Proof of Importance is the underlying technology behind NEM which determines who gets to verify transactions. This consensus mechanism is similar to Proof of Stake (PoS) in that it requires a certain amount of cryptocurrency (10,000 XEM in NEMs case) to verify transactions. It differs to PoS in that it solves the issue of a person having more stake being more likely to verify transactions, thus receiving more rewards. In other words, PoS helps the rich get richer, and PoI aims to alleviate that.
How does it work?
PoI solves this dilemma by assigning consensus addresses and an importance score. The importance score can be thought of as a reputation score (kind of like Karma on Reddit). A higher score means the network trusts you more to verify transactions.
In PoI, your chance of verifying transactions isn’t entirely dependent on how much you have to stake. Instead, it’s based on the number and quality of transactions you’ve previously done.
What is a quality transaction?
Well, simply sending yourself a bunch of XEM between addresses isn’t going to do it. You must have sent at least 1000 XEM to addresses holding at least 10,000 XEM staked within the last 30 days.
One risk of Proof of Stake is that people simply hoard as many coins as possible and reap the rewards from block creation. This concentrates wealth while discouraging transactions. These transactions are what keeps the network running. PoIs importance score means that hoarding results in a lower score. Spreading XEM around increases the score. Therefore, being an active participant pays better than hoarding.
What keeps it secure?
You may think that it’s pretty easy to hold a few addresses, pass some XEM between them and shoot up your own importance score, however, the algorithm attempts to prevent this. One way in which it does so is by actually lowering the importance score for accounts that transfer out, then receive XEM. Also, making everyday purchases or sending XEM to an exchange won’t affect your importance score.
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