NEM (XEM) stands for “New Economy Movement” and is a cryptocurrency of Japanese origin. Its main features are an accelerated block generation, an extended blockchain functionality and a changed procedure for transaction chain generation (Proof of Importance, instead of Proof of Work). The developers also claim to distribute the currency more evenly and to prevent an oligarchy with the underlying algorithms.
NEM was created in 2015 on the initiative of crypto enthusiasts who exchanged views on the Internet about the advantages and disadvantages of existing currencies. Originally, the new system was intended as a fork for the currency “NXT”, but it was finally decided to implement NEM from scratch.
Functions and advantages of NEM
On the surface, NEM’s architecture resembles that of Bitcoin and other traditional cryptocurrencies: Users access a peer-to-peer network of nodes (the so-called NIS – NEM Infrastructure Server) via a client (the NanoWallet). On the other hand, NEM offers a number of enhancements that improve the functionality in the developers’ sense and differentiate the system from its predecessors.
NEM replaces the Proof of Work with a concept called Proof of Importance. It is not the solution of a cryptographic puzzle that determines the continuation of the blockchain, but the transaction frequency and transaction volume of the users involved. On the one hand, this should reward the willingness of the users to be as actively involved as possible in the network, i.e. not to sit on acquiring XEM assets without using them. At the same time, it should be ensured that participants who have large resources and computing power or who already hoard large amounts of XEM are not given preference. The Proof of Importance thus also acts as a measure against the main problems that the developers of NEM believe to recognize, especially at Bitcoin, namely that the Proof of Work depends on the computing power and thus favors maintainers who already have larger resources (in Bitcoin or in classical currencies). The fact that the Proof of Importance requires considerably less computing capacity than the hard cryptographic puzzles of the Proof of Work is advantageous in terms of network performance.
Harvesting instead of mining
Although the Proof of Importance does away with NEM mining, other mechanisms for distributing the currency have been implemented. Harvesting replaces the conventional effort of attaching a new block to the blockchain. In addition to certain technical requirements for its node, a harvester must have a minimum credit of 10,000 XEM. If this is the case, the harvester is entitled to generate new blocks and receives the transaction fees resulting from this block as a reward. In a broader sense, harvesters are comparable to maintainers of conventional cryptocurrencies. In addition, there are further bonuses for harvesters that achieve particularly high throughput rates at their nodes, the so-called supernodes.
A further feature of NEM is also due to the changed algorithm of block generation: The speed is further increased compared to other systems. While Bitcoin has a block time of 10 minutes (a new block in the blockchain every 10 minutes) and Litecoin a block time of 2.5 minutes, NEM generates a new block every minute.
Consensus and trust with NEM
In addition to the above features, NEM implements a system for managing trust relationships between individual network nodes. EigenTrust++, further development of EigenTrust with almost the same name, uses a simple algorithm to calculate numerical values that quantify the trustworthiness of participants in the network. EigenTrust++ evaluates the quality of blockchain management by the other nodes in the network from the point of view of each individual node. The trust relationship is transitive, i.e., node A trusts node B, and A trusts all nodes that B trusts. In this way, a trustworthiness value is calculated for each node to ensure the integrity of the blockchain.
Similar to Ripple, when NEM was commissioned, 8,999,999,999 (almost 9 billion) XEM was provided as total volume and almost entirely distributed to a group of participants. An unspecified reserve was retained for future developments. The elimination of the proof of work means that XEM’s mining is not only impossible but also not provided for in the currency concept. A further parallel to Ripple is that the concept of NEM was obviously conceived with a medium for money transfer in mind. There is also a fork by NEM called Mijin, which was developed privately and tested and used by Japanese banks.