurrencies also have their value ascribed to them by the public's belief in their respective value. For example, they can be traded on exchanges in exchange for conventional currencies or other cryptocurrencies. Many of the cryptocurrencies that exist to date are not designed as pure currencies and have been developed in pursuit of other goals (e.g., smart contracts). Regardless, cryptocurrencies - often detached from whether they were originally intended as a currency - are increasingly being used as means of payment and remittances. For example, cryptocurrencies are increasingly being used as currency in Nigeria, South Africa, and Kenya. In 2021, El Salvador became the first country to adopt Bitcoin, the best-known and most widely used cryptocurrency to date, as legal tender. The Central African Republic followed a year later, and such an introduction is being discussed in Panama. The acceptance of cryptocurrencies as a means of payment thus seems to be increasing - but yet no cryptocurrency has been able to establish itself as the standard and widespread means of payment.

The use of cryptocurrencies as a means of payment has so far been associated with considerable disadvantages. The energy consumption of the Bitcoin network alone corresponds to the consumption of entire countries. A maximum of seven transactions per second are validated by the decentralized network, which is associated with a high transaction duration when demand is high. The fees for such a transaction are also highly fluctuating and depend on the current demand. The monopolization of miners in so-called mining pools and the so-called Bitcoin lightning network mean that the Bitcoin network tends toward centralization.

The basis for cryptocurrencies is the blockchain technology. The blockchain is used like a ledger from accounting. After being verified by a peer-to-peer network transactions are stored in the blockchain. This peer-to-peer network is an interconnection of several computers. The individual peers each have a version of the current blockchain(s), which thus acts as a decentralized database. This is the basis of the so-called Distributed Ledger Technology (DLT). Each peer within the network has access to the current status of all transactions and can thus verify whether transactions made are valid. The network thus forms a consensus on the validity of transactions that have been carried out and in this way decides by majority vote whether transactions should be verified or discarded (because they have been carried out twice, for example). Only the transactions that are accepted and validated by the network are included in the blockchain. The transactions are then stored in a block and attached to the previous block, thus forming a chain - hence the name blockchain.

The above listed disadvantages of the Bitcoin network are related, among other things, to the consensus mechanism used to verify transactions. In many cryptocurrencies - including Bitcoin - the so-called Proof of Work (PoW) mechanism is used. In this process, the so-called miners are given a complex mathematical task as part of the PoW, which involves finding a matching hash (a string of fixed length). The one who first solves the task is allowed to create the next block of the blockchain including the generated hash and is paid a certain amount of bitcoins as a reward. The more miners participate in the process, the more complicated the task to be solved becomes. The reward paid in the form of bitcoin has led to the mining process becoming an often profitable business. Miners can join so-called mining pools to search together with more computing power. The more computing power a miner or a mining pool has, the greater the probability of solving the task. On the one hand, this leads to the centralization of networks that were actually designed to be decentralized and, on top of that, to the high energy consumption that exceeds that of entire states. According to Digiconomist, a single transaction on the Bitcoin network consumes an average of 669kg of CO2 as of August 2021 - comparable to a footprint of a single passenger on a flight from Amsterdam to New York. The PoW mechanism can therefore be described as very inefficient.

The so-called Proof of Stake (PoS) mechanism is used as an alternative consensus mechanism. In this mechanism, the individual participants in the respective network are weighted on the basis of their share of the currency and/or their respective participation period. Rewards for "staking" are distributed to the respective pools or individual stakers in the form of the corresponding currency - the larger the share in the network, the higher the chance of a reward. While the energy consumption here is significantly lower compared to the PoW mechanism, networks based on the PoS mechanism also involve centralization through interconnected pools and rewarding those accounts that have the largest share in the network.

The transaction costs increase with the utilization of the respective network for both the consensus mechanism PoW and PoS. The varying transaction costs serve to protect against network overload and essentially spam.

Central functions of a currency

According to the widely accepted theory of the British economist Stanley Jevons, a currency must fulfill three central functions in order to be generally accepted as a means of payment: the function as a medium of exchange, the function as a unit of account and the function as a store of value. While cryptocurrencies can function as a unit of account and arguably as a store of value, most of the existing cryptocurrencies do not fulfill the function as a medium of exchange or do so only inadequately. This is particularly true for cryptocurrencies such as Bitcoin with the already outlined characteristics - the temporarily high transaction costs with simultaneous lack of scalability and large transaction duration. To fulfill the medium of exchange function, a currency should therefore be easy, fast and non-reversible to transfer, with low or no transaction costs.

Nano

The cryptocurrency Nano was developed with this goal in mind (see Nano.org). Nano is described as a "digital currency for everyone, without fees". Unlike cryptocurrencies based on PoS or PoW, Nano is neither based on mining nor on staking, but uses a more energy-efficient combination with the so-called Open Representative Voting (ORV) in connection with the so-called Block Lattice. There are no transaction costs on the Nano network due to these architectural decisions. Transactions are confirmed and finalized immediately by the global Nano network (in about 0.5 seconds). Due to these characteristics (no transaction costs and instantly confirmed transactions), Nano fulfills the above described function of being a medium of exchange. Nano is therefore an efficient and sustainable form of a (crypto-) currency.

Distribution

Nano (formerly RaiBlocks) was distributed worldwide through solving captchas.

