NEM’S XEM REVIEW: It’s Not All Sunshine And Rainbows

Company: NEM Foundation
Website: http://www.nem.io/
Year: 2015
Blockchain competitors: Augur, Steem, Hyperledger
Ticker: XEM
Exchange platforms: Poloniex, Bittrex, BTer, Zapf, Changelly, HitBTC
FAQ: https://www.nem.io/faq.html

NEM is an open-source blockchain solution launched in January 2014. It’s a highly versatile solution which meets a multitude of “mainstream” industry requirements that stretch far beyond purely crypto applications. NEM is primarily a financial blockchain solution which can be used for payment, clearing and settlement in a fully controlled and private environment. As such, it meets the requirements of most regulatory frameworks. NEM also has more creative applications, such as Apostille, a solution for notarizing documents, updating them and changing their ownership. These diverse applications are made possible thanks to NEM’s asset agnostic nature. This means that the platform can be used to settle any asset via the blockchain. NEM also exists as a private chain called Mijin, which is being tested for blockchain capabilities by over 140 institutions in Japan, including Hitachi. NEM’s wide-reaching potential and “mainstream” industry traction make its XEM token an attractive investment, but is everything as smooth as it may appear at first glance? Tokenguide explores what you should keep in mind when you consider investing in NEM.

NEM’s most obvious asset is the fact that it has real, proven application outside of crypto. The blockchain is mainly targeted at banks (and other institutions) which already use smart contracts in the widest sense of the term: computer protocols that make parts of an agreement self-enforcing or self-executing. NEM’s platform is asset-agnostic, so it can be used to settle any asset. This feature is extremely important for “real world” application. Speed, security and reliability are the other major concerns for any “mainstream” institution. NEM resolves these concerns by repackaging its blockchain into a private chain called Mijin, which is being implemented and tested by over 140 institutions in Japan. Some would consider this the ultimate proof-of-concept for a blockchain solution.

NEM’s applications stretch far beyond monetary transactions or finance solutions. In theory, non-enterprise users can store anything from official documents like birth certificates to company shares on the blockchain. NEM can also be used to send a variety of messages: encrypted, unencrypted and hex-messages. NEM has a built-in system for people to register names called Namespaces. These names can be used to run a business on the blockchain. It also has a way for people to create their own assets. This asset feature is called Mosaics and allows for many different kinds of assets to be made with many different properties. Another interesting application of the NEM technology is called Apostille, a blockchain-based notarization solution in which documents can be signed, updated, transferred or conjointly owned. Overall, it seems that NEM has sound applications for a variety of solutions.

The NEM blockchain has a number of technical innovations which set it apart from other financial blockchains. Instead of using the typical “mining” model, NEM uses something called “harvesting” - the process of generating blocks and earning the transaction fees in that block as a reward for the contributed work. Participants are also incentivised to “harvest” more, since the reward for “harvesting” is issued at random: each block contains a number of transactions with unknown fees, thus more harvesting more blocks will allow you to level out pay-out. However, not every blockchain user can take part in “harvesting,” they need to go through something called Proof-of-Importance (POI). The higher a participant’s importance, the higher their chance of successfully “harvesting” a transaction. The POI algorithm determines who is allowed to generate a block (or more precisely: which generated block is considered as valid). The POI is determined based on two factors: 50% based on volume and 50% based on collateral in XEM, the blockchain’s internal cryptocurrency. As a concept, POI creates a layer of trust within the blockchain, something that is vitally important for its success. POI also creates and elegant solution for withstanding “51% attacks” as the nodes have to be passing substantial volumes to be able to make such attack.

All the features and differentiators listed above make NEM rather unique among blockchains, and therefore an attractive investment. We have, however, identified certain aspects of the NEM solution that could be concerning. We note a certain level of murkiness in the project, a lack of steady updates and enterprise-level concerns, among other things.

A number of details about the NEM solution remain unclear at this stage. Importantly, details of how the open NEM blockchain feeds into the closed Mijin blockchain and vice-versa have not been released. Indeed, there is a substantial lack of information about the link between the two. Since “mainstream” involvement has been confirmed for Mijin only, this becomes concerning when considering an investment into NEM itself. Furthermore, a lot of details about the financials of the NEM project, as well as about its economics remain unclear, which causes many investment concerns, including legal ones. It is also worth considering that initially Mijin was fork from NEM, but eventually a decision to completely rewrite was made. Thus it is unclear what is and actual overlap with Mijin and NEM, as Mijin was rebuild from ground up based on NEM ideas and vision.

The NEM technology hasn’t been substantially updated for quite a while now. Although from a community perspective things have been active, with NEM posting regular blog posts and organizing offline events, an active core development team is of utmost importance for a successful blockchain project and large-scale updates are symptomatic of such a team. There have been reports earlier in the year that NEM is developing a new core technology called “Catapult,” which will power Mijin in its first implementation phase and will subsequently be implemented into the NEM public chain “during 2017.” There is, however, no clear public timeline or roadmap available for this project.

As a final point, NEM does not convincingly stand up to its competitors when it comes to enterprise-level solutions. Some users running Mijin, for example, suggest that there is a distinct lack of available enterprise-level solutions within the ecosystem. To make matters worse, the system is not easily adaptable to these needs, which is a significant obstacle for widespread adoption. This problem becomes especially apparent when you compare NEM to other blockchain technology solutions, such as Ripple or Hyperledger, both of which readily cater to enterprise-level needs.

Our prediction on June 2017:

We believe NEM has a number of features that can be useful with higher blockchain adoption among financial institutions. However, the question is whether NEM can withstand competition, provide decent enterprise-level solutions and become well positioned to help corporations adopt them. NEM is battling against Hyperledger, which is building a free blockchain in an open collaboration hosted by the Linux Foundation. Additionally Mijin could either be a competitor or part of the ecosystem, which makes understanding the economics even more complex.

We expect hikes in price when new information about NEM or Mijin is released to the public, especially around the Catapult release. NEM has a lot of potential and is way ahead of many blockchains out there in terms of features and adoption, but there is also a number of concerns in terms of its "real life" application.

We would like to remind you that all opinions expressed in this piece are our own and are based on the research our team conducted independently. If you are serious about participating in an ICO, token sale or crowdsale of any kind, we strongly recommend that you conduct your own due diligence by familiarizing yourself with the projects, their background, white papers and the market(s) in which they operate. Stay safe and subscribe to our updates at http://www.tokenguide.com!