DRC Due Diligence Report
May 18, 2018
DRC Community Distributed Due Diligence
- Project Name: NEM
- Time: May 4-14,2018
- Contributors: Zheng Rui, Jim Zhang, YanPing YU, Hongliang Wang, Jiayi Tang, ICE Sun, Putin, Jaingfeng Liu, Bingjie Huang, Du Du, Hongguang Chen, Junsik Yoon、Jose Gruber
- Organizer: ICE Sun
- Report Writing: ICE Sun
- Translation: Zhe Chen, JP, Shine Wu
DRC community initiated a one-week comprehensive and in-depth due diligence investigation into NEM, which covered 5 aspects: Project overview, Project team, Business plan, Technical solution, and Economic mechanism.
The result of which unveiled a total grade of 59, a project rating of BB, and a project risk rating of High Risk Level.
- NEM is the crypto currency token issued by the project New Economy Movement, also a blockchain project. Using a fresh set of digital currency and ecosystem, the project aims to provide enterprises or organizations a blockchain platform, which can help construct a holistic solution for an intelligent asset system.
- Compared to BTC and NXT, NEM has several unique features from other crypto currencies. The core of NEM is the POI algorithm, a consensus algorithm based on evaluating the economic activeness of individual’s contributions in a group. A node reputation system based on EigenTrust++ algorithm is also introduced to identify and reject the bad nodes from the network.
- NEM is the first crypto currency organization that implements integrated multi-signature at the blockchain level. This function is implemented on users’ end, concise and user friendly, enables the 24 development projects and community assets to be managed under a strict set of protocol.
- NEM has always been driven by decentralized communities, and the NEM has become one of the model communities in the society.
- NEM's core code is built completely from scratch. Including recent achievements of Mosaics and Mobile wallets, all software developments adhere to the rigorous soft-engineering practice of test-driven approach. At present, NEM team is heavily devoted to its Catapult project, which is to link up the public and private block chains in the NEM ecosystem and to realize cross-chain functionality in the near future.
- Mosaics are the digital assets on the NEM blockchain. It can be used to manage clients' digital currencies, stocks, bonds, coupons and other assets. By the multiple-sig encrypted account structure, the assets are fully secured. The Mosaic has the following four features:
- Mosaics Supply: The initial supply of mosaic must be in the range of 0-9 billion. The default value is 1000. When a token is created, the total amount must not exceed 9 billion.
- Divisibility: The divisibility determines up to what decimal place the mosaic can be divided into. Thus a divisibility of 3 means that a mosaic can be divided into smallest parts of 0.001 mosaics. The Divisibility must be in the range of 0-6.
- Total amount variability: It determines whether the supply of mosaics can be changed at a later point. The default value is False which means a fixed supply.
- Transferability: It determines whether mosaics are allowed to be transferred among accounts other than the creator.
- The NEM project is managed by the NEM.io Foundation registered in Singapore. NEM has a large global community base. There are many followers and active topics on various social medias like Blog, Twitter, Telegram, Reddit and Facebook. The NEM’s Chinese community, “NEM China”, publishes NEM-related news frequently, but with much lower click rates.
- The official website of NEM: https://nem.io/.
The key points of the NEM project team evaluation are as follows:
- The founder of the NEM project is ‘utopianfuture’ (the account name on Bitcointalk), He founded NEM on the Bitcointalk.org Forum on January 19, 2014, and began to promote this new crypto currency ecology. But as NEM progresses, UtopianFuture unexpectedly announced his complete resignation in June 2014 without taking away any NEM tokens. Since UtopianFuture left, the project was led by Lon Wong, Jeff McDonald and other founding members of the Foundation.
- NEM adopts the DAO organizational structure. It has set up a Global Foundation and several regional branches and expands its business globally under this framework. The supreme decision group for the foundation is the Foundation Council with 9 members from 9 different countries. There are 6 different regional branches, namely NEM in China, Europe, the USA, Southeast Asia, Oceania and Latin America, among which the branches in China are located in Beijing, Shanghai, Shenzhen and Guangzhou with a total of 20 members. The Global Foundation has over 200 employees.
- As the first chairman of the NEM Foundation, Lon Wong (the current advisor for the NEM Foundation and founder of the NEM eco-enterprise ProximaX) acts as the chief designer and leader for future development. Graduated from The University of New South Wales in Australia, he has his own patent for invention in blockchain e-cash. He is also the founder of the third largest telecom operator in Malaysia and has extensive experience in wireless communications and internet industry. At present, Lon Wong focuses mainly on the development of NEM eco-enterprise ProximaX, for which more than $40 million USD has been raised.
