What is NEM? - Smith + Crown
Feature |

What is NEM?

In 2016, New Economy Movement (NEM) experienced a surge of popularity and price. The NEM protocol has introduced several unique blockchain features, including proof-of-importance, a node reputation system, and native multisig capabilities, among others.

In 2016, NEM jumped to be one of the largest cryptocurrencies by market capitalization. While the blockchain industry was busy fighting the DAO Wars, several Japanese banks were engaging with the NEM team to test the blockchain as a new payment infrastructure.

This article explains NEM’s unique blockchain features.

New Economy Movement

NEM launched in early 2015 and is now traded across many major cryptocurrency exchanges. It introduced a new consensus mechanism called Proof of Importance (PoI), designed to reward users’ contribution to the NEM community. It is roughly based on proof-of-stake, but it also reflects how active a user is in transacting with other users. NEM also implemented a method of guarding against potentially colluding nodes. The founders have also said that one of NEM’s goals is to address wealth inequality, a feature of both existing cryptocurrencies and the “old economy.” NEM was once referred to as the New Economy Movement, but it has since dropped the full name and gone forward with just NEM.

NEM is written in Java and the currency itself is called XEM.

“NEM is a movement that aims to empower individuals by creating a new economy based on the principles of decentralization, financial freedom, and equality of opportunity.” – NEM Technical Reference

Unique Features


NEM developed a new consensus protocol: Proof-of-Importance. It functions similarly to proof-of-stake, but it includes more variables than one’s NEM account holdings. The functions borrow from the math of network clustering and page ranking. At a high level, the primary inputs are:

  • Net transfers: how much has been ‘spent’ in the past 30 days, with more recent transactions weighted more heavily.
  • Vested amount of XEM
  • Cluster nodes: accounts that are part of interlinked clusters of activity are weighted slightly more heavily than outliers or hubs (which just link clusters but aren’t part of them).

The importance score addresses two primary criticisms of proof-of-stake.

One risk is that people simply hoard many coins as possible and reap the rewards from block creation. This concentrates wealth while discouraging transactions. The importance score means that hoarding will result in a lower score, while spreading XEM around will increase it. Being a merchant pays better than having a hoard.

The second risk is a nothing-at-stake problem: because block creation costs no resources, whenever there is a fork, someone can freely create blocks on both forks. This will greatly (perhaps indefinitely) prolong the fork. NEM guards against this.

The process of creating blocks is called harvesting, in which the block creator earns all the fees for the associated transactions. The chances of being a harvester are based in part on the importance of the account.

Vested and Unvested XEM

Every account will have a vested and an unvested balance of XEM. Many benefits on the NEM network (such as harvesting eligibility and importance score) are based on one’s vested balance. XEM gradually becomes vested over time: every 1440 blocks (approximately 24 hours), 10% of one’s unvested balance becomes vested. Whenever someone sends XEM, it is taken from both the vested and unvested balance, and whenever someone receives XEM, it arrives unvested. This discourages rapid trading of XEM and rewards users who hold it, while the importance algorithm discourages hoarding.

Node Reputation System

NEM implements a node reputation system to help guard against a malicious node attack. Each node maintains a constantly updating trust value in each other node, based largely on how successful its attempts to synchronize have been and how accurate its feedback is about other nodes. The goal is to allow successful synchronization about the blockchain even when a large portion of the node network is colluding.

Native Multisig Capabilities

NEM includes multisig transactions as a native part of the platform. While apps for other blockchains do support multisig transactions, the feature is often specific to an app, service, or wallet. NEM’s native functionality provides a standard applicable to all services.


NEM will support blockchain-based assets, which they call Mosaics. Mosaics are still in testing, but developers say asset creation was carefully designed and the approach differs from that implemented by other protocols.


NEM was started by UtopianFuture, a Bitcointalk forum user who wanted to improve on Nxt. A group of developers coalesced through an open call on January 19, 2014. They decided against copying Nxt and wrote the codebase from scratch. At launch in early 2015, the team of NEM was reportedly large, over 15 developers and almost 30 marketers or translators.

In late 2015, core NEM developers began working with Tech Bureau on Mijin, a private blockchain project based on the NEM open-source code. In 2016, several Japanese banks ran successful experiments on Mijin, which achieved 1,500 transactions per second with 2.5 million virtual bank accounts.

In 2016, NEM announced they would be launching a hybrid for-/non-profit entity to help promote NEM and blockchains broadly. They also announced they received an undisclosed amount of VC funding.

Block Creation

Consensus: Proof of Importance (similar to Proof of Stake)

Hash Algorithm: SHA-3

Block creation time: varies with average of 60 seconds