How Does Nano Solve the Dust Issue?

If you were ever prevented from spending your money due to transaction fees or minimum amount limits, you were holding dust in your digital wallet. Dust is a very common issue in the vast majority of financial and payment systems worldwide, except for nano.

Nano (XNO) completely solves the dust issue observed in multiple other payment systems or cryptocurrencies. In this article, I will explain what “dust” is in the context of digital money, how it can negatively affect users, and how nano successfully solves it by completely removing fees from the equation.

What is dust in digital money?

Generally speaking, dust refers to a trace amount of money that can not be used, spent, swapped, exchanged, transacted, or moved. It usually happens when the leftover amount is lower than the network fees or the minimum limit of a valid transaction — which centralized systems can set arbitrarily.

However, if the fees of a given system consume a relevant part of the desired transacted amount, it can also be considered dust for practical effects. Effectively, a user will hardly knowingly make a payment when fees consume a subjectively significant amount of it, becoming dust.

In this context, dust is not an exclusive problem of cryptocurrencies, nor is it exclusive to centralized service providers. Any system that somehow limits transactions to a minimum is subject to monetary dust.

Imagine you want to send digital money to somebody else through your bank account. Is there a minimum amount and/or fees? Dust. Are you sending money worldwide through remittance services and the fees, or does a minimum limit amount prevent you from doing that? Dust. Are you exchanging currencies in an exchange service with a minimum trading limit or withdrawing fees? Dust. Do you have some cryptocurrency in a wallet but can not move it due to network fees? Dust.

Dust is (almost) everywhere, and it often affects digital money users.

How does dust affect digital money users?

There are mainly two kinds of dust:

(1) Temporary dust, which might change with time as the transaction threshold also changes. For example, Bitcoin (BTC) fees change according to network demand, changing which sort of UTXO or balance range is considered dust (non-spendable).

(2) Permanent dust, set by a fixed minimum amount. For example, service providers’ minimum trading, withdrawing and sending amounts.

In both cases, dust can incur financial losses or lack of liquidity for the dust owner. Either way, the owner will need to deploy more capital to add enough money above the minimum threshold for immediate liquidity.

In the case of “temporary dust,” the owner can choose to hope and wait for a decrease in fees. However, there are usually no guarantees that such lowering will ever happen, which exposes the user to the risk of having to pay even more in the future to access the stored value.

As for the services, the risk of dealing with dust results in more complexity for implementations, which creates more costs for businesses in different aspects and can slow down adoption.

Nano is a dust-free decentralized network

Considering what has been said so far, it is easy to understand that dust risks are mitigated by lowering the minimum threshold or the chances these bottlenecks have to increase.

Service providers can offer a better user experience by charging lower fees or setting lower limits, while cryptocurrencies might look for ways to avoid fee hikes above a certain threshold. The latter can be achieved in multiple creative ways, like increasing block size, decreasing block time, using DAG, or sharding.

However, mitigating the risk does not solve the problem completely. This brings us to the question: Is it possible to have a completely “dust-free” decentralized network?

Short answer: It is. Nano does exactly that.

Essentially, the only way to have a completely “dust-free” digital money (or payment system) is by absolutely removing limits or fees.

Nano is a permissionless network. The minimum amount anyone can send to anybody else is 1 raw, the smallest unit of the nano protocol. As there are no limits above the smallest unit, nano does not have a fixed threshold or what we called “permanent dust.”

Moreover, nano is completely feeless. Users do not need and can not set any fees within the protocol to overbid other senders to have their transaction confirmed first. It also looks for alternative spam mitigation solutions rather than charging minimum fees from the network.

Both mentioned characteristics make nano dust-free. There are no risks of holding dust with nano because even 1 raw of nano will always be spendable at any time, with the certainty that the destination will receive the same 1 raw, with no losses accrued.

However, it is important to understand that, despite nano being a dust-free network, services using nano could charge fees from their users or set minimum amounts for sending, receiving, exchanging, etc. This would effectively create dust in these services, which are free to use “dust-free nano” as they please.