- As the first vice president of the Foundation, Jeff McDonald (the current advisor for NEM Foundation and chairman of the NEM eco-enterprise LuxTag), worked as an assistant professor at Keimyung University in South Korea for many years and is an excellent software architect and developer. He participated in TED Talk in 2017 and gave a keynote speech on NEM. Jeff currently concentrates on the development of NEM eco-enterprise Luxtag and promoting globally this NEM-based application for checking and tracing each luxury commodities’ authenticity.
- Kristop Van De Reck was once a member of the NEM Foundation Council and the NEM regional director in Europe. He is currently the Chairman and a founding member of the NEM Foundation. With the background in aerospace power system design and manufacturing, he has an in depth knowledge on engineering and system architecture. He led and established NEM's R&D center in Europe and organized a large number of companies to participate in the testing and R&D of NEM.
- NEM contributes 9.7% of its total tokens to its developer fund. The 3 core NEM developers Jaguar0625, Gimre and BloodyRookie are from the United States and Eastern Europe. They are very experienced in programming and coding. It took a year and a half for the first version of NEM public blockchain codes to release, which is highly refined in terms of its safety and functionality. The second version of core Catapult will be officially launched in late 2018 after over 20 months of R&D and being test by more than 100 companies for 6 months.
- Market Prospects: NEM is positioned as “Smart Asset Blockchain, Built for Performance”. It can be used to create high-performance intelligent asset systems for enterprises in a convenient, secured and customizable way. The investment towards ecological projects from the DAO Fund of NEM has promoted the development of NEM public blockchain ecosystem. NEM mainly relies on its underlying technology to serve enterprises, which not only allow enterprises to directly create its private blockchain from common templates, but also enables companies to issue assets (mosaic) on the public blockchain. Sharing a common set of API, the private key is the only credential used on both the public and private blockchains. This integrated trading technique has been successfully incorporated in the new Catapult 2.0, making cross-chain trade a reality between the public and the private blockchains of NEM. The new Catapult 2.0 is currently running smoothly and to be released to public soon.
- Project Features: NEM has the following four significant features, high performance, easy development, customizability, and security.
- High Performance: NEM is a blockchain project designed from scratch. It provides services to enterprises through parallel public and private blockchains with the objective to optimize service efficiency and increase business scale.
- Easy Development: Through API, the NEM blockchain technologies can be progressively deployed. Compared with ETH, the biggest advantage of NEM is the use of API mode, which greatly improved the adaptability of the project. Interaction can now be realized without programming.
- Customizability: Currently, through customized modules, multiple new projects have been launched in areas like financial technology, identity verification, logistics etc.
- Security: The combination of the public and private blockchains guaranteed the network security.
- Multi-signature: NEM is the only public blockchain project that supports multi-signature technology at the core level of the blockchain.
- Integrated Trading: NEM's integrated trading system allows users to easily perform decentralized asset swaps.
- Product Rivalry: As digital currency, NEM solves problems to enable a safe and efficient payment. Its competitors include BTC, BTH, LTC, DASH, etc. As a platform providing customized services to enterprises, NEM competes with ETH and EOS, to establish corporate private blockchains and to develop the corresponding DAPP. From these two aspects, NEM faces fairly strong competitions. The main advantage of NEM lies with its simple interaction mode. NEM has an extremely short block time (1 minute for public blockchains, 15 seconds for private blockchains), making interaction and payment much faster, but not fast as some competitors. At present, PundiX has already started to support the use of NEM for mobile payments.
- Project Plan Completeness: The first version of white paper of NEM focuses mainly on technical aspects than the business plan itself. For instance, it lacks the detailed elaboration on how to provide enterprises with customized development services for intelligent asset systems. Examples on how common templates can be applied to different scenarios are also missing. Later on, Lon Wong and Jeff McDonald uploaded the below 3 additional files to the white papers.
- Project Viability: The NEM main network has been in operation for a long time. Cooperation partnerships have been established with companies involving areas of notary / certification, banking / savings / investment, corporate, education, exchanges, gaming, ICO, Internet of things, loyalty / rewards, marketing / advertising, payment, registration/tracking, social undertakings and other areas.
- Project Plan: NEM did not release a clear and definite roadmap. NEM is currently developing an iterative "Catapult" project in order to link the public and private blockchains in the NEM ecosystem, and it plans to introduce cross-chain functions in the future. NEM is also constantly exploring ways to better serve the business communities.
