What is NEM? 2018-05-30T18:50:35-06:00

What is NEM?

History: The Coincheck Hack

NEM made headlines in January 2018 when the massive hack of the Coincheck cryptocurrency exchange in Japan resulted in the theft of 523 million XEM, the native currency of the NEM platform, worth around $534 million at the time. The hack generated industry-wide fallout, especially in Japan, triggering heightened regulatory scrutiny of exchanges by the Financial Services Agency. Ultimately, sloppy security protocols on the part of Coincheck were to blame for the exploit, and the exchange paid users over $400 million in compensation.

The theft certainly cast a spotlight on NEM (XEM). The decision of its developers to forgo the hard fork route and instead tag the stolen coins with a tracing mechanism was even more intriguing. Some onlookers may have wondered what sets this platform apart from the other altcoins out there. NEM does indeed have a number of noteworthy features worth examining.

Core Principles

The pseudonymous creators of NEM set out to preserve what they perceived as the most promising aspects of other blockchain platforms, while addressing some of their limitations. NEM focuses on providing tools to build decentralized and egalitarian communities of various kinds, and to support flexible and sustainable applications within that framework. Perhaps the most distinctive innovation of the NEM platform is to be found in its consensus mechanism.


The Bitcoin platform uses a proof-of-work (PoW) protocol whose costs and limitations have become increasingly apparent as the network scales up. The enormous amount of computing power required to mine the cryptocurrency has concentrated power over the network in fewer hands, and requires enough energy to power a small country.

Other major platforms, notably Ethereum, operate using a mechanism called proof-of-stake (PoS) instead. This solves some problems, particularly the waste of computing resources for mining, but introduces others in turn. The main issue the authors of the NEM white paper have with PoS is that such mechanisms incentivize hoarding behavior and favor big fish over the small fry. As in the economy as a whole, such systems lead to a snowball effect, in which the rich are able to generate more returns faster than others, leading to further concentration of wealth.

The proof-of-importance (PoI) mechanism employed by the NEM platform calculates an importance score for each account that is based on a number of factors, including vested XEM balance, frequency and size of transactions, and the importance score of the accounts on the receiving end of the transactions. The system is weighted to reward “normal” activity by increasing the odds of harvesting blocks for the nodes most actively invested in the ecosystem, while resisting attempts to spam the network or launch Sybil attacks.

Built-In Multisignature Transaction Verification

To provide users with increased security, NEM features support for multisignature verification. This enables transactions only if all of a set of designated accounts sign off on them, making it more difficult to steal XEM tokens–attackers would have to compromise every cosignatory linked to an account with such security enabled in order to abscond with the coins. Coincheck was much criticized for having failed to enable the multisig feature, which left the exchange’s XEM balance exposed.

Encrypted Messaging

Another feature built in to the NEM platform is the capability for users to send encrypted or unencrypted messages to one another over the blockchain. Such messages can be used for simple secure communication anywhere in the world, or as an integral part of applications written to run on the NEM blockchain.

The End Goal

All of these features are designed to make the NEM platform fast, scalable and secure, allowing private enterprises who want to build their own permissioned networks to run custom applications based on the blockchain. All of these distinct proprietary solutions would then be interoperable via the self-supporting, public blockchain that underpins the NEM ecosystem.