I've made nitrocellulose: if you start with pure cellulose fibers, such as cotton, no processing is needed before you nitrate it. Nitrocellulose is soluble in a number of things, like methyl-ethyl-ketone, that you probably should not be in the same room with for very long. They 'cut' the solvents with things like toluene, that are marginally less toxic. I have used shellac-lacquer mixes in the past as a French polish, but would not recommend them, if only from a health and safety standpoint. If I so much as open a can of nitro these days my kidneys express their displeasure in no uncertain terms.
Nitro is initially about 1/3 harder then shellac, according to the measurements that Martin Schleske made and published in the Journal of the Catgut Acoustical Society, Series 3, Vol.6, pp 27-43. It also has lower damping than shellac. Both of those are far lower in damping than any oil finish, or even oil-resin varnish. However, it's hard to say just what this means in terms of guitar sound: it seems as though low damping would be good, but the added damping of the finish is probably negligible compared with other sources, IMO.
Nitrocellulose breaks down over time, releasing nitric acid as it does. For this reason it is considered a 'toxic' substance that has to be isolated from other things in museum collections, according to a recent article I saw (in 'Science News', iirc). You'll note that when you take a old guitar that was finished with nitro out of the case there will be corrosion on the metal of the tuners if the case has been closed for a long time. When fully nitrated it's a high explosive. The resin used in finishes is probably minimally nitrated, to about 18%, which means that only one molecule in six is 'explosive'. It won't explode, but burns enthusiastically. AS it breaks down, those molecules go away: if you remove one brick out of every six in a wall at random, how stable will in be? The nitric acid release accounts for the yellowing it causes, and the breakdown leads to crazing. A former student of mine who worked with museum curators said that they rate the useful life of a nitro finish at about 75 years, which seems about right to me. The thicker it is the shorter the life, from what I have seen. Note that unless you use a FP process to apply it it's very hard to get it as thin as shellac, or even a good brushed oil-resin varnish that has been properly rubbed out.
The bottom line, then, is that nitro is a health and safety hazard to use, lacks durability, and tends to break down other substances that are exposed to it. The only reason it became popular is that it is easy to apply by spraying, hardens reliably no mater what the weather, and buffs out to a nice shine. These qualities recommend it for mass production, but why would a small shop luthier want to use it?