DEFINITION of 'NEM'

NEM is a cryptocurrency and blockchain technology company launched in 2015. NEM is able to process transactions more efficiently than other networks, and is designed to compete with online payment processors.

BREAKING DOWN 'NEM'

Cryptocurrency developers can either fix supply at a specific number, as bitcoin does, or not, as Ethereum does. In either case, developers have to determine how to release altcoins into the market. Most release altcoins over time, either through a fixed schedule or a percentage.

Bitcoin, for example, halves the number of coins generated per block roughly every four years. Altcoins are released as a reward to miners, who use software to add transaction records to a blockchain.

NEM has taken a different approach to supply when it comes to its cryptocurrency, called XEM. When it was launched, all altcoins were distributed to its members. These members, in turn, distributed XEM to their communities. XEM can be earned by processing transactions, but there are no miners. Instead, there are “harvesters.” 

Local Versus Delegated Harvesting

Harvesters are paid transaction fees for generating blocks, since they aren’t creating new coins. Account holders must have a certain amount of XEM before being able to harvest, and an even larger number of XEM in order to become a super node.

There are two types of XEM harvesting: local and delegated. Local harvesting occurs when a harvester’s computer is running, as long as it is not using one of NEM’s remote servers, called NIS (NEM Infrastructure Server). The account’s private key is passed to the local NIS, and the key is signed into any blocks that are generated. This means the key remains with the harvester’s computer at all times.

Delegated harvesting is used by account holders that are connected to a remote NIS. This approach costs NEM altcoins to initiate, as it begins a new blockchain transaction. The account holder’s computer does not have to remain running once delegated harvesting has been enabled

The use of delegated harvesting, coupled with NEM having released all XEM into the market, means that it takes less electricity to process transactions. Bitcoin mining, for example, involves solving ever-increasing difficulties, which in turn requires faster computers and more power. Because NEM transactions are more efficient, payments are sent and confirmed faster than with bitcoin. This makes it faster and more scalable.

While NEM can process transactions more efficiently and has lower transactions costs, the transactions are traceable (unlike with bitcoin). This may turn off proponents of total privacy, who want to use cryptocurrencies as a way to anonymize their financial dealings. It may, however, allow NEM to compete more directly with online payment networks, such as PayPal or Visa.

Governance decisions are based on a concept called Proof of Importance, or POI. Owners of a large number of NEM are able to participate in voting, and the more altcoins that an owner has, the more votes he has. The idea behind this weighted voting approach is that individuals who own a lot of NEM have a vested interest in decisions that will improve NEM. (See also: The 5 Weirdest Cryptocurrencies.)

NEM’s blockchain software has also been used to create private blockchains for commercial ventures. Some of the features of its public blockchain technology are removed when used privately, which can increase the number of transactions dramatically.

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