Back in July 2017, just before the historic cryptocurrency market bull run, NEM (XEM) had climbed to the number 7 spot in terms of market capitalization.
Although digital currency prices are now well below their all-time highs, with NEM (XEM) now only the 15th largest crypto by market cap, the fundamentals on which the blockchain-based platform was built have not changed. Moreover, there’s a lot more development work that has been done by NEM’s development team.
In this article, we shall learn the basic concepts behind NEM (XEM), in order to gain a better understanding of its value proposition. In future articles on this topic, we shall cover the most recent developments related to NEM including its business partnerships.
What Is NEM & XEM?
Launched in March 2015, the NEM platform has been implemented on a centralized blockchain, which is often compared to Dash (DASH). One of the main things that make NEM unique, at least compared to the energy intensive proof-of-work (PoW) platforms, is that the platform operates without miners.
Transaction validators on the NEM network are referred to as “harvesters” and XEM coins were initially distributed among the people who helped launch the platform. These few people then gradually began distributing the XEM coins among the network’s growing community. Users of the platform may only earn XEM by processing transactions or buying the cryptocurrency from others who own it.
Very Low Transaction Fees, Far Less Energy Consumption
Compared to most major cryptocurrencies, transaction fees on the NEM platform are quite low. Block producers, or TX validators, on the NEM blockchain are called Super Nodes, and they earn a small amount in transaction fees for settling payments.
On average, it requires about 100x less energy to process a XEM transaction, compared to a bitcoin (BTC) transaction. That’s because, on the Bitcoin network, the coins have to be mined which is a process that consumes a large amount of electricity. Moreover, as the Bitcoin network’s mining difficulty increases, it will require even more powerful hardware and software to mine.
Although proof-of-work (PoW) based blockchain networks are highly secure, particularly Bitcoin, they might not be as efficient in processing on-chain transactions like NEM. While this may also be due to the fact that the Bitcoin network has considerably more participants, the NEM platform might be useful in some cases.
For instance, a $1,000 transaction in XEM can be processed for about 10 cents ($0.10) in fees. Because this is negligible, it might make sense to use the NEM network, however there are other cryptocurrencies such as XRP which have very low transaction processing fees as well.
Deflationary Asset, Built-In Messaging System
Similar to Bitcoin’s monetary policy, XEM is a deflationary asset as its maximum supply has been fixed at 8,999,999,999 coins. Theoretically, if the demand for XEM coins increases, then the price should also increase. Moreover, when there will only be a finite number of coins, there are usually better chances that the cryptocurrency’s price will become stable in the long-term. However, this has not yet happened with XEM or other digital currencies such as BTC.
Notably, the NEM platform has a built-in messaging capability. To send messages, there is a small charge which is calculated based on the number of characters in the message.
As mentioned, transactions are processed very quickly on the NEM platform. XEM coins can be transferred between wallets in about 6-10 seconds, while confirmation can take around 20 seconds. While some may argue that this “solves” the scalability problem, they might be failing to understand that non-PoW networks compromise on security and such platforms are usually centralized.
Not For Those Who Prefer Private Transactions
However, XEM is quite popular in Japan and other Asian countries and the NEM network has been able to process up to 4,000 transactions per second (TPS). Those who prefer to keep their transactions private may not want to use XEM as its 100% traceable (all transactions can be viewed on the block explorer).
At times, NEM advocates have compared it to Visa or PayPal as the cryptocurrency’s developers have focused on similar design features as more traditional payment processors. These include ease-of-use, scalability, and speed. When comparing transaction fees with Visa, XEM TX fees are negligible (0.01%) whereas a Visa TX costs about 2-2.5%. Meanwhile, PayPal TX fees are at about 1.9% and Venmo is relatively lower at 1%.
Proof Of Importance
To facilitate decision-making, the NEM network uses the proof-of-importance (PoI) consensus mechanism which is very similar to proof-of-stake (PoS). Users who are large stakeholders in XEM are eligible to become a Super Node. After being appointed a Super Node, a user or a group of users can take part in the voting process on the NEM network.
The more XEM coins users earn on NEM, the more votes they are able to use. According to the platform’s founders, the network has be designed in a manner that is in the best interests of the cryptocurrency it supports. The main idea behind this is that those who own a large stake in the NEM platform will naturally want to make decisions that are going to help the cryptocurrency network.
In order to become a harvester on NEM, users need to have at least 10,000 XEM (appr. $600). To become a Super Node, a validator must hold a minimum of 3 million XEM (appr. $180,000). Technically speaking, when users becomes a harvester or Super Node, they are like a bank.
But they’re a much cheaper bank because instead of charging around 3% on average for transactions like most traditional financial institutions, Super Nodes and harvesters only charge roughly 0.01%. Assuming that the number of transactions, or throughput of the network remains high, validators on the NEM network could make good profits.
NEM For Business, Recent Developments
In the next few posts on NEM, readers can expect to learn more about the most recent developments related to the blockchain platform. We shall also be covering important business partnerships and initiatives involving the NEM platform.