Welcome to the second installment of the Hivergent Scorecard, and analysis of some of the most popular blockchain technologies that you may not be familiar with. If you want to check out our first Hivergent Scorecard, Stellar, you can check it out here.
We plan on giving you a high level overview of how these blockchains started, who the major team members are, and most importantly, what’s unique about this blockchain. We don’t aim to make a specific purchasing recommendation, but instead look to give you a jumping off point to do your own research.
This week, we will be diving into NEM, a community driven blockchain that was built to improve on the Bitcoin protocol.
The Hivergent Scorecard:
- Name of the Blockchain: NEM (New Economic Movement)
- Year Founded: 2015 (idea origination, 2013)
- Name of Managing Organization: Community Driven (No Managing Organization to Date)
- Organization Status: Community Driven
- Important Founders: Bitcoin Talk Forum User UtopianFuture
- Key Partners: EcoBit project, SBI Sumishin Net Bank
- Blockchain Most Similar To**: Ethereum
** This last point is highly subjective, as viewing the blockchain from various perspectives can make it compete or even complement many blockchains in the ecosystem. However, this metric can give you an idea of how other blockchains compare to one another, allowing you to better understand how major cryptocurrencies stack against each other
The Hivergent Highlights
NEM is 100% Community Driven, without a Central Organization
NEM was first discussed on the Bitcoin Forum ‘Bitcoin Talk’ in 2013 by a group of users interested on improving on Bitcoin. They were inspired by the cryptocurrency NXT and were originally going to create a fork of NXT, but decided on creating a brand new cryptocurrency. User UtopiaFuture is credited with starting the NEM project in January of 2014, asking for users on the Bitcoin Talk forum for active participation.
The efforts to orchestrate a new cryptocurrency from the ground up was successful. Over the course of the next year, users donated to the project and were granted the new cryptocurrency XEM in return. The project launched in early 2015, all without a legal entity to manage the cryptocurrency. Since then, it’s codebased has been incrementally improved by the community.
Proof of Importance, an Alternative to Proof of Work
The biggest difference between NEM and every major cryptocurrency is its method of creating new blocks, a method they call harvesting. In blockchain technology, there are two methods to create new blocks: Proof of Work, which awards the next block based on creating hashes of the previous block, or Proof of Stake, which awards a yearly fee to bounded accounts to act as ‘forgers’ on the network. NEM created something different: Proof of Importance.
Proof of Importance is used to create blocks on NEM in a similar manner to Proof of Stake, where the network assigns a random well-behaved node the right to manage the next block. The difference is that in Proof of Importance, all nodes are ranked against each other based on a couple of factors. One of those factors is how much XEM they have stored in their account, where having more NEM means you’re more likely to be ranked higher. Another factor is how many transactions you’ve been sent in the past and how much you’ve sent out.
These factors combine together to give nodes a reputation score in the NEM network. This reputation score works surprisingly effective at gaining consensus on the network, as miners who have a high reputation don’t want to lose their trust. This creates a system that’s hard to beat and a viable alternative to Proof of Work and Proof of Stake
Mosaics, Namespaces and an Alternative to Smart Contracts
More recently, NEM has released a new feature on the network called a ‘Mosaic’. Mosaics are a similar concept to ‘Colored Coins’ on the Ethereum network or ERC20 tokens. They’re assets that can be created and distributed just like Bitcoin, Ethereum or any other cryptocurrency. This used in combination with NEM Namespaces can create complicated token structures to match your decentralized application.
One major difference between Ethereum and NEM is how they handle Smart Contracts. In the Ethereum network, a smart contract is coded and executed right on the network. In NEM, there is no concept of a smart contract. This is not a flaw, but a design feature of the network, as the NEM network does not believe these interactions should be handled on the blockchain. This is why the concept of Mosaics is important: it de-couples the concept of how users interact with token and the business rules around them with the actual asset itself.
Which method long-term will end up being better? It’s hard to tell. While Ethereum has a stronger development community today, the ecosystem is young and many production Ethereum apps have yet to go live. If Smart Contracts do end up being too cumbersome for the network at scale, NEM mosaics could be the answer.
Why Does NEM Matter?
NEM has not been nearly as successful as the Ethereum blockchain, but it seems to be a viable alternative to Ethereum’s network. They have a fully functional alternative to the Proof of Work algorithm, they have a way to be able to manage and maintain smart assets in the cloud and have a dedicated team providing the development for the project.
Project like NEM help strengthen the blockchain ecosystem as a whole, because they give reasonable alternatives to developers and users. If the Ethereum Network were to have some critical fault or issue, there’s an alternative that people can move to. For users who believe in the technology, that’s a major plus, and I hope more can build interesting projects on the network.
More Resources for Further Reading
This guide was not designed to be a technical overview, but a jumping off point into the unique things about NEM. If you have further questions, here are some resources I recommend: