NEM

  • Cryptoasset Report
  • June 5, 2019

NEM is a cryptocurrency utilizing a Proof of Importance consensus mechanism to reward validators according to their use of the protocol.

Overview

NEM is a cryptocurrency announced in 2014 and launched in 2015. It introduced a new consensus mechanism called Proof of Importance (PoI), designed to reward users’ contribution to the NEM community. It is roughly based on Proof of Stake, but it also reflects how active a user is in transacting with other users. The founders have said that one of NEM’s goals is to address wealth inequality, a feature of both existing cryptocurrencies and the “old economy.”

NEM positions itself to focus on enterprise use cases, and allows users to connect and build solutions on the public NEM blockchain, or implement their own permissioned version of NEM. NEM has a “Smart Asset System” that allows users to configure “Mosaics”- which are digital assets defined with a string-name that’s linked to a “Namespace”. Namespaces are text strings pointing to an account address, and cost 100 XEM to create or renew. Mosaics, as the basic building blocks for assets, can be combined and connected to addresses to achieve a user’s goal, and they may represent tokens, signatures, documents, audio files, etc. In May 2019, NEM transitioned from version “NIS1” to “Catapult”, a new core engine which aims to build upon namespaces and Mosaics to make NEM more scalable and user-friendly.

The NEM public blockchain utilizes native currency XEM for transaction fees, which scale with the complexity of transactions and has a circulating supply of 9 billion. It is used to reward participants running nodes called “Harvesters”, which are required to obtain and hold (in a process referred to as “vesting”) a minimum of 10,000 of XEM tokens in order to participate in the consensus.

The NEM Foundation is the Singapore-based community based non-profit that was started in 2017 to promote the project. It is comprised of 202 members with known identities. In January 2019, the foundation laid off a significant portion of their 150 employees due to the project running low on funds. The NEM community approved a proposal to release 210 million XEM (valued at USD $8.4million) from the ~9 billion XEM circulating supply on Feb. 5 2019, which will fund the NEM Foundation operations until 2020.

Project Details

NEM has instantiated a novel consensus mechanism called Proof of Importance, which builds upon Proof of Stake and aims to reward users that actively transact on the network. Proof of Importance attempts to solve common critiques of Proof of Stake, which are that it incentivizes the holding of cryptoassets over using them, and that individuals with large token holdings have significant influence over the network..

There are two primary roles in the Proof of importance system: Supernodes, and Harvesters. The two roles are inextricably linked in a unique approach to block creation that NEM calls “Delegated Harvesting”. Harvesters, which are any account created on the NEM platform that hold 10,000 vested XEM, work to create high Proof of Importance (POI) scores, which can be thought of as reputations that they then delegate to the Supernode of their choosing. Supernodes are required to stake 3 million XEM and run hardware that processes transactions. They borrow from the reputations of delegate Harvesters to increase their likelihood of being chosen to process a block. When a block is won, the harvesting account keeps 100% of the transaction fees, while the Supernode is compensated by daily XEM payouts from a pool set aside during the project’s inception, provided the Supernode meets certain ongoing reliability requirements.

The Harvester POI score attempts to measure the account’s active contribution on the NEM network, in an effort to reward active users. It considers the quantity of vested XEM held by the Harvester (above and beyond the 10,000 XEM minimum participation requirement), the frequency of past transactions with other accounts, the quality of accounts transacted with based on the size of transaction as well as vested XEM held by the receiving account.

Project History

NEM was started by UtopianFuture, a Bitcointalk forum user who wanted to improve on Nxt. A group of developers coalesced through an open call on January 19, 2014. They decided against copying Nxt and wrote the codebase from scratch. At launch in 2015, the team of NEM was reportedly large, over 15 developers and almost 30 marketers or translators.

To initial distribute XEM, the team launched a registration process in which bitcointalk users could register and pay a small fee in BTC or NXT. In 2015, they also hosted a giveaway to Reddit users.

NEM was used as the basis for Mijin, a permissioned blockchain tested by Japanese banks. Three core developers from NEM partnered with Japan-based Tech Bureau, which runs Zaif Exchange, to create Mijin.