Proof of Importance Explained
Last Updated: 1st November 2018
Proof of importance is a blockchain consensus algorithm that was first introduced by NEM. Proof of Importance is the mechanism that is used to determine which network participants (nodes) are eligible to add a block to the blockchain, a process that is known by NEM as ‘harvesting’. In exchange for harvesting a block, nodes are able to collect the transaction fees within that block. Accounts with a higher importance score will have a higher probability of being chosen to harvest a block. In order to be even eligible for the importance calculation, the NEM protocol requires that an account hold at least 10,000 vested XEM in order to be eligible for harvesting.
Proof of Importance can be regarded as a novel consensus algorithm because, unlike existing consensus mechanisms such as proof of stake, it seeks to take into account one’s overall support of the network. For example with proof of stake, an argument can be made that it rewards coin hoarders. Under the proof of stake model, nodes are limited to ‘mining’ a percentage of transactions that is reflective of their stake in a cryptocurrency. For example, a proof of stake miner who owns 10% of a cryptocurrency would be able to mine 10% of blocks on the network. The limitation with this consensus model is that it incentivizes nodes on the network to save their coins, instead of spending them. It also produces a scenario in which ‘the rich get richer’, as large coin holders are able to mine a larger percentage of blocks on the network.
Proof of Importance looks to overcome the problems that can be found in the proof of stake model by identifying an account’s overall support of the network. NEM does this by accounting for three factors: vesting, transaction partners, and number and size of transactions in the last 30 days.
- A minimum of 10,000 vested coins is required for harvesting.
- The higher the number of vested coins, the higher the account’s proof of importance score.
- Proof of importance only counts coins that have been in an account for a set number of days.
- Proof of importance rewards users who make transactions with other NEM accounts on the network.
- Users cannot game the network by trading back and forth between accounts, the algorithm only accounts for net transfers over time.
Number and size of transactions in the last 30 days
- Each transaction (above a minimum size) contributes to an account’s proof of importance score.
- Larger and more frequent transactions have a greater impact on the proof of importance score.