NEM (XEM) in Brief
The New Economy Movement (NEM) blockchain project launched with an idealistic vision of an egalitarian cryptocurrency. Today, NEM and its XEM token have a 3-year track record and a growing showcase of deployments. While not immune to controversy, NEM’s developers have created a unique approach to blockchain technology that could make it competitive with Ethereum.
- API-based approach makes development easy.
- Enterprise-optimized version creates more opportunities for adoption.
- Non-profit Foundation has a growing global network for business development.
- Consensus algorithm does not consume excessive power.
- The Proof-of-Importance consensus algorithm has not proven it can resist centralization.
- Distributed app industry is crowded with competing platforms.
Exchanges that list XEM
The NEM project has been particularly successful getting listed on 45 crypto exchanges around the world. Binance, Poloniex, Huobi, OKEx and 42 other firms let you trade XEM.
You don’t even have to be a sophisticated trader to buy XEM, since both ShapeShift and Changelly support XEM transactions. You do need to live outside the United States, however. ShapeShift geoblocks Americans from making NEM transactions and Changelly won’t do business with Americans.
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From idealism to resignation
In January 2014, BitcoinTalk user UtopianFuture and a core group of developers from the NXT project wanted to create a more egalitarian cryptocurrency.
“NEM is the first crypto-coin that no wealthy person or early adopters can obtain a significant percentage of by using money to buy-in or by using a huge mining rig,” UtopianFuture said in his post. “That to me symbolizes a great sense of fairness and egalitarianism.”
The most attractive part of that ideal was the way NEM’s founders planned to distribute XEM, the blockchain’s token. The project would not sell the tokens off to the highest bidders or discount the tokens to insiders and venture capitalists. Instead, the entire supply of XEM tokens was to be divided evenly among the first developers and supporters to join the project. By the time the fundraising closed in April 2014, the stakeholder list had more than 2,800 names on it.
Unfortunately, not all of the names were legitimate. People had created fake “sock puppet” accounts to game the system. Technically, those sock puppets qualified for the XEM distribution, giving their owners an unfair share of the new tokens — a clear violation of the egalitarian approach UtopianFuture had advocated. Flame wars erupted throughout the community when they discovered some of the sock puppets belonged to UtopianFuture himself.
UtopianFuture created the bogus accounts to boost NEM’s thread in the BitcoinTalk forum, explaining that he had “no intention of cashing out any of them.” But the damage was done. In June 2014, he handed control of the project to the other core developers and withdrew from the project.
NEM, Mijin and Catapult
The NEM project went straight into development. Open alpha testing began at the end of June 2014. An open beta test kicked off that October.
The public launch of NEM happened at the end of March 2015, “introducing the world to a new and sustainable economy.” UtopianFuture’s original vision was still driving the community to create a platform based on “equal opportunity between economic actors and empowerment of individuals.”
The founders’ vision went beyond a traditional, public blockchain. Six months after the official launch, the NEM project announced a permissioned version called Mijin. Running on private servers, the Mijin promised thousands of transactions per second and other features enterprises demanded. NEM and Mijin share the same base code, allowing private Mijin-based blockchains to integrate with public NEM-based blockchains.
“NEM has been in development from scratch for 18 months and the NEM team has the expertise and experience to make Mijin the best private blockchain system in the world,” NEM core developer Makoto Takemiya said in the announcement.
The unification will go even further with the release of Catapult. A project 2.5 years in the making, Catapult migrates the blockchain’s underlying code from Java to C++ and adds other performance-enhancing features.
“Catapult is more than just an improvement to the NEM Blockchain,” said NEM Foundation president Lon Wong last March. “It is an industry milestone that opens up new capabilities for blockchain database functionality.”
The launch of Catapult provided some good news to the community following 2018’s disastrous start. Hackers stole 500 million XEM from the Japanese exchange Coincheck. More than a quarter-million XEM-holders lost their assets. Valued at half a billion dollars at the time, this was the largest crypto hack in history.
But it wasn’t NEM’s fault. Unlike everybody else in the industry, Coincheck did not keep its customers’ assets in multi-signature-secured cold wallets. Instead, all 500 million XEM were sitting in a hot wallet with easily accessible private keys.
When explaining why NEM would not make a hard fork to restore the funds, Lon Wong did not mince words. Coincheck, in his view, was “very relaxed with their security measures.”
The day after the hack, NEM Foundation executive Jeff McDonald described how the core developers were protecting the community. NEM is not like other blockchains where tracking stolen tokens requires looking up transaction hashes. The developers simply added an API call to the blockchain’s codebase. “The way it is set up,” McDonald explained, “it will make it easy to track money being transferred in real time and communicate that with any partners that want to support Coincheck in this endeavor.”
