NEM, or the New Economy Movement, wants to develop a smarter and more technologically advanced blockchain. It positions itself as being not just another altcoin, on not just another blockchain.

NEM, which calls itself the smart asset blockchain, is a technology platform that seeks to be an efficient way to manage assets and data easily and at a low cost.

Let’s explore NEM, its working, features, advantages, and its potential applications.

What Is NEM (XEM)?

NEM evolved in March 2015 as a fork-out version of the NXT, another popular blockchain-based virtual currency, and payment network platform.

It is operated by a Singapore-based non-profit organization called the NEM Foundation. Following the fork, NEM.io decided to develop its own codebase for advancing NEM, to make it more scalable and faster. Thus emerged a new NEM cryptocurrency platform, which was completely different from the original NXT.

NEM has its own cryptocurrency, called XEM. Though XEM is not being used by merchants as a means of payments as bitcoins are, XEM has nonetheless grown significantly in value and, as of October 2021, has the 75th highest market cap among cryptocurrencies.

NEM currently supports one wallet, called Nano wallet.

NEM’s Efficiency Pillars—Proof-of-Importance and Harvesting

NEM aims to build a “better” blockchain, and it tries to achieve that using two key concepts of proof-of-importance (POI) and harvesting.

Other cryptocurrency networks, like Bitcoin, use a proof-of-work (POW) or proof-of-stake (POS) system, which requires a mining device to work for the blockchain. The rewards are allocated to the miners based on their work contributions.

However, in POW, the miners with higher computing/processing power have an undue advantage over those with less powerful machines. Additionally, POW leads to more power consumption making the process energy inefficient. In POS, coin hoarders have the undue advantage as the participants with more coins have higher chances of getting more coins through mining and transaction processing. It also promotes cryptocoin saving, instead of cryptocoin spending.

NEM addresses the issue using its POI mechanism, as it gives more "importance" to how much one is “invested” into the NEM system, with a realistic “vested” interest. The XEM coins in the wallet and the holding period play a key role in gauging the importance.

One needs to hold 10,000 “vested” XEMs in one's wallet to qualify for generating and earning new blocks and for earning various transaction fees.

How POI works

For example, assume Martin gets 20,000 XEMs in his wallet today. With each passing day, NEM’s mechanism allocates 10% of holdings as vested. After day one, 2,000 XEMs of Martin's holdings will be vested, leaving 18,000 non-vested XEMs. On day two, 10% of 18,000 will further qualify as vested, taking the total vested XEMs to 3,800, and so on. On the seventh day, the vested XEMs will cross the threshold of 10,000, which will qualify Martin to seek blockchain rewards.

Additionally, POI also rewards users who make transactions with others in the network. Conducting more transactions above a minimum size also adds to a participant’s POI score, which helps him/her gain more chances to claim a reward. To prevent misuse through back and forth dummy transactions among a group of users, NEM considers the net transaction amount for improving the POI score.

Harvesting is an alternative to the standard mining process that is commonly followed by other popular blockchain-based platforms like Bitcoin and Ethereum.

Through mining, newly identified cryptocoins are added to the blockchain ecosystem, and the various transactions occurring on the network are verified and added to the blockchain public ledger. Unfortunately, the traditional mining method is power-intensive, and may also take a lot of time that leads to slower transaction processing and network congestion.

NEM’s harvesting approach works differently. Instead of each miner contributing its mining power in a cumulative manner to a computing node, a harvesting participant simply links his account to an existing supernode and uses that account’s computing power to complete blocks on his behalf. Essentially, one lends his POI score to the supernode that increases the chances of block harvesting jointly without there being any need for increasing the processing power.

As soon as a transaction occurs on the NEM blockchain, the first node or computer that catches and verifies it notifies other users, which creates a propelling wave of information increasing the chances of block generation.

A participant’s mining device or computer need not be running to perform the harvesting process, and that helps in power saving. Instead, harvesting is done automatically using a user’s wallet. Harvesting needs no special hardware like that required for mining bitcoins.

NEM uses the Eigentrust++ algorithm that maintains a “reputation system” for the various nodes on the network. It helps to balance the load on the network, and even decide on removing the non-contributing nodes keeping the network efficient and agile.

Example of NEM Usage

NEM offers a seamless ability to interface between public and private blockchains. It enables easy transfer of any digital asset—like tokens, contracts, or files—from a privately held internal enterprise network, routed via a public blockchain, and finally to another business’s private network. Today, a user cannot move money directly from his/her PayPal account to a Venmo account. NEM private to public blockchain interfacing can make such transfers possible, provided all involved parties agree.

NEM is capable of handling everything—financial assets, contracts, documents, and a variety of digitized assets.

One can create one's own PayPal or Venmo on the NEM network. For example, NEMPay, an open-source payment app already exists on NEM, and it can be easily customized by a participant to use his/her own custom crypto tokens for easy money transfers.

Other uses of NEM include a retail store chain using it for maintaining and tracking its loyalty rewards points program for customers, or a shipping company using it for maintaining data about shipping and handling, or as an open, secure, end-to-end supply chain logistics management system.

Other social uses include secure voting, record keeping, registration, and access control. For example, to pass a majority resolution in a constituency meeting, NEM’s in-built multi-signature feature can be used to automatically decide whether the minimum N out of the total possible M signatures have been received or not.

NEM also allows a participant to easily create, distribute, and trade cryptocoins and tokens that are compatible with the wallets and other trading apps available in the NEM ecosystem. One can even conduct initial coin offerings (ICO) on NEM using this facility.

Technically, NEM is API compatible, so it allows any global application to be linked and utilized on the NEM platform. Any new or existing mobile app, web app, database, or other programs can easily connect to the NEM blockchain and interact with it in a secure manner through the use of an API Gateway server and API calls. It allows one to easily and completely customize how they allow the access and use of NEM, in an open and self-scaling framework.

The Bottom Line

“Smart Asset Blockchain, Built for Performance”—NEM’s tagline sums it up perfectly for a new-age blockchain that has opened up a wide variety of possibilities for building better and improved blockchain systems. NEM hits directly on the pain points of the existing blockchains—lengthy processing time and network congestion. It also attempts to marry the much-needed private and public blockchains, making it a suitable candidate with wider adoptability potential in the future.

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.