What is Nervos? An in-depth analysis of Nervos Network (CKB) in this article

What is Nervos? An in-depth analysis of Nervos Network (CKB) in one article! The goal of CKB basic issuance (first-level issuance) is to improve the security of the network in the early development stages of the network. The basic issuance of CKB for each Epoch is fixed, and all of it is awarded to miners to reward them for processing transactions on the network. The base issuance is capped at 33.6 billion CKB tokens and follows a similar inflation schedule to Bitcoin, with halvings every four years until the supply is capped. In November 2023, CKB experienced its first halving event, and the annual issuance volume of the basic issuance dropped from 4.2 billion CKB to 2.1 billion.

So what is Nervos Network(CKB)? What are the token economics of Nervos Network (CKB)? What is the future of Nervos Network (CKB)?

Today, the editor of this website will share with you a detailed interpretation of Nervos Network (CKB). Friends in need should take a look!

Summary

• The Nervos Network expands on Bitcoin’s core technology to power Bitcoin Layer 2 (L2) with a scalable one-layer blockchain.

• In order to improve the programming limitations of Bitcoin, Nervos Network uses a customized model (Cell model) for state storage, and a customized virtual machine (CKB-VM) to execute transactions.

• **Title: Nervos RGB: An Innovative Protocol to Expand Bitcoin’s Usability** **Quote:** Nervos extends Bitcoin’s utility with RGB, a protocol designed to provide an execution and data availability layer for Bitcoin. RGB is based on the native RGB protocol, providing new possibilities for asset issuance. **The role of RGB: **RGB acts as an asset issuance protocol and is built on the security foundation of CKB. It enables developers to create and issue new assets such as stablecoins, tokens, and other digital assets on CKB. **Bitcoin’s execution layer:** With RGB, Nervos positions CKB as Bitcoin’s execution layer. This allows Bitcoin smart contracts and complex applications to be built on CKB while leveraging Bitcoin’s security. **Data Availability Layer:**RGB also provides a data availability layer for Bitcoin. It ensures that data stored on CKB is always available to the Bitcoin network, thereby enhancing the robustness and reliability of the Bitcoin ecosystem. With RGB, Nervos expands the possibilities of Bitcoin, making it an even more powerful platform capable of supporting a variety of assets, smart contracts, and decentralized applications.

• Since the launch of the RGB++ protocol on the CKB mainnet, transaction activities on the CKB network have become active again, with nearly 400,000 new addresses added in April, an increase of 181% compared to March.

• [tag]Lightning Network integration to enhance CKB scalability[/tag] Currently, projects to combine the payment channel network with the Lightning Network are being actively promoted. This move will significantly improve CKB’s scalability, making it seamlessly applicable to a wide range of blockchain applications. The integration will give CKB the ability to handle large volumes of transactions while maintaining low transaction fees and fast confirmation times. This is especially beneficial for businesses and developers looking to expand their blockchain capabilities. By leveraging the Lightning Network, CKB will be able to support complex multi-layer payment channels, thereby enhancing its applicability in areas such as e-commerce, payment processing, and supply chain management. This scalability improvement will solidify CKB as a key player in the blockchain space, providing reliable, high-performance infrastructure for a variety of distributed applications.

Background

**As a leading cryptocurrency, Bitcoin continues to gain widespread adoption and recognition. ** However, its success has also revealed some limitations and challenges, especially in terms of scalability. **[Scalability Limitations]** After implementing the Segwit upgrade, the Bitcoin blockchain limited the block size to 4 MB, thereby limiting the number of transactions that could be processed in a given time. As the network continues to grow, this limitation results in longer confirmation times and higher transaction fees, impacting Bitcoin’s efficiency in processing large volumes of transactions. **[Smart contract functions are limited]** Unlike other blockchains, Bitcoin’s scripting language currently lacks the necessary flexibility beyond value transfer to develop complex smart contracts.

