Author: Lydia Kariuki

What is NEM?

NEM is a smart asset blockchain that offers highly customizable blockchain solutions to businesses in a cost-effective way. NEM in full stands for New Economic Movement, though the name has been dropped in favor of the shorter version–NEM.

After forking from Nxt, NEM was built from scratch in 2015 by a community of supporters and the NEM foundation. It presents many unique features most notably the 1 minute block time, proof of importance algorithm, multi-signature accounts and unique harvesting methods.

The native token of NEM is XEM which has a total supply of 8,999,999 tokens all of which were mined at the genesis block. Let’s look at some of the unique features of NEM.

Proof-of-Importance Consensus

There are different algorithms used to verify transactions on a blockchain. The most common is the proof of work algorithm used by Bitcoin and the proof of stake algorithm used by Ethereum.

NEM, on the other hand, uses a unique algorithm called proof of importance (POI) consensus. In this algorithm, nodes are selected to verify transactions based on their comparative importance as perceived in the network.

Similar to how proof of stake works, the nodes/ participants have to “stake” a certain amount of their cryptocurrency in order to verify transactions.

However in the POI model, other factors that prove “importance” are also considered such as; account balance, how well and how fast transactions have been completed and the quality of transactions completed.

Nodes that show most “importance” as judged by these factors are then permissioned to verify transactions. However, it is important to note that even accounts with minimal balances can also be permissioned to verify transactions based on the quality of their previous work.

The POI system is an energy saving algorithm as it does away with the complex verification process. This can be seen as an upgrade from both the proof of work and proof of proof of stake algorithms

Harvesting Blocks

The process of verifying transactions in the POI model is called harvesting, the same thing that is called mining in the bitcoin blockchain. This process involves verifying transactions using your computer and adding them to blocks on the blockchain.

For an account to be eligible to harvest, it needs to have maintained at least 10,000 XEM over a couple of weeks as the account balance. Also, the node needs to link to a supernode that is able to process transactions 24 hours a day.

With this link the node allows the supernode to borrow its proof of importance score and do the harvesting on its behalf.

As a result, the node will be rewarded with transaction fees that will be charged for processing transactions. Remember that no new coins are created in the NEM blockchain through harvesting, therefore verification efforts are rewarded through the transaction fees charged.

NEM is a blockchain platform that supports the building of new applications with minimal technical difficulties. Compared to ethereum, NEM has a gentle learning curve for developers.

NEM primarily exists to create a “Smart asset system” where users are given access to create their own customizable blockchains. The Smart asset system can be divided into four components:

• Addresses.
• Mosaics.
• Namespaces.
• Transactions.

What is the problem that NEM Solves?

NEM exists in the same space as Ethereum, Ubiq, Ripple, and Factom among others. NEM ‘s blockchain was designed to focus on scalability and speed.

Many businesses would love to utilize blockchain technology but may not have the financial and technological capacity to transition to a smart economy.

NEM exists to bridge this gap by creating a blockchain that is highly adaptable and customizable to suit the business needs of different projects. NEM focuses on these four core components; performance, ease of development, deep customization and security.

How does NEM Solve the problem?

NEM uses a unique algorithm – Proof of importance and delegated harvesting to reward verification efforts. When a block is harvested it is permanently added to the block and the harvester is rewarded from the transaction fees charged.

This method makes the system efficient as harvesting is an energy preserving process, unlike mining. Also because there is no incentive for compensating miners for their excessive use of power, running this system is very affordable and this, in turn, drives down the cost of transacting.

Taking away “power from the miners” levels the playing field for all network participants. NEM uses the proof of importance algorithm to enhance the capabilities of the blockchain and make it accessible to more businesses.

The POI model ensures speed and scalability for the NEM blockchain.

NEM also allows users to create highly customizable blockchain solutions for their products and businesses. With NEM namespaces, users can name their mosaics and addresses and create multisig rules for them.