In effect, the single API call made the stolen XEM unusable. In a statement two months later, Wong said that this simple step “was effective at reducing the hacker’s ability to liquidate stolen XEM and provided law enforcement with actionable information.”
NEM Foundation, Tech Bureau and Dragonfly
What began as a handful of developers on a BitcoinTalk forum quickly evolved. Three organizations now play key roles in the blockchain’s development.
The NEM Foundation is a non-profit organization that fosters the developer community, oversees the project’s marketing and is responsible for NEM’s overall growth. NEM’s leadership set up the Foundation in early 2017. Over the course of the subsequent year, it established regional and country chapters. These chapters promote NEM to local developers and let the Foundation target business development activities. The Foundation itself, although registered in Singapore, the is headquartered in Malaysia where the government provides office space and other support.
Lon Wong, the NEM Foundation’s first president, is also the founder of Malaysia-based NEM developer Dragonfly FinTech. Wong and his team used the NEM blockchain to build a payment and settlement system for the traditional finance industry.
Tech Bureau is a Japan-based company founded by some of NEM’s core developers. It is also the developer of NEM’s private blockchain, Mijin.
Makoto Takemiya controversy
In April 2017, the NEM Foundation’s long-simmering feud with former contributor Makoto Takemiya went public. In forum posts and interviews, Takemiya had positioned himself as a core developer of NEM and the inventor of its consensus algorithm. The NEM Foundation alleged that Takemiya’s actions went beyond over-inflating his role and had damaged the NEM community.
In a blog post and a formal statement, the NEM Foundation methodically laid out its charges. Three developers with the GitHub handles Jaguar0625, BloodyRookie and Gimer did most of the coding, according to the Foundation. Takemiya’s role on the consensus algorithm, it said, was limited and poorly executed.
“At most times during his term with NEM, he was only a marketing person,” the Foundation said and accused Takemiya of exploiting this role to claim he was NEM’s lead developer.
Besides padding his resume, the Foundation accused Takemiya of more serious corporate shenanigans that threatened the integrity of the NEM project itself. Wong’s Dragonfly Fintech lost a venture investment opportunity and had one investor retract his seed funding.
When the news hit, CoinTelegraph tried to get a statement from Takemiya. He ducked the question saying that, since he wasn’t involved with NEM anymore, he was “unqualified to comment.”
NEM Foundation Board and Council
The project’s leading developers and community members run the NEM Foundation through its Board and Council.
- Lon Wong, board member and president emeritus: The CEO of Firefly FinTech, Wong also heads the NEM-powered cloud storage provider ProximaX and advises China’s Huobi Chain and Australia’s Liven.
- Jeff McDonald, board member and advisor: McDonald was a founding executive of the NEM Foundation. He is now the co-founder and CTO of NEM-based blockchain project Luxtag.
- Ronel Li, board member and secretary: Li’s was a system engineer for Chinese technology companies before his current role at the NEM foundation.
- Ken Chan, board member and treasurer: Chan’s career in finance includes seven years as Controller of GE’s consumer groups in Asia.
- Kristof Van de Reck, interim president: The head of the Foundation’s European operations, Van de Reck helms the Foundation during the search for Wong’s replacement. He started his career as an aircraft engineer and quality manager at Belgium’s VLM Airlines.
- Takao Asayama, council member: Asayama is the CEO of Tech Bureau where he runs Mijin and the Zaif crypto exchange.
- Stephen Chia, council member: Chia heads up the NEM Foundation’s Southeast Asia region. He has held CEO and director-level positions at technology companies in Malaysia.
- Nelson Valero, council member: Before devoting himself to blockchain full-time, Valero had a 12-year career as a system administrator for the Catholic Commission for Employment Relations in Australia.
- Niko Maenpaa, council member: Maenpaa is a founding member of the NEM Foundation Council.
What Does the NEM Blockchain Do?
Ease of development is one of the key differentiators that NEM offers over Ethereum. With the base code written in Java and C++, developing applications for NEM is made even easier by the project’s API-based approach. Developers can make relatively simple calls to the blockchain in their existing code. Unlike Ethereum, there’s no need to learn a new programming language.
Separating smart contracts from the blockchain makes NEM more scalable. Other blockchains face issues when their miners cannot process the volume of transactions apps like CryptoKitties can generate. An app developer can execute NEM smart contracts off-chain, using in-house servers to do the heavy lifting before standard API calls record the transactions to the blockchain.
The Mijin version of NEM has further optimizations that let the blockchain process thousands of transactions per second on an enterprise’s secure servers.