**Layer 2 Solutions: Innovative ways to scale the Bitcoin network** To overcome the limitations of the Bitcoin network, industry players have proposed various Layer 2 (L2) solutions, including payment channels, sidechains, and rollups. These solutions primarily aim to improve the network’s transaction processing capabilities by moving transaction processing off-chain without compromising the security of the underlying Bitcoin network. Take the Lightning Network as an example, which establishes a second-layer payment channel network to facilitate the rapid processing of low-value payments. The side chain serves as an independent blockchain and is connected to the Bitcoin main chain, providing greater scriptability and achieving faster transaction processing. While these solutions offer scalability benefits, there are tradeoffs. For example, complex architectures, trust dependencies, and potential security vulnerabilities are all factors that need to be considered.

**Nervos Network: A groundbreaking solution to enhance scalability for Bitcoin** [tag]Nervos Network[/tag] is a unique solution designed to enhance Bitcoin’s scalability. It natively modifies Bitcoin’s UTXO model, adding Turing-complete smart contract functionality to it. This is possible thanks to an improved RGB protocol that does not require a cross-chain bridge. Nervos Network was founded in 2018 by an experienced team dedicated to developing a scalable Layer 1 blockchain. To support its growth, the project has raised over $100 million in funding across seed, private and public rounds. In 2019, Nervos Network’s Layer 1 blockchain Common Knowledge Base (CKB) was officially launched. In 2024, CELL Studio, led by Nervos co-founder Cipher Wang, launched RGB, a Bitcoin layer asset issuance protocol. The emergence of the RGB protocol ignited the enthusiasm for Bitcoin asset issuance, treating it as a data availability and execution layer, injecting smart contract functions and asset issuance capabilities into Bitcoin. Since the launch of the RGB mainnet in 2024, the number of projects that issue assets on Bitcoin based on RGB has continued to grow. As of June 2024, 15 ecological projects are active on CKB, reigniting on-chain activity and opening a new chapter in Bitcoin’s scalability.

Technology

Source: Nervos Network

**Nervos Network: Next-generation blockchain based on layered architecture** [tag]Nervos Network[/tag] adopts an innovative layered architecture to create a highly scalable and customizable blockchain platform. The architecture contains the following key components: **Common Knowledge Base (CKB) L1 Blockchain** CKB is the base layer of the Nervos Network, extending through payment channels and RGB to provide safe and reliable transaction processing. Its unique Cell model is an upgrade to the Bitcoin UTXO accounting model, using a flexible CKB-VM virtual machine to support the hierarchical design of the network. **CKB-VM: Execution environment flexibility** CKB-VM provides a flexible execution environment for building applications and initiating transactions on the Nervos Network. It allows developers to customize their code to meet the needs of specific applications. This flexibility gives the network scalability, allowing it to scale vertically by running specialized components at each layer. This layered architecture is similar to a modular blockchain, which breaks the network into different components that can be independently scaled. This modular design enables the Nervos Network to adapt to changing application needs and technological advancements, laying the foundation for future blockchain innovation.

Common Knowledge Base

CKB is the underlying L1 blockchain of the Nervos Network and operates similarly to Bitcoin, using a Proof of Work (PoW) consensus mechanism. It uses NC-MAX, an upgraded version of the Bitcoin algorithm, to improve network efficiency and response speed by speeding up transaction confirmation time and reducing the orphan block rate. Bitcoin targets a 10-minute block interval and adjusts mining difficulty approximately every two weeks. CKB dynamically adjusts the block interval (approximately every four hours) based on changes in network activity to optimize performance.

CKB uses the Eaglesong function to ensure network security, which is an ASIC-neutral custom hash function that replaces the widely used SHA256 hash function. Eaglesong is a sponge function optimized for multiple cryptographic elements to provide the same level of security as other proof-of-work (PoW) hash functions, while being specifically tailored for the Nervos Network.

Cell model

Source: Nervos Network

Cell model is the core of CKB data structure and can store and verify any data on the chain. Bitcoin’s original scripting language and UTXO model limited its ability to perform the complex calculations required by smart contracts. In contrast, CKB generalizes the UTXO model, allowing for more flexible data storage and verification. Unlike Bitcoin, which uses a single script to verify transactions, CKB introduces dual scripts in its Cell model:

• Lock Script (lock script) ensures that only authorized users can access and use content in the Cell, similar to Bitcoin.