These mosaics could be songs, assets or any other thing that the user may wish to place on the blockchain.

Features unique to NEM include:

1. Mosaics

Mosaics are unique to NEM and they represent assets that are traded on the NEM blockchain. NEM native token XEM, for example, is a mosaic.

Developers can create mosaics in many forms such as cryptocurrencies, a signature or status update and run them on the NEM blockchain.

2. Multi-signature accounts

This is a security feature that necessitates the need for multiple approvals for each transaction.

3. Namespaces

This is similar to an email address on the blockchain that allows you to give a unique name to your mosaics.

4. Updates

NEM involves the whole community in giving suggestions for updates and developments on the platform.

What makes NEM better than its competitors?

NEM competitors include bitcoin, ethereum, Ubiq, Factom and Ripple among others. Due to its infrastructure, it has the following advantages over the competition:

1. High scalability

Theoretically, NEM can process up to 3,000 transactions per second in comparison to a dismal 7 transactions/ second for bitcoin. This is due to the efficiency of the proof of importance algorithm. With this high transaction speed, NEM is highly scalable.

2. Deep customization

NEM is built from its core to be a highly customizable blockchain. Unlike other blockchains NEM allows users to focus on building their own unique blockchain solutions and give it unique namespace (similar to domain names) and addresses. By creating a simple model, developers are able to focus on creating unique solutions away from focusing on blockchain technicalities. NEM allows users to build anything starting from fintech systems and document notarizations etc.

3. Low Fees

NEM charges 0.01% transaction fee to transmit assets on its public blockchain. This can be translated to $0.01 for sending $ 100 which is very affordable.

4. Traceable

NEM has no privacy as all the transactions are traceable to their origin. As much as privacy appeals to certain groups, traceability appeals widely to governments, real estate businesses, large corporations and other entities which may need an open record of transactions.

5. High system efficiency

Harvesting as explained earlier takes up very little power compared to mining. Harvesting can even be done offline and as a result transaction costs on the NEM blockchain are also minimal. NEM uses 100 times less power than titcoin to run a node.

6. Zero inflation

All NEM coins were mined in the genesis block, all the8,999,999,999 coins to be exact. With all the coins already in existence, NEM has zero inflation. Other coins which have ongoing mining such as bitcoin are subject to inflationary and deflationary forces.

How can NEM be categorized?

NEM is primarily a revolutionary blockchain platform geared towards a smart economy. XEM is a cryptocurrency.

NEM’s vision on security

Being built on the blockchain, NEM has the security features embedded in the blockchain which include immutability of records, decentralization, and transparency.

In addition to this, NEM is hard-wired to provide maximum security for its blockchain. It employs Eigentrust ++ and an incentivized public node to reinforce its infrastructure.

This node reputation system ensures the quality of transactions is met so that the whole network is protected. It further eliminates inherent smart contract risks by providing block customization so that security is moved away from the blockchain to the user’s control.

NEM also employs multisig rules to double check the authenticity of transactions before they are approved. With the NEM private blockchain, the user has complete control over their data privacy.

Examples of NEM’s use cases/applications.

NEM has numerous use cases based on their “Smart asset system” which include; voting, crowdfunding, stock ownership, loyalty reward programs, record keeping, mobile payments and escrow services. We shall be looking at some of these below, but first we shall start with one fintech company using NEM private blockchain to revolutionize the financial sector.

Mijin

Mijin is a private blockchain built using the NEM software. With the Mijin private blockchain, banking costs may go down by a whopping 90% and the banking system could be made more secure.

Mijin is being tested worldwide for implementation in banking systems but it has a large presence in Japan. Mijin actually has higher transaction speeds than NEM. This is a pacesetter for other blockchain based solutions set to transform the banking sector.

