Nervos is distinct from many other smart contract platforms in that all smart contract computation takes place off-chain on various ‘Layer 2’ networks, which report computation results to a base blockchain network that forms consensus around global state. Such off-chain computation could be achieved by Nervos-specific sidechains, such as Axon, or existing layer 2 networks, such as Celer. In contrast, the base Ethereum network executes computation and stores state on-chain. Nervos uses a storage model that it terms ‘the Cell model,’ described as a generalization of Bitcoin’s UTXO model that allows individual portions of network state to be efficiently updated based on off-chain computation. Nervos supports a Turing-complete virtual machine written in Rust for arbitrarily complex smart contracts and utilizes a Proof of Work consensus mechanism with the novel Eaglesong hash function. As part of the testnet and development process, Nervos orchestrated a mining competition that rewarded a total of 65 million CKB tokens based on testnet block rewards. As a result, a variety of mining pools now support CKB mining.
A key consideration in Nervos’ design is to create a predictable, incentivized model for on-chain storage. This is in contrast to a network such as Ethereum, where gas payment is required to execute a smart contract, but the result remains in the global state in perpetuity at no ongoing cost, thus requiring full nodes to store this additional data. As a result, the total size of the Ethereum blockchain grows rather quickly, and is effectively unbounded in its current form; the current size of the Ethereum blockchain is over 200GB and continually increasing. Following this potential issue, the Ethereum community is considering various proposals for a state rent mechanism that would confer gas refunds to transactions that would reduce the size of the network state. Nervos utilizes a concept of bounded state, such that the total amount of data that can be stored on chain is fixed over the long term, in particular by the CKByte token that functions as a claim to on-chain storage capacity. Since computation must take place off-chain, there is no concept of ‘gas’ as payment for execution, and instead tokens are a claim to the scarce resource of state storage.
Nervos is headquartered in China and includes as founders Terry Tai (previously a developer at the Yunbi and Peatio exchanges), Daniel Lv (former CTO of the imToken wallet), and token economics lead Kevin Wang. Nervos raised $28 million in a private token sale in mid-2018 from a variety of VCs including Polychain, Blockchain Capital, and Multicoin Capital. Subsequently, Nervos raised $70 million through a public token sale on Coinlist in October 2019, distributing 20% of the initial supply.
Nervos utilizes the native CKByte token (CKB) that functions as a claim on state storage. There are two types of token issuance:
- Base issuance includes PoW block rewards issued under a ‘Bitcoin-like’ supply schedule with halvings every four years. 33.6 billion CKB will be issued in total over the network’s lifetime.
- Secondary issuance includes tokens allocated to the Nervos DAO, and is intended to create an ongoing dilution of token holders as a cost for using their Nervos tokens. Users can allocate CKB to the Nervos’ DAO, in which case they receive a portion of the secondary issuance such that their overall stake is not diluted. Among the pool of tokens allocated for secondary issuance, any not allocated to the DAO (that are instead used by the network for state storage) are instead allocated to miners. This mechanic aims to provide a perpetual revenue stream for miners once block rewards are significantly reduced over the long run. 1.344 billion CKB are allocated annually in perpetuity through this mechanic.
In addition, the genesis block will allocate 25.2 billion CKB to private and public token sale participations, an ecosystem fund, the team, and testnet incentive programs. An additional 8.4 billion CKB technically created in the genesis block will be immediately burned and never enter the circulating supply. All tokens not allocated to miners or as reward for staking in the Nervos DAO accrue to an on-chain treasury fund. This treasury fund will not be immediately active, and will go live as part of a hard fork once the Nervos core team has used all of the funds from the Ecosystem Fund created at the genesis block.