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Definitions and terminology related to cryptoeconomics, blockchain and distributed ledger technology.

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Proof of Importance

Proof-of-Importance is a blockchain consensus mechanism introduced by NEM. It functions similarly to proof-of-stake: nodes need to ‘vest’ an amount of currency to be eligible for creating blocks and are selected for creating a block roughly in proportion to some score. In Proof-of-stake, this ‘score’ is one’s total vested amount, but in proof-of-importance, this score includes more variables. The calculations borrow from the math of network clustering and page ranking. At a high level, the primary inputs are: Net transfers: how much has been ‘spent’ in the past 30 days, with more recent transactions weighted more heavily. Vested amount of currency for purposes of creating blocks. Cluster nodes: accounts that are part of interlinked clusters of activity are weighted slightly more heavily than outliers or hubs (which just link clusters but aren’t part of them). The importance score addresses two primary criticisms of proof-of-stake. One risk is that people simply hoard many coins as possible and reap the rewards from block creation. This concentrates wealth while discouraging transactions. The importance score means that hoarding will result in a lower score, while spreading XEM around will increase it. Being a merchant pays better than having a hoard. The second risk is a nothing-at-stake problem: because block creation costs no resources, whenever there is a fork, someone can freely create blocks on both forks. This will greatly (perhaps indefinitely) prolong the fork. NEM’s proof of importance guards against this.