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What Is NEM | The Ultimate Beginner’s Guide

What is NEM

NEM is a blockchain-based decentralized application (dapp) and asset-management platform designed to allow enterprises and individuals to create custom blockchain solutions for various use cases ranging from payment processing to enterprise recordkeeping.

An acronym for New Economy Movement, NEM and its currency, XEM, are described by its creators as “a movement that aims to empower individuals by creating a new economy based on the principles of decentralization, financial freedom, and equality of opportunity.”

We’ll take a look at the aspects of NEM that differentiate it from other competing platforms by exploring the following topics:

The idea for NEM first started in early 2014, when a Bitcoin Talk forum user by the name of UtopianFuture began sharing their opinion that the cryptocurrency space was lacking a truly community-focused project. The resultant ideas for NEM caught on, and a community began forming to develop the concept. By June 25, 2014, the Singapore-based NEM Foundation had released an alpha version of the platform, followed by the stable version on March 31, 2015.

The NEM project has introduced a number of innovations to the blockchain space including:

  • A new Proof of Importance (PoI) consensus algorithm designed to be more fair than Proof of Stake (PoS) in rewarding users who help secure and validate transactions on the platform
  • Delegated harvesting (a type of “mining” process allowing accounts on the network to lease their harvesting power to other accounts)
  • Encrypted messaging
  • Permissioned private blockchains
  • An API interface designed to be used with any programming language
  • A network node reputation system.

NEM was designed for real world payment processing and retail transactions, and therefore adds blocks of transactions to the blockchain every 60 seconds (as compared to Bitcoin’s 10 minute block times). Although public blockchain transactions are relatively slow currently at 1 per second, private blockchain speeds can reach into the thousands.

The creators hope that setting a fixed amount of XEM (8.999 billion) will help prevent inflation (devaluation of the currency). Users must also pay in XEM to use features in the network — creating new, custom tokens for example — and to use encrypted messaging, thus adding further value to XEM as a currency.

To understand some of the intricacies of NEM, it’s useful to compare it to other similar platforms. For example, unlike Ethereum and other platforms that allow users to create their own tokens, NEM does not use smart contracts on the blockchain by design, as the developers believe is it a bad idea for security and scalability to execute such code on the main blockchain. Instead, they propose the use of off-chain smart contracts, which would therefore not be immutable and would allow for easily catching bugs and reworking the contracts.

NEM also attempts to make integration into existing network and application infrastructures easier than completely decentralized blockchain platforms through its Smart Asset System. This system allows developers to integrate NEM into existing infrastructure with pretty much any programming language, unlike Ethereum, for example, which has a platform-specific language called Solidity.

Use cases for NEM include retail transactions, distributed cloud services connecting client and web applications, private enterprise recordkeeping, tracking property rights (e.g. land registry via the NEM Landstead app), custom cryptocurrency creation, and custom payment apps (e.g. the open source NEM pay).

NEM is built on a what they term their Smart Asset System, a system of API calls designed for easily customizing one’s own “assets” and applications to interface with the public blockchain.

NEM Smart Assets are built using four connected aspects of the system: Address Smart Assets, Mosaic Smart Assets, Personalized Namespaces, and Transactions.

NEM Addresses are assets on the blockchain representing single, unique objects whose states can change and be updated. These objects can be anything from a given user’s cryptocurrency assets, to house deeds, to a package that is waiting to be shipped. These Address assets can each be configured individually and/or collectively to work together so that relationships can be defined. For example, a package’s status could be updated to state that it has arrived at a location, whereupon funds could be transferred from one account to another. This could be done through multi-signatory control (i.e. “Multisig”) that allows ownership of Address assets to be agreed upon, shared and tracked between multiple parties on the blockchain.

Mosaics are fixed, custom-programmed assets on the blockchain that represent identical items that do not change. They could be a single token, votes, credit or reward points at a store, or other currencies. Mosaics are defined by attribute meta data such as description, quantity, transferability, name, and other attributes. These Mosaics are held within the aforementioned Addresses (one coin held in an Address with many other coins), and using the NEM API, can be transferred between Addresses. This might include doing things like proxy voting, moving coins between accounts, or changing ownership of property through changing the account associated with a deed. Creating a mosaic costs 10 XEM.

Namespaces are like domain names on the Internet, and allow users to create a labeled space for a business or individual’s assets on the blockchain. Subdomains are also a function of NEM, allowing further unique identification subcategories within a given account.

Any user holding NEM can create as many domains/subdomains as they wish if they have enough NEM for it. Namespace creation requires 100 XEM for the root domain namespace and 10 XEM for every subdomain.

Transactions are how Smart Assets, via Mosaics are utilized, allowing one to transfer Mosaics between Addresses (through single account actions or through Multisig rules). They also allow users to transfer ownership of Addresses, send messages and perform other actions on the blockchain.

