Here’s Why Nxt (NXT) Is Running And What Comes Next

One of the biggest end of the week movers in the cryptocurrency space this week is Nxt (NXT). This one is a pretty interesting one and it’s one that is well worth spending a bit of time discussing before trying to figure out why it’s moving and what comes next.

So, here goes.

The idea behind NXT, or at least, that is, the justification for its existence, is rooted in the deficiencies of what we might deem the first generation of cryptocurrencies – bitcoin, Litecoin etc. While these coins have expanded to become well-established in their own right, they each have drawbacks and – as adoption and mainstream use of these coins increases – the severity of these drawbacks will increase in tandem.

NXT Chart

The creators of NXT recognized this and set out to create what is essentially a brand-new type of cryptocurrency and, by proxy, one that seeks to resolve the issues associated with first-generation coins.

These issues are fairly wide-reaching but they can be lumped into one of two categories primarily: the first, scalability, the second, efficiency.

When we say scalability, we are referring to the speed with which transactions can take place and the number of transactions that can take place on a network at any given time. With bitcoin, the requirement for what’s called Proof of Work (PoW) verification limits the speed with which certain transactions can take place and, at the same time, limits transaction volume. If bitcoin is to be used as a store of value, it’s not necessarily that important for it to have ultra-fast transaction speeds and very high volume. If it is going to be used as a value transfer agent, however, these things are necessary.

When we say efficiency, we are referring to the processes required to verify transactions. Right now, a huge amount of electricity is required to maintain and keep up the bitcoin network and, as transaction volume increases, so will the energy requirement.

This, of course, has the potential to cause long-term problems, and – at the same time – brings with it what amounts to a constant downside pressure on the price of bitcoin given that the vast majority of the energy being used to mine coins is paid for in fiat, meaning bitcoin has to be sold to cover its own costs.

So where does NXT come into this?

Well, NXT uses what’s called a Proof of Stake (PoS) algorithm to process transactions, as compared to bitcoin’s PoW. PoS doesn’t require mining, immediately solving the efficiency issue. PoS can also handle a dramatically increased amount of transactions per second, with this increased volume once again based on the fact that mining-based block verification isn’t necessary.

So with all that explained, why is NXT running right now?

The coin is up 25% over the last twenty-four hours and close to 1,300% over the last four weeks.

In our opinion, the real driver behind this run is the fact that – as bitcoin becomes more popular – it’s drawbacks are going to become more apparent. We saw this yesterday with the more than 200,000 transactions stacked up and delayed as participants rushed into take advantage of the gains we were seeing in the market overnight.

With this in mind, then, and assuming the current correction in the bitcoin market is exactly that – a short-term correction – the run we are seeing right now should continue into the close of 2017. Just as is the case with bitcoin, we may see near-term corrections as the shorter-term operators pull profits off the table but, longer-term, it looks as though this one has plenty of steam left.

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

Image courtesy of NXT