Cryptocracy: A NEM Primer
There are myriad options for structure in a cryptocurrency’s development team. A few of the previous primers have covered blockchain companies, non-profits and even technocratic councils made up of research scientists. NEM is something of an outlier, coalescing out of the Bitcoin Talk Forums from a grassroots campaign to fork the NXT cryptocurrency. The new team decided against that fork, and instead created the codebase that would eventually become NEM.
NEM and Mijin
NEM’s formation was not as a legal entity or business start-up, and they remained something of an oddity in the community throughout their development process. They did attract a slew of investors, but there was an underlying fear that their ad hoc nature would result in abandonment. Luckily, that turned out to not be the case — and they formed a business relationship with the Japanese based Zaif exchange to create a new blockchain using the NEM software. The new private Mijin blockchain is gaining adoption in the Japanese banking industry.
Proof of Importance
Most top cryptocurrencies use Proof of Work or Proof of Stake to generate additional coins. NEM instead uses a Proof of Importance algorithm that measures more than just the vested interest in the coin. The POI algorithm requires holding a minimum of the XEM token — 10,000 to have a score greater than zero — but also takes into account the amount of transactions that the node undergoes. Purchased XEM becomes vested over time, providing the basis for the POI score. Transactions beyond this then increase that score, so long as they are net transfers. If users are simply trading coins back and forth in an attempt to game the system, those transfers are ignored.
Delegated Harvesting
The Proof of Importance score is used to determine that stake’s chances of harvesting a block within one of the NEM supernodes. This eliminates the need for a costly mining rig, and removes the incentive to hoard a massive amount of coins. Instead, actively using XEM as a currency awards holders a higher POI score and a better chance at harvesting a block within the supernode. When the holder is chosen as the delegated harvester, they are rewarded with the entirety of the transaction fees from that block — computed by the supernode.
So why NEM?
The Proof of Importance system is a unique addition to the cryptocurrency ecosystem. It encourages active participation and gives smaller investors a shot at gaining transaction fees within the system — unlike Proof of Work that requires expensive hardware or Proof of Stake that requires a massive investment to achieve dividends. Their encrypted messaging system is a fun addition, and their multi-signature system for transaction confirmation is a theoretically secure way to prevent hacked funds from being transferred.
But why not?
While the technology and invention behind the NEM platform is fascinating, it’s designed as a platform. We’re likely to see more cryptocurrencies using the standard that they’ve created — similar to Ethereum and the ERC-20 token protocol, but XEM itself seems to exist mostly to further itself. That isn’t necessarily a bad thing, and XEM holds value, but it is something to be considered.