Financial payments

Other than banks, other financial services companies are using the NEM blockchain for making instant payments and global cash transfers. The NEM blockchain has the ability to interface between public and private blockchains making it possible to transfer information seamlessly between different blockchains. This feature is not available in many blockchain models and may pave way for a new blockchain ecosystem where different blockchains can interact and share information.

Creation of private token

NEM allows users to create personalized namespaces and mosaics which are a representation of tokens or other digital assets that a user may wish to create.

NEM has made the process very easy and straightforward; you just need to create a name, define an amount of coins, divisibility, transferability and any other relevant parameters. Then you can start transacting with your new coin.

Make mobile payments

NEM has a mobile wallet that allows you to make mobile transactions right through your phone using the NEM native token or a coin you have created. Since NEM transactions are completed every sixty seconds, this works well for fast online transactions and making retail payments.

Also, NEM charges 0.01% transaction fees which further makes it very convenient even for micropayments.

Escrow services

Escrow services are becoming popular as many companies are shifting their services to online platforms. This requires a trustless system because transacting parties may not be known to each other.

Using NEM, companies can set up escrow services and use them to transfer currency, tokens, data and the parameters to be confirmed before the escrow instructions are executed.

XEM as a store of value

Unlike other cryptocurrencies, all XEM coins were created in the genesis block meaning no other coins will ever be created. This makes XEM immune to inflationary and deflationary forces.

Every transaction on the NEM network will require spending some XEM, theoretically, this will keep driving up the demand for XEM. As a result the value of XEM will keep increasing over time. For a long-term investor, this model is appealing as you just need to hold XEM for a period of time and watch the value appreciating without any much effort on your side. This makes XEM a good store of value.

NEMPay

NEMpay is an open source payment system based out of the NEM blockchain. It’s a very flexible system that allows users to make peer to peer payments in a seamless and decentralized fashion.

It is possible to customize NEMPay to suit your desires such as branding it and customizing your own digital assets to create your own payment app that is similar to Paypal.

With Mijin taking off considerably well, other banking institutions may also follow suit in the adoption of blockchain technology through the NEM platform. As much as this is highly speculative, NEM stands a chance to become a revolutionary force in the banking industry and other financial sectors as well.

 

What is IOTA?

In full, IOTA stands for the Internet Of Things Application. It was launched in June 11, 2016, as a platform that enables smart transactions between machines on the Internet of Things. IOTA uses a unique emerging technology that is similar yet different from blockchain technology called the Tangle. The tangle is a technology that eliminated the sequentially linked blocks that make up the blockchain and instead uses a verification method called the Directed Acyclic graph (DAG).

With the DAG, verification of transactions occurs across the network with each transaction being verified by two previous transactions. As the network grows, the computing power of the whole system increases commensurately and this makes IOTA a low-cost system that grows in efficiency as the tangle grows, unlike the blockchain whose computations get increasingly difficult with time.

The world is first evolving technologically and the Internet of Things is taking center stage with companies adopting self-executing devices to run processes and machines. IOTA hopes to be the go-to platform for the machine- to – machine transactions.

As much as blockchain technology creates an opportunity for decentralized and peer to peer transactions, it does not provide adequate efficiency in the system and not at the speed at which is required to fully execute IoT.

With how DAG works, IOTA has immense scaling capabilities which we shall look at in depth later. The Tangle is able to overcome the inherent inefficiencies in the blockchain by utilizing a different consensus mechanism in a decentralized fashion.

With IOTA, people can make feeless transfers in a trustless, efficient ecosystem.

This is how the tangle works; instead of transactions being grouped together in a chain sequentially, they are entangled together in something similar to a web.

Each transaction is verified by the two previous transactions and every node/ person has the same incentive and rewards to verify a transaction.

As opposed to how the blockchain works, as the tangle grows the computational works gets easier and easier. In order for your transaction to be validated the two previous transactions have to be verified so this gives you an incentive to verify the two previous transactions.