• Type Script is an optional script that sets the rules for how a Cell is used or changed in future transactions.

Compared to Bitcoin’s limited options, this system enables CKB to support more features, making it more suitable for a variety of applications. Each Cell in CKB is a programmable Cell that can save different data types, such as tokens, smart contracts, and specific application states. It can also run complex scripts similar to those in Turing complete languages. Cells run independently, meaning they can be updated or referenced without affecting other parts of the blockchain, improving scalability through parallelism.

CKB-VM

CKB-VM is CKB’s execution engine, used to run smart contracts and decentralized applications. The virtual machine uses the RISC-V instruction set, a flexible and simple open source hardware architecture set (ISA) that supports a variety of programming languages, including popular languages ​​​​such as C and Rust. This broad compatibility sets CKB-VM apart from other blockchain virtual machines that are often limited to specific languages, opening it up to a broader developer community. The CKB network also supports SDKs for mainstream languages ​​such as JavaScript, Rust, Go and Java, making it easier for developers to develop using familiar tools. This makes it easier for developers to create complex decentralized applications using familiar programming languages.

In addition, CKB-VM’s architecture provides predictable gas fees, secure execution, and efficient integration with the Cell model, helping to effectively manage state and verify transactions. A predictable gas fee model avoids unexpected fees, improves user experience, and simplifies contract development.

RGB++ Protocol

Source: Nervos Network

CKB extends Bitcoin using the RGB++ protocol, which is an asset issuance standard that extends the functionality of Bitcoin on CKB. The RGB++ protocol enables complex smart contract and asset management operations that are typically not possible on the Bitcoin network. The original RGB protocol was an L2 solution designed to enable smart contracts and asset issuance for Bitcoin without changing the Bitcoin mainnet. It works by tying assets to specific Bitcoin UTXOs, allowing those assets to be transferred along with the transfer of the UTXO itself. The RGB protocol relies primarily on client-side verification, with transactions processed and verified off-chain, thus reducing the load on the Bitcoin network. However, this approach also has limitations, such as potential issues with data availability – since the data is not stored on-chain, it may not be readily accessible when needed. Additionally, reliance on client-side validation adds complexity that may impact user experience.

Nervos Network addresses these limitations with the RGB++ protocol, which extends and enhances the principles behind the original RGB protocol by using CKB as Bitcoin’s data availability and execution layer. RGB++ uses isomorphic binding technology to map Bitcoin UTXO to CKB’s Cell, achieving seamless integration with CKB’s Turing-complete smart contracts. This is achieved by leveraging CKB’s layered architecture and Cell model, allowing Bitcoin assets to interact with dApps on CKB. By using RGB++, CKB can execute more complex smart contracts for Bitcoin that were not possible with the original RGB protocol. RGB++ also introduces on-chain verification of key transaction elements, improving security and data availability. In addition, the RGB++ protocol can also implement transaction folding, ownerless contracts with shared states, and non-interactive transfers, and can realize cross-chain transfers of Bitcoin without the need for cross-chain bridges.

Payment Channel

As the underlying public chain, CKB can be expanded through payment channels, such as the payment channel framework Perun developed by Polycrypt. By processing transactions off-chain and settling on-chain, these payment channels can support a variety of applications from micropayments to payment gateways, thereby improving CKB’s performance. Perun utilizes CKB's Cell model, where Cell carries capacity, Lock Script, Type Script and data to manage the state of the channel. One implementation of the channel (PerunLockScript) can manage access to the channel's real-time Cell, while the other implementation (PerunTypeScript) can handle the validation logic for state transitions. From the time the channel is funded until it closes, these transitions are managed automatically. As of press time, Perun is still in testing and has not yet been launched on the CKB mainnet. Nervos core developers are also working on connecting CKB to Bitcoin’s Lightning Network, allowing users to exchange BTC and CKB without relying on a third party.

Tokenomics

Nervos Network’s native token CKByte (CKB) plays an important role in maintaining network security and incentivizing efficient storage. The main functions of CKB in the network include:

• Granting data storage rights to token holders.

• As the handling fee for on-chain transactions.

• is issued to miners as block rewards to ensure network security.

In addition, CKB tokens have three sources: (1) Genesis block; (2) Basic issuance; (3) Secondary issuance.

Genesis Block

When the mainnet was launched in November 2019, 33.6 billion CKB tokens were minted in the genesis block, of which 8.4 billion CKB tokens (25% of the initial issuance) were immediately destroyed. Of the 8.4 billion CKB destroyed, 5.04 billion tokens were used for on-chain storage ("occupying on-chain space"), and the remaining 3.36 billion tokens were in a flowing state ("liquidity"). The state distribution of these burned tokens is intended so that miners initially receive at least 15% of the secondary issuance and the treasury fund receives at least 10%. It is worth noting that all CKB tokens currently allocated to the Treasury Fund have been destroyed, and this setting can only be changed through a network hard fork.

The CKB allocation in the genesis block is as follows:

• Public Sale (~21.50%): The largest portion of the genesis block was provided to public investors in 2018 and launched on the mainnet in November 2019 Release all on startup.

• Ecological Fund (17.00%): The ecological fund will support third-party developers within the Nervos ecosystem. In the Genesis Block plan, 3% of this allocation is already in place at mainnet launch, with the remainder to be distributed over two years, ending in December 2022.

• Team (15%): Reserved for project teams, ending in May 2022 for a four-year lock-in period.

• Private Placement (14%): Offered to private placement investors in July 2018. 66.60% of this will be released at mainnet launch, with the remainder ending a two-year lock-up period in 2020.

• Partners (5%): This grant is reserved for strategic partners who help build the Nervos Network, with a four-year lock-in period.

• Testnet Rewards (0.5%): These rewards are all distributed to testnet and bug bounty program participants at mainnet launch.

• Destruction (25%): In the genesis block, this part is directly destroyed to ensure that miners and treasury funds continue to receive secondary issuance.

Basic issuance

The goal of CKB basic issuance (level one issuance) is to improve the security of the network in the early development stages of the network. The basic issuance of CKB for each Epoch is fixed, and all of it is awarded to miners to reward them for processing transactions on the network. The base issuance is capped at 33.6 billion CKB tokens and follows a similar inflation schedule to Bitcoin, with halvings every four years until the supply is capped. In November 2023, CKB experienced its first halving event, and the annual issuance volume of the basic issuance dropped from 4.2 billion CKB to 2.1 billion.

Secondary distribution

CKB manages state explosion through two methods. First, to store data on-chain, users must lock CKB tokens. CKB does not directly charge users who lock CKB tokens to pay state rent, but instead charges fees indirectly through an inflationary mechanism called secondary issuance. Each year, 1.344 billion CKB tokens are minted through secondary issuance and distributed to miners, Nervos DAO savers, and treasury funds. Therefore, secondary issuance introduces inflation for users storing data, as locked CKB tokens automatically face value dilution, which is an indirect way of paying state rent. As of this writing, more than 600 million CKB tokens have been distributed to miners as state rent, approximately 1.15 billion CKB tokens have been awarded to Nervos DAO depositors, and more than 4.27 billion CKB tokens allocated to the treasury fund have been directly destroyed.

Nervos DAO

With Nervos DAO, CKB token holders can natively avoid dilution from secondary issuance. By locking their CKB token holdings into the Nervos DAO smart contract, users can receive token rewards from secondary issuance, ensuring that their token holdings are protected from the effects of inflation. Nervos DAO depositors receive a rate of return equal to the inflation rate of secondary issuance, with APR continuing to decrease as total supply increases. Users can deposit to Nervos DAO at any time, with a minimum amount of 102 CKB, but withdrawals can only be made after the 30-day deposit cycle ends.

As of writing, 9.2 billion CKB tokens have been deposited in Nervos DAO. CKB’s deposit-to-flow ratio is 20.84%, which has been trending downward over the past two years. This downward trend may be due to the increasing number of unspent Cells on CKB.

Network Activity

Over the past year, the CKB network has continued to be active. As of now, CKB’s average daily trading volume is 43,600. That’s an increase of 110% compared to the daily average of 20,800 in the fourth quarter of 2023. In terms of new addresses, April saw a significant increase in on-chain activity. 387,600 new addresses were created in April, a 181% month-on-month increase compared to March.

