NEM is a cryptocurrency built on the blockchain technology. The vision of NEM is to build a vibrant cryptocurrency ecosystem which is secure and trustless. The digital currency has support for multisig transactions and encrypted messages. Its blockchain uses a new consensus mechanism system called Proof of Importance. Nodes are allotted an importance score which is linked with their probability to harvest the next block.
Early Beginnings of NEM
The identity of NEM developers remains hidden. Its first ever mention was in a Bitcoin Talk Forum by a user UtopianFuture. The user was inspired by NXT and it was suggested that NEM be a hard fork of NXT. This proposal was later rejected in favor of having a completely new blockchain. Beginning January 19, 2014, more users started to discuss developments of NEM on Bitcoin Talk Forum. The new digital currency went through extensive testing between June 25, 2014 and October 20, 2014. NEM was finally launched on March 31, 2015.
NEM blockchain is written in Java and a C++ version is said to be under development. The network also employs a modified version of Eigentrust++ to identify and minimize impact of malicious nodes. NEM uses elliptic curve cryptography to ensure privacy and immutability. ECC is a type of public key cryptography based on algebraic structure of elliptic curves over finite fields. The blockchain uses 512 bit SHA 3 hash function and uses Twisted Edwards curve.
The underlying utility token of the NEM blockchain is referred as XEM. NEM converts public keys to addresses in six steps. It performs a 256-bit SHA-3 on the public key. It then performs a 160-bit RIPEMD on the value obtained after the first step. More steps are taken and address is obtained. A probable theory could be collision of addresses which could occur due to random generation of public addresses. There is a possibility that two different public keys may yield the same address. However, the possibility of an attacker randomly finding a NEM wallet with tokens is same as that of a Bitcoin address collision.
Harvesting and Importance Score
Bitcoin uses the Proof of Work (PoW) consensus algorithm while Ethereum is migrating to a Proof of Stake (PoS) consensus algorithm. Miners compete to add newer blocks to the mainchain. PoW is a computation intensive consensus algorithm. There have been concerns about mining centralization in Bitcoin. On the other hand, validators stake their coins in a Proof of Stake (PoS) consensus algorithm. NEM has pioneered Proof of Importance (PoI) consensus algorithm.
It determines which nodes in the blockchain can add a new block to the mainchain. This process is called as harvesting. Any node that harvests a new block has a right to collect the transaction fees included in the block. NEM blockchain is unique as it assigns an importance score to all its nodes. Also any account that has an higher importance score will have more probability of being selected to harvest the next block. Not all nodes are eligible to harvest blocks. For any block to be eligible for harvesting it needs to have a minimum of 10,000 XEM coins stored in the wallet.
Proof of Importance Consensus Algorithm
Proof of Stake consensus algorithm has been criticized because it rewards nodes in proportion of their coins staked. It incentivizes nodes to save coins rather than use them. Hence it could create an artificial imbalance of demand and supply of digital tokens. It could also be manipulated by nodes to store their coins and sell them only when prices become expensive.
In Proof of Importance consensus algorithm, nodes are rewarded according to their importance score. It also takes into account the volume of transactions done by the account when calculating the importance score. Hence, nodes who are active and carry out transactions are encouraged to harvest in Proof of Importance consensus algorithm. NEM nodes also implement a built in feature which prevents the network from being flooded with spam transactions by malicious actors.
Economics of NEM and future development
NEM has a maximum supply of 8.9 billion XEM tokens. The current trading price of XEM is $0.1814 as on July 07, 2018. XEM has a market capitalization of $1.6 billion which is the sixteenth largest market capitalization among all cryptocurrencies. The NEM blockchain is being trialed for commercial purposes by both developers and companies.
In 2015, NEM developers collaborated with Tech Bureau Corporation to create a private blockchain labeled as Mijin. The Mijin blockchain is currently under development and will work as a payment settlement platform. In an attack on Japanese cryptocurrency exchange Coincheck, attackers managed to steal around $500 million worth of XEM tokens.
Image provided by Wikimedia Commons.