- Governance: There is a well-defined governance framework in place. The governance structure is reasonably designed, with clearly defined responsibilities for each role. More information can be found on their website: https://nem.io/about/foundation/.
- Project Information Disclosure and Risk Management: NEM has frequent information disclosure through social media, forums, blogs and official websites. In terms of risk management, since the NEM.io Foundation is registered in Singapore, it is subjected to review and audit under Singapore law. At the same time, the Foundation managed most of the digital assets in multi-signature wallets to minimize the risk of mismanagement by any individual committee member.
- Blockchain Technology Evaluation: NEM is a native public blockchain technology, adopting POI consensus algorithm and reputation system based on the Eigentrust++ algorithm, which improves transaction speed (3000-4000TPS) and reduces transaction costs while enhancing transaction fairness.
- The POI algorithm is used for the timestamp interaction of NEMs. The importance of a NEM user depends on the amount of assets he has and the number of his wallet interactions he performs. In contrast, other virtual currencies do not take into consideration all the supporting effects of a node on the entire network. The PoS mechanisms have the nodes with most virtual currencies to produce blocks. For NEM, the number of virtual currency transfers is also a significant contributing factor for the network, as it encourages users to not only hold NEM but actively engage in transactions within the NEM ecosystem. This consensus mechanism will not produce huge waste in resources or encourage the arm race in mining equipment like in Bitcoin's ecosystem. In the NEM network, rewards will be decided and given to users in an exquisite and balanced manner. In POI consensus mechanism, capital does not directly translate into importance. Trading volume, level of activities and with whom you transact with are all important determinants. To put it simply, POI adds extra features to POS, and these new features can eliminate a side effect that make the rich richer.
- The Eigentrust++ algorithm is used for the credit rating of each node to ensure the security of the P2P network. If a node behaves abnormally, the entire network will discover and expel the node on the network. While most other cryptocurrencies use criteria-based black listing, the Eigentrust++ algorithm adopts a self-adaptive, self-learning approach.
- NEM adopts an elliptic curve encryption algorithm and adds multi-signature technology to the platform. The advantage of multi-signature is that it requires more than one user’s signature in a transaction. Specifically, if it is set in advance that M signatures are required in a group of N individuals in transaction, the transaction will only be executed with M individuals’ signature before the transaction is sent to the blockchain. This setup is suitable for joint ventures to co-manage their accounts.
- Technology Openness: The NEM code is completely open source, and the open source code on Github is https://github.com/NemProject.
- Technology Maturity: NEM was launched in 2014. The main network has been live for many years without major issues. Many enterprises are developing applications based on NEM. Technical maturity of its design and implementation is reasonable, and the mathematical calculations of POI are at chapter 7 of the link below:
- Basic information of token:
- The token of NEM is XEM;
- Total amount of tokens: The total supply of XEM is 8,999,999,999, and the maximum amount of tokens is constant;
- Exchanges: 24 exchanges including Binance, Upbit, Bittrex, Poloniex, and Huobi.
- In the early days, NEM raised money mainly through community crowdfunding, and the initial funding was 66.2BTC and 419697NXT (excluding some refunds). After the one-year lock-up period expires, 6 billion tokens were unallocated for various reasons. They are now being managed and distributed as rewards by the Foundation. The initial price of the community crowdfunding for NEM tokens was approximately 0.000022 cents each (2014).
- NEM Economic Mechanism: NEM adopts the POI consensus algorithm and calculates the importance of each node before a block is produced. The higher its level of importance is, the more likely that this node will receive the block reward. Meanwhile, NEM is equipped with a reputation system based on the Eigentrust++ algorithm to prevent malicious behaviors by any node. The Foundation’s Supernode Rewards Program was originally scheduled to be implemented by 2018 and has now extended to 2020. After 2020, Supernodes will still receive block transaction fees.
- Token Liquidity: As of May 14, 2018, the market value has reached $3B, or equivalent to 590,842 BTC, ranking 14th on Coinmarketcap.
The whole due diligence investigation process follows 4 steps:
Our due diligence investigation focuses on the following aspects:
Below are the benchmarks for project rating:
|Project Rating||Grades||Project Risk Level|
|AAA||100%-90%||Low risk level (very low)|
|AA||90%-80%||Low risk level (low)|
|A||80%-70%||Medium risk level (low)|
|BBB||70%-60%||Medium risk level (high)|
|BB||60%-50%||High risk level (high)|
|B||50%-40%||High risk level (very high)|
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