Proof of Stake + Activity = NEM’s Proof of Importance

Proof of Stake + Activity = NEM’s Proof of Importance

Previously I criticised Proof of Stake (PoS) which is actually worse than just a deflationary money. The reason behind this is that nobody is motivated to spend the money in the deflationary payment system due to its increasing value in the future, while PoS even rewards users who stake their coins (and not spending it in a period of time). I was thinking about something new and make use of users’ activities instead of just rewarding them for not using the system. Then I read about NEM’s Proof of Importance.

NEM is one of the cryptocurrencies having the capabilities of running smart contract applications in the system. But rather than putting a free space for the users to write the smart contract codes, they have provided a kind of container to create smart assets. The smart assets are then processed within the system. I will not talk about the technical detail in NEM which might be interesting to discuss next time.

The focus of this article is how to define a method of minimising the impact of everyone not spending their coins in the PoS environment. PoS was created when people start to realise that Proof-of-Work as in Bitcoin system is not environmentally friendly due to its huge energy consumption. Instead of wasting so much energy and putting those ASIC machines to work 24×7, PoS works similar to poker. Imagine in a poker game, a player wants to stake more money than the other players. Unless if any other players stake the same amount of money, the player staking the highest money wins no matter how bad the cards are. But PoS itself is flawed if everyone tries to stake all of the money they have, then the economy does not run.

NEM’s Proof-of-Importance (PoI) tries to solve this problem. The PoI will score the stake based on several factors, such as the number of stakes (similar to the one in PoS) and the number of money flowing out of the address staking its balance. So, imagine if you want to win the stake in NEM then you need to create transactions constantly. By creating transactions then you will need to pay some transactions fees which might be low, but if the number of transactions is high enough, you will need to think about how to utilise these transactions other than just transferring back to your own addresses. Then it means you might need to construct an economy using NEM’s system. A smart solution in my opinion.

A payment system itself cannot function without the economy. The economy is more important than the payment system because it really depends on the users whether they want to use the payment system in their daily activities. By calculating the transactions as a factor in staking the coins, NEM motivates users to build a sustainable system not only for the system to survive the competition, but also for the system to really add value to the real economy.

What do you think? Write your comments.

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