This creates a “pay- it forward” system where nodes are already motivated to verify transactions and they will do so willingly without being incentivized. As a result, the Tangle is a feeless system and will continue to be so. This model also allows for high scalability, as the network grows the more efficient the system gets.

 What is the problem that IOTA Solves?

Blockchain technology (also referred to as ledger technology) came into the picture and is so far transforming how we make financial transactions. From highly centralized banking systems to a decentralized transparent system where we can openly verify data collectively.

Ledger technologies have allowed us to move money in a fast, secure and efficient way. By removing the need for third parties we have managed to significantly lower the cost of making financial transactions.

However, the blockchain has some inherent technical flaws that have made it impossible to maximize on its full potential. As more and more people have joined the blockchain bandwagon, the system has become encumbered with sluggishness and escalating transaction fees.

The increasing mining costs have centralized the control of the blockchain to a few financially endowed individuals who can afford to pay for the expensive mining rigs. Therefore what was once envisioned to be a completely centralized trustless and efficient system has slowly deteriorated to a weak imitation of what it should be.

This is what has led to the race for better systems that will tap into the strengths and unique opportunities presented by blockchain technology and at the same time tackle the weaknesses in the system.

How does IOTA Solve the problem?

IOTA is able to operate as a feeless system that is potentially highly scalable.

Since consensus is reached through the double verification system achieved by the two previous transactions, there is no need to further incentivize the nodes to do the work of verification.

Every node on the block contributes equal mining power to the tangle for their transactions to be verified creating a completely decentralized system with no central block.

This also eliminates the need for mining. Note that all IOTA coins were generated on the genesis block. As presented earlier, the Tangle does not require more energy to process consecutive transactions. On the contrary, less energy is required as the Tangle grows.

The Tangle can multiply by a factor as opposed to a linear fashion. Being a feeless system also makes it possible for IOTA to process minute transactions and be applicable to minute IoT devices such as sensors. If these minute devices were to rely entirely on a blockchain with its inefficiencies it would be very expensive to process even the tiniest of transactions.

Scalability would not be feasible as the tiny devices process numerous transactions in the shortest time possible, even under the fraction of a second. IOTA makes it possible to have micropayments and this one factor underpins the successful implementation of a machine to machine economy.

With the developments made to the blockchain, the Tangle presents a unique transition point to the Web 3.0 where machines and humans are powered to interact seamlessly in a trustless decentralized yet feeless ecosystem.

More than what the blockchain has offered to the economy, IOTA promises to take it further with a feeless and highly scalable decentralized system.

What makes IOTA better than its competitors?

As mentioned earlier, IOTA is based on the Tangle system which is a directed acyclic graph (DAG) different in nature from the blockchain.

The Tangle somewhat resembles an interconnected web where transactions are each linked to two other transactions that verify it. It is this model that gives IOTA a competitive edge over purely blockchain systems such as bitcoin and ethereum.

Unique Features

1. Scalability

As the tangle grows, it takes lesser effort to verify transactions as there are numerous nodes each waiting to verify consecutive transactions. This highly reduces the time it takes to confirm transactions. Also as the tangle grows the efficiency gets even better.

2. Feeless

Due to the self-incentivizing system, there is no further need to pay miners the cost of utilizing their expensive computing power. This makes it possible to achieve a completely efficient system that is the envy of traditional financial systems. You send $10 and the recipient receives $10! It also makes it possible to make micro payments as there are no exorbitant fees charged on payments, which is unlike the blockchain network. On the blockchain, it is not possible to run small devices such as sensors as the transaction times would eventually not suffice and the cost of doing so would make it unfeasible.

3. Enhanced security

All data on the Tangle is cryptographically encoded making it a secure system.

The tangle allows for offline transactions, unlike the blockchain system. Devices on the Tangle can interact without perfect connectivity.

The Tangle network has greatly borrowed from the strengths of the blockchain; a decentralized, transparent, peer to peer platform allowing permissionless execution of smart contracts. But due to overlooked practical technicalities, this vision could not be executed in full.

