Proof of Importance (PoI)
Introduced by NEM (XEM) in 2015, the Proof of Importance (PoI) consensus mechanism aims to solve two predominant drawbacks of the Proof of Stake (PoS) system: The more a user stakes, the higher their chances of adding a block. Ergo, the more capital a participant has, the higher their potential to receive a reward.
Additionally, the PoS system prioritises entities based on the participants’ holdings, a design often labelled counterproductive, as it incentivises users to hold on to their cryptocurrencies, as opposed to using them.
The PoI consensus algorithm solves these two issues by assigning an ‘importance score’ to miners (known as ‘block harvesters’) on the network. A higher PoI score means the network and its users have a higher trust in a specific miner to validate and mine new blocks. Thus, a miner with a higher score has a higher chance of selection.
An example of a PoI consensus algorithm is NEM (XEM).
Key Takeaway
Proof of Importance (PoI) is a consensus mechanism that uses ‘importance scores’ to determine which nodes are eligible to mine new blocks. This helps to ensure that the network runs smoothly and all participants are contributing to its success.