NEM Use Case | 

NEM Use Case

NEM launched itself as a trailblazer in the smart contract and decentralized application landscape in 2015 with great initial success.

However, plagued by controversy and mismanagement, it has failed to live up to its expectations. Does the NEM network hold value today or is it another speculative cryptocurrency platform?

Let’s take a look at NEM and how XEM, its native token, is being used.

What is NEM and XEM Token?

NEM (New Economic Movement) is an open-source “Smart Asset” blockchain project which provides a platform for Decentralized Applications and smart contracts. It is designed to not only be a cryptocurrency but an ecosystem of a wide range of services using blockchain technologies such as supply chain management, smart contracts, security systems, distributed ledger management. The term Smart Asset refers to the capability of developers to create digital assets or systems on the NEM network.

NEM has a native token, XEM. This is used primarily as a method of transferring value and within the Proof-Of-Importance consensus mechanism for validating transactions. There is a maximum supply of 9 billion XEM.

NEM was launched in 2015 by a group or individual under the pseudonym UtopianFuture.  Originally a fork of the NXT blockchain, the code was completely overhauled, changing the consensus mechanism and many other aspects of the blockchain. The network is managed by the non-profit Foundation based in Singapore.

NEM has found itself at the center of many controversies including the Coincheck hack that occurred in  2018. Hackers stole 523 million XEM with a value of about $400 million. The founder UtopianFuture stepped down in 2015 after admitting they had been running sock puppet accounts to manipulate public perception and XEM market value. The NEM Foundation has had several board members step down due to different scandals and financial issues within the Foundation.

The NEM Foundation has recently announced the launch of a new blockchain platform, Symbol, which is meant to run parallel to the NEM blockchain. However current industry speculation points to the Symbol blockchain being a replacement of the NEM blockchain with aims to rebrand and reach some of the goals that the NEM blockchain has failed to meet.

NEM Use Case: Harvesting and Proof-Of-Importance

Unlike in cryptocurrencies like Bitcoin, XEM is not mined but harvested from transaction validation. The entire 9 billion XEM token supply was put into circulation at its launch and a pool of tokens was set aside to be used as a reward for transaction validation.

Users can earn XEM by “harvesting”. NEM uses a different consensus mechanism for this than the Proof-Of-Work of Bitcoin or the Proof-Of-Stake of Ethereum. This consensus mechanism is called Proof-Of-Importance.

Harvesting is the process of validating and adding transactions to a block. The harvesting node then collects the reward for the block in the form of XEM tokens. Harvesters are picked by the consensus mechanism built into the blockchain and have to have at least 10,000 XEM vested for a period of time to be eligible. This incentivizes user participation in the maintenance of the blockchain and within the network.

To be eligible for validating transactions a user must hold at least 10,000 XEM and hold it for a certain amount of time. For every day that the user holds over 10,000 XEM tokens, 10% of the tokens held become “vested”.

So if a user has 15,000 XEM tokens, after the first day 1,500 tokens become vested. The next day 10% of the remaining 13,500 tokens are vested. This continues and by the 11th day, 10,000 tokens will be vested and the user is eligible to participate in harvesting. This system is designed to prevent a malicious user from purchasing 10,000 XEM tokens and start approving transactions instantly.

Importance Score

Harvesters are then selected to approve transactions based on their “importance”. Each account has an importance score based on their participation within the NEW network. So the more a token holder uses the network and conducts transactions, the higher the chance they’ll be chosen to validate a block and receive XEM in return. This is intended to incentivize users to conduct transactions with XEM coins rather than simply holding them.

Harvesters with high-quality contributions to the validation process are rewarded with an increased importance score and in turn a higher chance at being selected for validating blocks. Non-contributing harvesters are automatically removed from the pool of harvesters over time.

This consensus algorithm needs much lower computational power than other mechanisms and there is no need for special hardware. As such, NEM has a much lower environmental impact than blockchains that use mining to generate new tokens like Bitcoin.

NEM Use Case: Super Nodes and Confirming Blocks

Once a block is created and the transactions processed, the block is confirmed by a supernode. These are users who have vested at least 3 million XEM tokens and run a high-powered computing device 24/7 to mathematically confirm the validity of a block before it is added to the blockchain. 

Once the block is added the supernode collects or harvests the transaction fees for the block. Similarly to harvesters for processing transactions, supernodes are more likely to be chosen when they have a high importance score. 

Delegated Harvesting

NEM also has a form of delegated harvesting. Users who have vested 10,000 XEM can delegate their importance score to a super-node to increase the chance of that supernode being chosen to confirm a block. The users who have delegated their importance score will receive a portion of the transaction fees in return. 

This means any holder of 10,000 XEM can earn tokens by taking part in harvesting or by delegating their importance score to a super node.

NEM Use Case: Governance

Users can purchase annual membership for the NEM Foundation using XEM tokens. Once a member of the NEM Foundation, users can take part in yearly meetings and vote on members of the Foundation Board. The fees are about $50 worth of XEM tokens for an individual and higher for corporations. The elected board members make decisions on the roadmap of NEM. 

Many decentralized blockchains use their token as a governance token, whereby users holding a certain amount of coins can suggest proposals and vote on them. This allows average users to take part with no financial loss and is aimed to promote true decentralized decision making.

Within the NEM network however, the governance system is run by board members elected by users who purchase membership. There has been much criticism over the years surrounding the NEM Foundation and how decentralized the NEM network truly is.

NEM Use Case: Transferring Value

XEM is designed to function as a form of smart money. NEM has a focus on speedy and efficient transactions with low fees. The network is smart contract enabled. This is to promote using XEM coins as an easy way to store and transfer value. 

Transaction times and fees are much lower in NEM than other popular networks like Ethereum and Bitcoin. While Bitcoin transactions can take up to an hour to process, Ethereum can take anywhere from 5 minutes to a few hours. NEM has transaction times of around 30 seconds.

Both Bitcoin and Ethereum have seen transaction fees vary wildly as the token values are volatile and the networks have become congested. In 2021, Bitcoin and Ethereum daily average transaction fees have ranged from $1 to $70 in value. This is unsustainable for smaller businesses and the average user. 

NEM has a fixed transaction fee rate depending on the amount transferred. There is a set minimum fee of 0.05 XEM regardless of how small the transaction. For transactions over 10,000 XEM the fee is 0.5 XEM per 10,000 and this fee is capped at 1.25 XEM. 

Transferring Value Globally

This means XEM is a much cheaper and faster way of transferring value between users. It also has a considerable advantage over traditional fiat currency which has long waiting times and high fees. 

As it is a decentralized global network, traditional business hours do not apply. If a person wanted to transfer $5,000 abroad on a weekend, this could take days and some value would be lost in fees and conversion. With XEM, this transaction would be nearly instantaneous and have a low fee of 1.25 XEM.

XEM as a Viable Cryptocurrency

Although the NEM network saw initial success with its launch in 2015, it has drawn many criticisms over its governance and its price has dropped significantly from its January 2018 high of $1.87.

The XEM coin has little value outside of harvesting (which provides a small source of passive income) and transferring value within the NEM platform.