Cell activity on CKB has been steadily increasing since April, partly due to the launch of the RGB++ protocol. Cell activity is divided into unspent Cells and spent Cells. Unspent Cells can be used for future transactions, smart contract execution, and data storage, reflecting increased network activity and adoption. A spent Cell, although no longer used as a transaction input, still contains valuable data that can be accessed and referenced, contributing to the history and data traceability of the blockchain. As of May 15, 2024, there were 1.7 million unspent Cells, an increase of 13% compared to the end of the first quarter. As for spent Cells, as of press time, there are a total of 57.6 million spent Cells on CKB.

Since the RGB++ protocol went live on April 3, 2024, more than 13,200 transactions and 4,400 unique addresses have used the protocol. Network activity was trending downward throughout May and June, but more ecosystem projects leveraging RGB++ should help reverse that trend.

Security and Decentralization

As a PoW network, miners ensure the security of CKB by solving cryptographic puzzles to verify transactions and add new blocks to the blockchain. Every time a block is mined, the miner can obtain all the "basic issuance" rewards and part of the "secondary issuance" rewards of the block. Miners also receive proposal rewards or submission rewards from transaction fees for processing network transactions. To manage changes in network activity without degrading performance, CKB’s customized NC-MAX consensus protocol adjusts mining difficulty approximately every four hours based on the network’s orphan block rate. In this way, the network can optimize block time while reducing the possibility of block reorganization, which may destabilize the network.

Computing power is a measure of the basic computing power of PoW blockchain miners. Therefore, computing power represents the security of the CKB network. In 2024, the computing power of CKB’s entire network will continue to reach new historical highs. On April 27, CKB’s entire network computing power reached 397.5 PH/s, which is the highest computing power value in the history of the CKB network. The increase in hash rate is partly due to Binance opening the CKB mining pool on April 18, 2024. Similar to hashrate, average mining difficulty also hit an all-time high in 2024 (it was 3.96E on April 21).

Ecosystem

Nervos Network continues to promote the development of the ecosystem through funding, infrastructure and tool support. At the launch of the mainnet in November 2019, approximately 5.7 billion CKB (17% of the genesis block CKB allocation — $62.4 million at the time of writing) was set aside for the ecosystem fund. Over the years, the Ecological Fund has provided seed funding for multiple ecological development plans to promote the network’s development plans. One of them is the CKB Eco Fund (formerly InNervation), which focuses on incubating and investing in early-stage and seed-round projects that use RGB++ to connect CKB and Bitcoin. CKB Eco Fund supports ecological projects to build critical infrastructure and cross-domain decentralized applications, including DeFi, games, tools, NFT markets, etc. In January 2024, CKB Eco Fund launched the BTCKB initiative, which aims to strengthen the integration between Bitcoin and the CKB blockchain through the PoW consensus mechanism and UTXO model. BTCKB plans to introduce new smart contract features to incorporate BTC, Taproot Assets, and RGB++ assets into the CKB blockchain, thereby enhancing the functionality of the Bitcoin blockchain. As part of the initiative, CKB Eco Fund also incubated CELL Studio, a blockchain software company led by Nervos co-founder Cipher Wang, who is also the leader of the BTCKB initiative. CELL Studio develops infrastructure and applications to enhance and expand the Nervos ecosystem, similar to how ConsenSys developed foundational tools like Infura and MetaMask for Ethereum. As of now, well-known ecosystem tools developed by CELL studio include:

• CoTA: an aggregation protocol for fungible and non-fungible tokens on CKB.

• ForceBridge: A cross-chain interoperability protocol connecting CKB and other blockchain networks, currently supporting Ethereum and BNB smart chains.

• Spore: On-chain Digital Objects (DOBs) protocol powered by CKB.

Since the launch of the RGB++ mainnet in April 2024, more than 15 existing ecological projects have used this protocol for asset issuance. Ecological projects worthy of attention include:

• UTXO Stack: Bitcoin L2 “OP Stack” based on RGB++ protocol.

• JoyID: Non-custodial wallet that utilizes biometrics for user authentication and supports multiple networks including Ethereum, Bitcoin, and RGB++ assets.