As more and more people have adopted the technology, challenges such as prolonged transaction times and escalating transaction costs have become a constant pain to battle.

Also, as the financial costs of mining/ validating transactions have increased with time, the process had become inaccessible for many would be miners leaving it to the hands of a few financially endowed actors.

This eats away at the core feature of the blockchain itself- a highly decentralized system.

It is this inherent weakness of the blockchain that has created the need for IOTA based on the Tangle directed acyclic graph structure. The Tangle is basically a distributed ledger technology with increased efficiency; highly scalable and feeless.

With IOTA, the Web 3.0 is a possibility to transition to the machine economy.

How can IOTA be categorized?

IOTA is a distributed ledger technology that powers the Internet of Things. It is a micropayments system, feeless cash transfer system and a digital currency.

IOTA’s vision on security

IOTA is a quantum immune system meaning that it is resilient to the next generation of quantum computing. IOTA uses a quantum resistant algorithm called the Winternitz one time signature scheme.

Theoretically speaking, if one actor has more than a third control over the Tangle they would be able to create and verify false transaction on the network.

This is because it takes two nodes to verify each transaction. This would mean controlling at least 34% of the Tangle. But even then, the Tangle is not as straightforward as is a blockchain meaning that you would still have to get around the web in order to leverage on your 34% advantage.

Practically speaking, this would only be possible when the Tangle is still very small and the nodes are minimal and easy to get through. To combat this possible threat, the tangle uses a coordinator to ensure that the early Tangle is not compromised on.

Once the early stage is over, IOTA plans to do away with the coordinator so that the system again does not appear to be centralized to the coordinator. This is just a stop-gap measure that enhances security in the Tangle model of IOTA ensuring that no actor has undue control over the system.

The Tangle also prevents double spending by allowing double verification of transactions. The network requires each new transaction to be approved of by the two previous transactions. In case a node submits an erroneous transaction, the other nodes will reject it. Each node contributes towards the flexibility and security of the network.

Examples of IOTA use cases / applications.

IOTA has numerous potential applications centered around a decentralized feeless ecosystem that paves way for a machine economy. With IOTA, an interlinked smart economy is possible and executable. Some of the practical applications of IOTA include:

1. Feeless microtransactions

IOTA can allow nano transactions. This paves way for the emergence of a global micro-economy and creates opportunities for businesses to transact across the globe.

2. Online voting

If IOTA is adopted on a large scale, it will pave way for eGovernance and executable eVoting systems. With IOTA, data can be transferred securely and efficiently making it possible to conduct public elections securely online.

3. Masked messaging

With Masked messaging (MAM) smart devices can be linked and data shared in a similar way to how radio waves are transmitted. This means that interlinked devices can “tune in” and get broadcast data with quantum proof security.

4. Shared economy

With IOTA everything into a service platform, businesses can lease unused assets for a fee. This includes computer storage, Wi-Fi bandwidth and computer power.

The lessor and lessee agree on an agreeable fee to be charged which is a cost-effective model for both parties.

IOTA presents many possibilities for the new economy by making the Internet of Things a possibility. The number of global micropayments could increase significantly over the next couple of years. For this to be possible, solutions for efficiency and scalability need to be devised. With bitcoin, making fractional transactions is not tenable as the cost of this exceeds the value of the transaction.

Therefore what IOTA is offering is a much needed technological solution to bridge this gap.

The Tangle is a rare concept that has the cryptocurrency space disrupted, was the blockchain not good enough? We are yet to see other cryptocurrency projects move away from the traditional blockchain model to the Tangle. This is understandable as the blockchain itself is still a relatively foreign technology to many.

That said, it will be exciting to see how IOTA revolutionizes the machine to machine micropayment system and how this will impact on global trade eventually. Perhaps the Tangle is the sequel to the blockchain and IOTA is a step ahead of its time.