This is a highly flammable resin compound formed by nitrating cellulose. Cellulose is the primary component of all trees and plants, and when you expose it to nitric acid or any other nitrating agent, you get a substance sometimes called “guncotton,” because of its explosive characteristics.
Since nitrocellulose is a plant-based compound, it makes a perfect lacquer finish that brings out the beauty and richness of wood, thus making it very good as a finish on an acoustic or electric guitar, as well as on other stringed instruments such as violins, mandolins, and dulcimers. It also ages beautifully, usually mellowing to a rich amber hue over the years.
Since nitrocellulose is so volatile, it is typically reserved for high-end instruments.