What is Nano's Nakamoto Coefficient?

The Nakamoto Coefficient for the Nano cryptocurrency is 3. That is, only three actors are needed to defeat the network. Kraken alone almost brings us there, and that's with just the wallets we know about.

Wait, I thought it was 12?

The Nakamoto Coefficient is the number of actors needed to defeat the security properties of a cryptocurrency. It's basically what's needed to trigger an emergency situation where everyone has to show up on the official Discord server and manually intervene to save the coin. With 33% of the weight, an entity can freeze your funds forever, preventing you from selling your coins. During normal operation, 67% of the weight is needed to confirm blocks. Having more than 33% means being able to prevent this from happening and to even freeze accounts permanently via Final Vote splits. If you don't know what Final Votes are, they're a second round of votes that were added to address the infamous double-spend exploit.

Because the number 3 just sounds so bad, Nano activists and marketing materials moved the goalposts. They insist on 67% despite this not being necessary to wreak havoc on the chain. At the end of the day, the promise of crypto is an automatic experience free from trust. If everyone has to show up on a centralized Discord server to decide what to do, which ledger to pick, etc, it's game over for that promise. And what's more, probabalistic double-spends are achievable at 33% anyways.

Back up, did you say you could double spend Nano?

That's right! You're not supposed to know this, but for most of Nano's history the coin could be double spent. This was before Final Votes were added months after the attack was made public knowledge (the Foundation takes forever to fix even the most critical issues). This is the real reason the threshold was moved from 51% to 67%.

We even saw consensus failures on mainnet, where nodes cemented opposite sides of opposing forks. And this was by accident, the users confused by what their wallets were doing. Had someone in the know (like me!) actually done something, Nano might not exist anymore.

Does a Nakamoto Coefficient even make sense for nano?

In a very real sense, Nano is just too small and centralized to really have a number. Almost no one knows how the network works, and there's no protocol spec anywhere to be found. I'm not convinced it's secure. Unlike more legitimate currencies, the foundation doesn't even perform security audits on the codebase.

The foundation basically controls everything. They tell exchanges what to do, what node software to run, and even in the case of Binance who to delegate to. When new docker images come out, the community instantly upgrades. If the NF wanted to, they could seize control by very straightforward means. Or perhaps a hacker could through social engineering.

Anything else?

The TPS stats are often misreported too. Check out nanotps.com for more.