Did you know the NEM cryptocurrency network is getting more popular? It’s not as big as Bitcoin or Ethereum, but it’s known for its Proof of Importance (PoI) consensus mechanism. This method is new and aims to fix some issues with the common Proof of Stake (PoS) method.
The PoI system helps decide who can add a block to the blockchain. This is done through “harvesting” or “vesting.” Nodes with a high importance score are more likely to be chosen. They get to earn transaction fees as a reward. To join the importance calculation, a NEM account must have at least 10,000 XEM (the NEM cryptocurrency).
Key Takeaways
- Proof of Importance (PoI) is a blockchain consensus mechanism introduced by the NEM network.
- PoI builds upon the Proof of Stake (PoS) algorithm, addressing its limitations.
- PoI determines block harvesting eligibility based on a node’s importance score, which considers factors like vested coins, transaction partners, and transaction history.
- The PoI system encourages transaction activity and discourages coin hoarding, in contrast with the PoS model.
- PoI is designed to be energy-efficient and promote fairness in the blockchain network maintenance.
Understanding Proof of Importance (PoI)
Proof of Importance (PoI) was introduced by the NEM blockchain in 2015. It aims to fix the issues with Proof of Stake (PoS). PoI looks at more than just how many coins you have to decide who can add blocks to the blockchain. This process is called “harvesting” or “vesting”.
Limitations of Proof of Stake (PoS)
The Proof of Stake (PoS) method has a big problem. It lets a few nodes hold most of the wealth. People can just collect lots of coins and get rewards for adding blocks. This encourages keeping coins instead of using them for transactions. It hurts the network and its rewards for transactions.
Definition and Working of Proof of Importance (PoI)
Proof of Importance (PoI) fixes these PoS issues. To be counted, an account must have at least 10,000 XEM. PoI looks at three things to figure out a node’s score: how many coins it has, who it trades with, and its recent transactions.
Nodes with a high score are more likely to add a block and get rewards. This encourages nodes to be active in the network by trading often, not just holding coins.
The PoI method is more complex and does detailed calculations. It values broader contributions and activity over just owning coins. This makes mining fairer and more open.
Proof of Importance (PoI) in Action
The NEM network uses Proof of Importance (PoI) to keep things secure and fair. Nodes need at least 10,000 XEM to join the action. The more important a node is, based on its transactions, the better chance it has to create a new block and earn rewards.
This system makes nodes want to be active and make transactions. It stops them from just holding onto coins. PoI also keeps the network safe by making it hard to fork the network. Nodes must work hard to keep their score up on both sides of a fork.
The PoI algorithm looks at a few important things to figure out a node’s score:
- Vesting: A node must have at least 10,000 XEM to be counted.
- Transaction partners: How many and how big the transactions are with other accounts in the past 30 days.
- Transaction volume: How many and how big the transactions the node made in the past 30 days were.
PoI rewards nodes for helping the NEM network grow. This is different from Proof of Stake (PoS), which some say encourages people to just hold onto their coins instead of using them.
“The PoI consensus mechanism is designed to encourage users to actively engage with the network and support its growth, rather than simply holding onto their tokens.”
People like how NEM’s PoI makes the network more secure and less likely to fork. It also makes sure rewards are spread out fairly among nodes. As more people use NEM and PoI, it will be interesting to see how it changes the crypto world.
Conclusion
The search for the best blockchain consensus mechanism is ongoing. NEM’s Proof of Importance (PoI) is a big step forward. It looks at a node’s overall value and its role in the network, not just its wealth.
PoI rewards nodes for being active and building strong relationships. It stops wealth from getting too concentrated. This method makes sure everyone has a fair chance to validate transactions and create blocks, but richer nodes still have an edge.
As blockchain technology grows, we’ll see new consensus methods. These will aim to balance security, fairness, and rewards for transactions. The work on PoI and other algorithms shows the blockchain world’s effort to improve network security and fairness for everyone.