In review: the relationship between Addresses, Mosaics, Namespaces and Transactions is that Addresses act as containers for Mosaics, which can be categorized via Namespaces, and connected with single account or Multisig rules. Assets can then be updated and transferred through configurable Transactions.

The blockchain is secured and Transactions processed by the network of nodes that run the NEM software. This network performs the functions of an API Gateway server, connecting all of the different accounts and their various assets and data together on the public blockchain.

XEM is earned by anyone running nodes on the network to process and confirm transactions, although mining (i.e. performing said network functions in exchange for XEM) is done differently than in most other cryptocurrencies. In NEM, miners are called “harvesters”, and are network nodes that can be run by anyone with an Internet-connected computer associated with an account holding at least 10,000 XEM.

As mentioned, NEM uses a unique consensus mechanism (the mechanism confirming network transactions) called Proof of Importance (PoI) which attempts to secure the network against hostile nodes by using a reputation system based on a modified version of a network reputation algorithm called EigenTrust++. The PoI algorithm also takes into account the volume of transactions a node has been involved in.

With NEM, account holders must have their XEM “vested” before being able to harvest, but XEM only becomes vested once it is “staked” (kept in a wallet without being used while the user’s computer is on) for a certain amount of time. Once staked, the “unvested” XEM in a user’s account will become vested at a rate of 10% per day. Thus, if one stakes the minimum 10,000 XEM required to harvest, it would take 88 days to begin harvesting.

NEM also allows for a unique form of harvesting called delegated harvesting, which allows user accounts to harvest remotely using a computer not holding the network key to their account.

Besides acting as the network’s consensus mechanism, PoI is also the basis for governance decisions. Votes are cast on decisions based on the number of vested tokens held by a user along with their reputation.

Finally, NEM also allows users to become “Supernodes”, which require more XEM to operate (3 million staked tokens) and gain more rewards. High-performance Supernodes help secure the network and form a backbone of computer resources—allowing the network to operate light clients, 3rd party apps, mobile wallets and other features requiring extra network capacity. Supernodes are tested regularly for bandwidth, computing power and other measures of performance. If they meet the NEM Foundation’s criteria, Supernodes are given rewards randomly using XEM set aside at the network’s founding.

In addition to NEM’s decentralized public blockchain that can be used by anyone, NEM also allows for the creation of permissioned private blockchains that can be used exclusively by a given entity using their own private server of “trusted nodes”. Speeds on private blockchains can reach thousands of transactions per second, and nodes do not require specialized hardware or backend database connections.


Mijin is an enhanced private blockchain developed by the company Tech Bureau utilizing the NEM protocol, with a focus on resilient, secure data-sharing networks. According to the company, it has been tested with financial institutions, logistics tracking, food traceability, electronic money systems, user authentication, and land or property registration.

Tech Bureau and the NEM Foundation are currently working on a major update for NEM called Catapult, which has been in the works since 2016. Its beta version was finally announced on March 25, 2018 after over a year-long delay. The current version of NEM is based on the Java programming language, while Catapult is based on C++, which it is claimed will allow for simpler, open-source code editing on the platform. The NEM Foundation also claims it will bring down the cost and difficulty of custom blockchain implementations and ownership/creation of assets, while allowing for interoperability between blockchain instances. This will allow shareable and non-shareable data to co-exist in the same NEM implementation across the public and private blockchains. Features of Catapult include:

  • Tiered web architecture commonly found in enterprise computing
  • High throughput message queues for real-time analysis and big data analytics of transactions
  • Use of the nosql database in the API, suited for high-speed messaging
  • An escrow service for exchange of assets on the blockchain
  • High transaction rates (3000+ transactions per second)

On January 29, 2018, the NEM project and the value of XEM tokens took a big hit when 523 million XEM worth $530 million at the time were stolen from the Japanese cryptocurrency exchange Coincheck.

With great controversy, the NEM Foundation decided not to perform a hard fork to roll back transactions to recover the funds, and instead created a “black list” to track the coins and ensure none of them can be redeemed on exchanges. This move was criticized by some in the community for being too centralized in its execution.

NEM is available on a number of exchanges including Binance, Bittrex, Huobi, Upbit and Poloniex, among several others.

The most secure options for storing NEM include the official desktop Nanowallet, the mobile wallet, the NEM Community Client, or the Litewallet, instructions for which can all be found here.

Although NEM has a lot of competition in the blockchain space, and its value suffered from the Coincheck hack and the subsequent fallout, the platform has a lot to offer anyone wishing to put a plug and play blockchain solution in place using the programming language they are comfortable with. With a focus on flexible solutions for integrating existing applications and support for public/private blockchains, NEM may look particularly appealing to an increasing number of enterprises implementing blockchain solutions in the coming months and years.

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