Nostr, the decentralised social media protocol, has undoubtedly captured the imagination of those who felt stifled by the current selection of social media apps and services. Since the protocol’s launch, the user base has slowly grown. Still, it remains a small fringe community of dedicated account holders who happily provide feedback and test the limits of the current infrastructure and clients.
Over the last year, Nostr clients have also started to improve, adding features like zaps and much more. A Bitcoin and Lightning native social media protocol that anyone can use would always attract the wider crypto audience and a band of Web3 enthusiasts.
Nostr is neither a blockchain nor a native token; it’s only a means of relaying notes with no single database to draw from, but multiple distributed relays. Its path to monetisation revolves around something other than tokenomics, but it was only a matter of time before someone would try to bring tokenomics into the space.
Nostr Asset Protocols (NAP) is the first attempt at this, leveraging Nostr, Lightning Network and Taproot Assets as its preferred stack and settlement layer, but the launch has been far from smooth.
Taking a break from deposits
Nostr assets work by creating a link between an LSP, in this case, the Nostr Assets Protocol node and a nostr public key. The service acts as a custodian holding the funds or Taproot assets on their Lightning node while the user claims those funds via their nostr key.
While the funds are in the Nostr Asset Protocols Lightning node, users can transfer those funds to one another via nostr events. This allows nostr users to swap IOUs as events and transact in Satoshis or Taproot Assets of their choice. Nostr Assets claims to have onboarded over 70,000 new users and attracted 280 BTC ($11.8 million) in new deposits since Oct.
But it all came screeching to a halt on 5 December 2023; the Nostr Assets Protocol team warned users on Telegram that deposits were bulking under the demand and needed to be paused, stating:
“Await further announcements and do not attempt to deposit into Nostr Assets for the time being.”
Not being able to handle user funds and pausing deposits doesn’t sound like something meaningfully decentralised, which has rightly sent out alarm bells to potential users.
Called out as an affinty scam
The deposit failure issue only added further insult to injury after Nostr Assets protocol found themselves on the end of fiatjaf. The nostr developer and founder of the decentralised social protocol Nostr, dropped a scathing review of Nostr Assets on the Twitter platform, warning users to avoid interacting with the platform and calling it an outright scam.
Clap back from NAP
As you can imagine, the NAP team responded quickly, claiming that just because they offer a custodial solution, it doesn’t make the service an outright scam. While it is true that the NAP node holds your funds and can rug you at any time as your Nostr keys don’t have a claim over the bearer asset, this is the case with any custodial Lightning solution such as Wallet of Satoshi, Zebedee, or Blink Wallet.
The difference with NAP is you’re using Nostr keys to create and manage your account versus email or your phone number.
The Nostr Assets Protocol said that the criticisms stems from a misunderstanding due to a lack of communication, and they hope to establish contact with the Nostr developers and Lightning developers with the goal of improving collaboration and foster a better Nostr ecosystem.
NAP might not get much affection from some of the Nostr community and the wider Bitcoin community due to its primary use of transferring unregistered securities; it might see some adoption from those in the LND camp looking to see the adoption of Taproot assets. If NAP can drum up any reasonable volume of transactions, it could also attract routing nodes looking to connect and access some of those transaction fees.
NAP has some issues to address
1. Technical hurdles
- Early development stage: Nostr is still under active development, and the ecosystem surrounding Nostr assets is nascent. This means limited tools, functionalities, and user adoption, hindering widespread use.
- Scaling challenges: Decentralised networks like Nostr face scalability limitations. Handling large transactions and data related to Nostr assets can be technically challenging.
2. User adoption and awareness
- Low network effect: Nostr’s user base is currently small compared to established social media platforms. This limits the potential reach and value of Nostr assets for creators and collectors. Additionally you’re also competing with Ordinals and other asset creation and trading tools on other chains which are a dime a dozen.
- Learning curve: Navigating not one but several protocols can be daunting for non-technical users, and no amount of work on a slick UI can overcome a steep learning curve. While platforms can become more user-friendly and educational resources can be created to improve adoption, it’s very hard to get people to try something new and stick with it, ask any altcoin project.
3. Monetisation challenges
- Limited monetisation options: Nostr assets primarily rely on fees earned via their Lightning node, or pegging in and out of NAP, which might not generate enough to sustain itself or attract others to support the service.
- Sustainability concerns: The long-term sustainability of Nostr’s monetisation model needs to be clarified. Concerns exist around user incentives, platform fees, and the potential for market manipulation.
4. Regulatory uncertainty
- Uncharted territory: Decentralised social media and asset ownership are relatively new concepts. Regulatory frameworks around Nostr assets are still evolving, creating uncertainty for users and developers.
- Potential for misuse: Like any open platform, Nostr is susceptible to misuse for illegal or harmful activities, like pump and dumps and honeypot scam tokens.
NAP sleeping on eCash
Despite these challenges NAP faces, the potential of Nostr as a method of identification and laying claim to funds remains undeniable. It has already been proven with the combination of Cashu ecash mints and nostr.
NAP could consider incorporating eCash mints in both the Cashu style single mint or the Federated mint approach like Fedimint to provide different custody options for users who might not be comfortable with the current arrangement.
Getting in on that sweet unregistered security trading
Bitcoin-adjacent protocols have become quite popular with the launch of Bitcoin Ordinals, a numbering system that assigns a unique number to each satoshi, enabling their tracking and transfer. Despite pushback from many a maxi, the total volume of non-fungible and fungible token sales on the Bitcoin network has already surpassed $1 billion.
So there is clearly money to be made in offering retail ways to create and trade unregistered securities on Bitcoin, and the NAP team likely feels if they can attract that degen trading to Lightning/Taproot Assets, some of those fees can migrate from miners to their node.
Do your own research.
If you want to learn more about nostr assets, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research, check out their official resources below or review other articles and videos tackling the topics.
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npub10mxnle348mzv2dnj0ylgz3zu9gceenc29x9fr4m6mnars66j7vxsnkn8mj
The Bitcoin Manual’s Nostr Pubkey
Please give us your notes.
If you have used Nostr, which client do you prefer and why? What apps and services would you like to see form part of the growing ecosystem?
Let us know in the comments down below.