• HueHub: Decentralized trading platform and launchpad supporting RGB++ assets on Bitcoin.

• Stable++: Decentralized stablecoin protocol, supporting CKB and BTC.

• World3: An autonomous world game based on RGB++ protocol and DOB.

• Nervape: A multi-chain composable digital object based on Bitcoin. Its “basic assets” are issued on Bitcoin and “auxiliary assets” are issued on CKB.

• Haste: RGB++ asset management solution.

• d.id: The decentralized identity protocol of the Bitcoin ecosystem.

The RGB++ development roadmap released by CELL Studio highlights important plans to be completed in 2024 including:

• Release a cross-chain protocol for issuing RGB++ assets across UTXO chains.

• Transfer Atomics, Orderals and other UTXO-based assets to CKB without a bridge through the RGB++ protocol.

• Propose and implement an RGB++ extension solution that supports multiple networks.

• Connect RGB++ with CKB Lightning Network.

As part of the BTCKB plan, CKB Eco Fund also intends to launch a cross-chain bridge and UTXO-based DEX connecting BTC and CKB. In addition, a payment channel network will be developed for CKB using the RGB++ protocol, and the relevant proof of concept has been completed. This payment channel network will be connected to the Lightning Network, making CKB more scalable and suitable for various blockchain applications.

Competitive Product Analysis

As Bitcoin L2, Nervos Network’s method of expanding Bitcoin is mainly to enhance the functionality of Bitcoin through the RGB++ protocol. Competing products like Stacks provide customized execution environments and programming languages, while Rootstock pegs transactions between the two chains. In contrast, Nervos aims to enhance the native Bitcoin experience without adding complexity or compromising decentralization. With the RGB++ protocol, CKB can provide Bitcoin with a smart contract execution environment that is closely integrated with Bitcoin’s original UTXO model. This design may give the Nervos Network an advantage, attracting users who are skeptical of solutions that stray from Bitcoin’s core ideals of decentralization and security

compared to scaling solutions like the Lightning Network , CKB’s smart contracts provide a wider range of functions to provide services for developers to build more complex applications on Bitcoin. While the Lightning Network effectively facilitates fast, low-cost transactions, it does not support complex decentralized applications. At the same time, platforms such as Liquid Network, Merlin Chain and Bouncebit need to trust a semi-centralized alliance to manage the cross-chain bridge between the side chain and the Bitcoin main network. CKB uses off-chain calculation and on-chain settlement methods to avoid this degree of centralization.

Nevertheless, Nervos’ approach to scaling Bitcoin with the RGB++ protocol is not without limitations. The reliance on external networks, specifically the CKB blockchain, for data availability and asset issuance creates additional complexity and potential latency for Bitcoin. In addition, the lack of comprehensive development tools and multi-party interaction solutions limits the protocol's ability to effectively support decentralized applications. Finally, the transparency of transactions on the CKB blockchain compromises the privacy benefits originally offered by the RGB protocol.

Summary

The Bitcoin L2 market continues to grow as demand for scalability and functionality beyond Bitcoin’s original functionality continues to grow. Various L2 solutions, such as Lightning Network, sidechains, and Rollups, aim to solve these problems by moving transactions off the main chain, thus increasing Bitcoin’s throughput without compromising security. However, these solutions often introduce new complexities and security challenges. What sets Nervos apart is extending the RGB protocol with RGB++. RGB++ provides native extensions for Bitcoin integrating deeper smart contract functionality directly related to the Bitcoin UTXO model. These features, in turn, facilitate a more frictionless and secure expansion of Bitcoin’s utility. Additionally, work is underway to connect the payment channel network with the Lightning Network, which will make CKB more scalable and suitable for many blockchain applications.

Ultimately, Nervos aims to strengthen its position in the Bitcoin L2 space by simplifying the user and developer experience. Additionally, Nervos can prioritize RGB++ support for a wider range of asset types and complex applications, increasing its utility within the Bitcoin ecosystem. By doing so, Nervos can play a key role in Bitcoin’s wider adoption and functionality as a platform for decentralized applications and smart contracts.

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