Which dApps run on the NEM blockchain?
Between NEM and Mijin, dozens of projects are using the blockchain. Several hundred companies have evaluated or piloted Mijin for enterprise applications.
Some of the most notable projects under development include:
- OKWave: A Quora-like question-and-answer site in Japan.
- Arara: A provider of white-label gift cards.
- Landstead: A decentralized land registry from Spanish developer Artraura.
- PointInfinity: Hitachi’s crypto-based option for white-label loyalty programs.
How Does the NEM Blockchain Work?
One of the original goals for NEM was to create a blockchain that was more equitable than Bitcoin. The original cryptocurrency’s network has has become more centralized as wealthy corporations increasingly dominate bitcoin mining operations. In addition, Bitcoin’s Proof-of-Work (PoW) system consumes enormous amounts of energy performing calculations that have no inherent value. EOS and other Proof-of-Stake systems did not fix this either. Rich stakeholders still have an advantage.
NEM’s Proof-of-Importance (PoI) approach was an attempt to break the influence of wealth. You still need a stake in order to contribute to the network’s operation. However, holding XEM is not enough. A set of formulas similar to Google’s PageRank evaluates your transactions on the NEM network. The resulting importance score is based on how many XEM you send to other people, how frequently you send XEM and the importance of the people who receive your XEM.
Harvesting and vesting
PoI determines who gets to “harvest”, NEM’s term for recording blocks to the chain and earning XEM rewards. In local harvesting mode, NEM-holders can run their own server. Delegated harvesting lets NEM holders offload the work to a remote server by transferring their importance to a proxy.
Regardless of the importance score, XEM is still the table stakes for NEM harvesting. However, you can’t just buy 10,000 XEM on an exchange and start harvesting. When you put those coins in the NEM wallet, they get classified as “unvested.” Each day, 10% of your holdings move to “vested” status. You can only harvest once you have 10,000 vested XEM in your wallet. With 20,000 XEM, vesting takes about a week.
Vesting serves several purposes. First, it makes certain kinds of attack on the blockchain more difficult since hackers must wait days or weeks to begin harvesting. Second, vesting filters out people who are less committed to NEM’s success. Finally, it provides an additional signal to the PoI system that helps evaluate a contributor’s role in the network.
How Are XEM Tokens Distributed?
These project divided the supply of XEM into 4,000 stakes of almost 2.25 million XEM each. The sock puppet scandal whittled down the list of stakeholders from the original 2,800 to only 1,500. All of the leftover XEM went into various funds to sustain the project’s operations and development.
Does NEM Have a White Paper and Blockchain Explorer?
NEM got started long before the ICO craze, so it does not present a business plan in its white paper. Instead, the NEM Foundation provides a more traditional, technology-focused document.
The nembex blockchain explorer lets you inspect any of the more than 1.87 million recorded blocks. You will also find summary statistics, transaction inspection and the other features you’d expect from an explorer.
The NEM Nano Wallet runs on macOS, Windows and Linux computers. Beyond XEM transactions, the wallet offers messaging features, Trezor support and Changelly integration. You get many of the same features with the NEM mobile wallet for Android and iOS without the need to download the NEM blockchain.
Where Does NEM Stand Now?
The price of XEM collapsed this year, just as it did for every cryptocurrency. The NEM project, however, is going strong.
The United Arab Emirates Ministry of Community Development signed a memorandum of understanding with the Foundation for blockchain consulting services as it migrates to blockchain-based operations.
“Our collaboration with MOCD is just one of the many engagements by our NEM UAE team with the UAE and Dubai government administration to implement blockchain in their systems,” said the NEM Foundation’s Stephen Chia
The immersive entertainment company Kind Heaven will use a NEM blockchain to operate its new digital collectibles business. “We believe NEM provides an ‘A-level’ approach and a top-of-the-line, proven system to make this possible,” said Kind Heaven co-creator Cary Granat.
PoliPoli is using the NEM blockchain to connect citizens with their local politicians outside the election cycle. “By comparing NEM with other platforms,” PoliPoli CEO Kazuma Ito said, “I personally think it is easier to use several tens of times than others. For startups with less than 10 people like us, it’s a really helpful platform.”
NEM offers scalability and ease-of-development, especially in its enterprise-friendly Mijin form, that target Ethereum’s weaknesses. CryptoKitties’ brief popularity pushed Ethereum to its limits, a problem that won’t go away while Ethereum runs on Proof-of-Work. At the same time, developing for Ethereum requires learning a new programming language. The NEM project, however, already scales and takes an API-based approach to development. From the large and growing user base NEM has quietly built in Asia, the blockchain is well-positioned for broader expansion around the world.