What can NEST Protocol do
What problem does the NEST Protocol solve?
What is NEST Protocol?
From the original paper of Satoshi Nakamoto, the birth of Bitcoin, a series of homogeneous cryptocurrencies, and finally to the smart contract of Ethereum, the cryptocurrency industry has advanced significantly over the years. As an informationzed asset, cryptocurrencies have attributes that other traditional assets do not have, which makes these assets have broader application space and enormous potential.
Turning information into assets was difficult before the advent of blockchain technology. As we have mentioned in the introduction, a piece of information has value if it is helpful to someone. However, the problem with the value of information is that it can easily be copied or double spent. If the intermediate receiver is not the designated user, encryption can be used to keep the information from being revealed in the transmission process. Since the intermediate receiver cannot decrypt the information, the value of information is not diminished. But once the information is in the hands of the user, the user can copy it to the same available environment; no matter whether the actual user of this environment is himself or others, the value of the information will be reflected, which is the meaning of double-spending. Encryption technology makes the information value of the communication process secure, but it cannot guarantee that the transmitted data is not double spent. Unlike ordinary commodities, information can be copied indefinitely, and the cost is negligible. In this context, it is challenging to guarantee information scarcity, so it is impossible to accurately give feedback on the value of information with price, let alone denote these pieces of information as assets.
The real solution to this problem is Bitcoin’s mechanism. Bitcoin’s answer is building a closed environment for information usage. If each address acts as a participant, its consistency variable is also the most important information – the BTC balance must be used on the Bitcoin blockchain. Beyond that, no off-chain reading or manipulation is sufficient to change this information.
Moreover, when information is exchanged on the chain, there is a cost to pay, and confirmation is done through a consensus mechanism. This mechanism makes it impossible to double spend the balance, effectively maintaining the scarcity of information in the closed environment of the Bitcoin blockchain. This solution allows us to look at information from the perspective of assets, which, like gold, precious metals, and commodities, are finite, exhaustible, and transferable.
Bitcoin creates informationized assets that not only possess the attributes of the above general assets but also have the characteristics of ease of transfer and preservation. In addition, because its roots are game theory-based, system participants will gradually follow the progress and direction of this technology. Henceforth, this system is change resistant, unlike some commodities, which can be directly replaced by technological progress (like precious metals replacing seashells). This combination of the convenience of information and the resistance to change makes Bitcoin play a critical role in the future asset world. We refer to crypto assets and digital currencies as the seventh class of assets after traditional currencies, real estate, precious metals, commodities, equity, and debt.
Although digital assets have the property of traditional asset classes, the characteristics of information are still retained, which means that the conventional means of processing information are still effective, such as the programming of data. The difference is that the information after programming is still scarce and has asset properties (on-chain); this type of programming differs from traditional methodologies. It is programming based on value – not just data programming. Many people refer to this as the new generation of the Internet, Web3 - the Internet of value.
EVM is positioned to capture the value of the demand for informationized asset programming. Since the addresses, balances, and information within the Ethereum environment (in-block data) of crypto assets or digital currencies are standardized, they can be understood as base vectors. On this base, a Turing-complete virtual machine is built, unlike a traditional computer in computing and storage. However, for asset attributes, it can be understood that information (flow) carries A unit of value after function transformation. For example, an address A has x ETH, and when it enters EVM for programming, the output becomes f(x) ETH, which strictly conforms to x >= f(x). In this sense, it is possible to divide the informationized assets on the blockchain into two parts: information and asset units. The former is processed as information, while the latter keeps the unit constant after output. This procedure is true if the condition x >= f(x) is satisfied.
This idea of adding a unit of value after function transformation has not been fully explored. For example, the ETH issuance mechanism is similar to BTC and does not fully integrate into EVM, this limits the application scope of ETH tokens. Furthermore, this leads to situations where efficient settlement or market clearing cannot be achieved.
There are many application examples where it is challenging to employ EVM. A typical example is financial derivatives, where the potential for future revenue streams is infinite, and the current ETH Token design cannot cope with this situation. Furthermore, whatever the initial input is, it is not enough to ensure a valid settlement. These problems might be solved if the ETH token integrates deep into the EVM, allowing instructions to generate new ETH. As the underlying infrastructure, it is enough for EVM to realize the completeness of its basic instructions. Whether the additional issuance of units of value is related to instructions is a problem involving the design of economic systems rather than purely technical systems.
To solve the above problems and introduce random variables and distribution transformation for on-chain programming, we designed NEST. Its main concepts include the NEST oracle, random information tokenization, OMM mechanism, PVM, and NEST coin.