Consensus mechanism

Instead of using a single blockchain like many other cryptocurrencies, Nano uses the so-called block lattice. Instead of competing for the next block through computing power in the mining process (as is the case with the PoW consensus mechanism), each network participant or each account has its own blockchain and adds transactions or makes balance changes to it. The information is transmitted to and validated or discarded by the network. The so-called Open Representative Voting (ORV) is used as a consensus mechanism to confirm/reject transactions. Each network user/account selects - with its own amount of Nanos - an arbitrary Representative for the consensus process. The Representative can be changed at will. A Representative with at least 0.1% of online voting weight delegated to it, is called a Principal Representative (PR). Representatives validate a transaction as soon as the information about a transaction has been transmitted from a network participant to the network. Once a node sees that PR with a total online voting share of >67% have agreed to the validity of a transaction, the transaction is considered to be confirmed and will be cemented as irreversible.

Efficiency

In the Nano network, the individual Representatives do not compete with computing power for rewards for validating transactions (as in the proof of work for the PoW consensus mechanism). This allows the focus of all available computing power on the pure validation of transactions. The duration until a transaction is considered confirmed is therefore about 0.5 seconds in the Nano network. This is only limited by the latency of the Internet and the hardware used by the respective Representatives. Therefore a single transaction within the Nano network consumes only about 1/6,000,000 of the energy required for a Bitcoin transaction. Accordingly the Nano network can be described as energy-efficient.

Spam protection

Since on the Nano network there are no transaction fees that would allow the network load to be regulated via varying transaction fees, a different protection against spam from "malicious" actors was implemented. For this purpose, transactions are prioritized with a "bucketing system". Transactions are stored in a bucket based on the balance of the respective user of the transaction. Within these buckets, the least recently used account has their transaction processed first. Malicious actors are thus only able to generate the spam in their respective bucket and thus maximally affect transactions of other accounts in the same bucket. Moreover, after the first transaction by a (here: malicious) actor, all other accounts in the same bucket are prioritized.

Decentralisation

Using the PoW or PoS consensus mechanisms can result in the centralization of the respective networks. In both PoW and PoS, there are rewards (in the form of the respective currency) for computing power used (PoW) or for owning the largest share of the network (PoS). While rewards per se are not bad and provide some sort of incentive for supporting the operation of the network, in these two cases it leads to a centralization of the networks over time. In PoW, investing in computing power is rewarded: the greater the computing power achieved by the investment, the higher the reward. Large players have significant advantages here due to scaling effects. This is also reflected in Bitcoin, where two individual mining pools provide just under half of the total computing power. In PoS, staking rewards owning a larger share of the network and in this way disadvantages smaller players or accounts with a lower ownership share of the network. In addition, corresponding scaling effects (e.g., in the case of staking pools) also play a role here, and larger players have clear advantages. Thus, this consensus mechanism also leads to centralization over time. However, decentralization plays an essential role in cryptocurrencies and the trust in them. Centralization, as described above, would allow a malicious actor with more than half the computing power to manipulate the respective network at will. However, in the case of PoW and PoS, the rewards cannot be easily removed, as they play a central role in the security of the network. The absence of rewards would mean that mining and staking, which are essential but costly for such networks, would no longer be carried out. Nano takes a different approach and does not reward building and operating costly mining or staking pools (and they are not needed). To participate in the Nano network (e.g. in the form of a wallet app or as an exchange), it is sufficient to operate a node (can be installed on a computer/server, for example). The consensus mechanism of the nano network (ORV) enables the independent selection of the representative. The consensus mechanism thus contributes directly to the decentralization of the network, because the larger one's own share of the network, the higher the motivation to contribute to a decentralized and therefore secure network and to select appropriate representatives.

Though rewards could play a vital role in an ecosystem like Nano as they provide incentives for the community to participate. Such rewards could also be used for further development and the spreading of such an ecosystem. As there are no more Nanos to be distributed to fulfill such a rewarding system RaiblocksOne was created.

RaiblocksOne

RaiblocksOne is a so-called fork of Nano. As a tribute to the former name of Nano (RaiBlocks), the currency described here is initially given the name RaiblocksOne and the ticker will be XRO. To distinguish it from Nano's founding name, the appendix "One" is used. A possible renaming will be discussed together with the community.

As shown, Nano and thus also the RaiblocksOne network already fulfill many factors that are essential for a functioning and sustainable currency.

Distribution and incentives for participation

Nano was distributed via solving captchas for free and worldwide and accordingly fair. New additional Nanos cannot be created. A small part of the total Nanos distributed in this course was allocated as a budget for future development. This budget is now almost used up, so that a permanent financing of further development is not guaranteed. Likewise a total of (2^128 - 1) / 10^30 = 340,282,366.9 XRO were created. In RaiblocksOne, the fair distribution of Nano is to be resorted to. Therefore on the 24th of May 2023 a snapshot of the database of the Nano network was taken. Based on the snapshot, each account in the Nano network with a balance or a receivable amount higher than one Nano were distributed the same amount in the RaiblocksOne network. The accounts that can be assigned to the exchanges were excluded as an assignment to a single user would not be possible. In addition, the account that was used to burn Nanos in the Nano network is excluded.

This results in the distribution of a total of 87.918.160,34 XRO. From the 340,282,366.9 XRO created 252.364.206,58 XRO are remaining for a further distribution. These will be distributed over a time of 30 years as a reward to the Principal Representatives. This results in a daily payout of a maximum of 23.046,95 XRO. Due to rounding inaccuracies, the amount may differ slightly. The rewards will be paid out daily based on the respective percentage of the online voting weight of each Principal Representative.

This is to create incentives to participate and contribute to the RaiblocksOne ecosystem and to secure a future development fund. As Representatives are free to choose by all users and can be changed at will users can choose the Representative that offers the value they want to see in the network (e.g., running a mobile wallet/faucet).