NEAR Protocol is a platform that enables the creation of decentralized applications (dapps) through a scaling mechanism called sharding.
What is NEAR Protocol? (NEAR)

One of the main tenets of Web3 and blockchain technology is that network decentralization can help users own their data. NEAR seeks to achieve this by creating a community cloud, akin to Amazon Web Services, that hosts dapps. Instead of being controlled by a centralized entity, NEAR’s system is open to anyone who wants to participate in the network, and it compensates them according to their contributions.

Validators are rewarded with NEAR, the native token of the blockchain, for processing transactions and securing the network. It also pays transaction fees, facilitates peer-to-peer payments, and incentivizes smart contract developers by directing a proportion of fees to them.

In order to scale effectively, NEAR Protocol supports its growing ecosystem of projects by using a sharded, or partitioned, blockchain. Validators can process transactions on a part of the blockchain (called a shard) rather than the whole network. This approach aims to increase the network’s total capacity, and the team estimates it can enable up to 2000 simple transactions per second (tps).

In addition to sharding, NEAR Protocol secures its network using a unique form of Proof of Stake (PoS) consensus called Thresholded PoS (TPoS) that helps optimize decentralization. The network also uses a virtual machine based on the Ethereum Virtual Machine (EVM) to support smart contract functionality on its chain, serving as the basis for DeFi and other crypto-powered services.

NEAR ESSENTIALS

  • NEAR Protocol is a layer 1 blockchain that puts scalability at the forefront of its development, using a sharding technology called Nightshade to permit high throughput of transactions.
  • In addition to its novel sharding mechanism, NEAR Protocol’s Thresholded Proof of Stake (TPoS) consensus mechanism and multiple validator roles seek to democratize its network while also making it more efficient.
  • Through its first five years, NEAR was one of the most well-funded and supported blockchain projects in the crypto space, helping drive its development and adoption.
  • The NEAR token is the native cryptocurrency of the protocol, serving to secure the network through staking and as payment for transaction fees. Inflation of the token is capped at 5% per year and decreases with progressive usage of its ecosystem.

How was NEAR Protocol developed?

NEAR Protocol was founded by software developers Illia Poloshukin and Alexader Skidanov in 2017. Poloshukin once worked for Google and Skidanov was previously employed at both Microsoft and MemSQL. Their first iteration of NEAR, called NEAR.ai, was designed to explore program synthesis, a computer programming field related to artificial intelligence. However, in 2018 they shifted their focus to blockchain technology and smart contract functionality.

The NEAR Foundation, a non-profit organization based in Switzerland, helps coordinate the maintenance, funding, and governance of the Protocol.

The protocol mainnet went live and produced its first block, called the genesis block, on April 22, 2020. Although its validators were run entirely by the NEAR Foundation through Proof of Authority early in the blockchain’s life, the “training wheels” were removed in September 2020. According to the developers, this allowed the Foundation to work out issues with the platform before allowing the community to take over as validators to drive decentralization.

Since its inception, NEAR has raised funding through multiple mechanisms to support its development. In August 2020 the team raised over $33 million through an initial coin offering (ICO), and in the first half of 2022 the team raised $500 million from VC firms such as FTX Ventures and a16z.

How does NEAR Protocol work?

Thresholded Proof of Stake (TPoS) consensus

To reach consensus, NEAR uses a Proof of Stake system in which validators lock up their NEAR tokens to grant them the opportunity to process transactions and receive rewards. Those who act maliciously have their staked tokens slashed (deducted).

Although some blockchains use a variant of PoS called “delegated” PoS (DPoS) in which users vote for nodes they trust to validate transactions, NEAR uses a similar validator election mechanism called Thresholded Proof of Stake (TPoS).

TPoS uses an auction system to choose validators. Part of its design disincentivizes validators from pooling, a mechanism which concentrates resources, boosts individual rewards, and centralizes control of the chain. TPoS also decreases forking of consensus which occurs when multiple validators build blocks on the chain simultaneously, resulting in longer times to reach finality of transactions. These features are meant to improve decentralization, transaction speeds, and a fair distribution of block rewards.

There are four types of roles that validators can fill:

  • Chunk producers – Verify transactions on each shard and produce a chunk (or a “shard block”) from their shard.
  • Block producers – Collect chunks from validators of individual shards and aggregate them to produce a block on the main chain.
  • Hidden validators – Validate random shards only known to themselves and not to the public, making it harder for malicious actors to corrupt them and increasing the chain’s security.
  • Fishermen – Provide proof against fraud by acting as observing nodes that monitor specific parts of the chain and report bad actors. These nodes require a very minimal stake and do not receive rewards.

Nightshade: NEAR’s sharding technology

Sharding is the process by which a blockchain divides itself into individual chains (called shards) that process transactions separately. In NEAR’s case, these shards then report their states back to the main (beacon) chain by using a subset of validators. This takes the pressure off the larger chain and helps it scale to accommodate more users without sacrificing security.

NEAR Protocol’s sharding technology is called Nightshade. Its approach considers all shards as part of a block during a specified time period, compiling the states of the shards into each block on NEAR’s beacon chain. If there is an error in validating any of the individual shards, then all are reverted.

NEAR’s ultimate goal is to enable dynamic resharding, which would automatically adjust the number of shards on the network to accommodate fluctuations in network traffic.

The Aurora Virtual Machine

NEAR hosts a version of the Ethereum Virtual Machine (EVM)—the software that runs a node of the Ethereum blockchain—on its blockchain, called Aurora. Since the EVM is what powers dapps on Ethereum, developers can transfer their code into a new environment and benefit from NEAR’s low transaction fees.

Users of the network can therefore interact with their favorite Ethereum smart contracts like Curve and SushiSwap in the same, familiar ways.

How is the NEAR token used?

NEAR is the native cryptocurrency of the NEAR Protocol and its primary use cases are paying the fees necessary to process transactions on the network and securing the blockchain through staking.

While most transaction fees are burned, a small portion is used to reward developers when transactions involve smart contracts they built. This is meant to incentivize development and growth of the ecosystem.

The inflation of NEAR—or minting of new tokens—is capped at 5% per year, with an effective rate re-calculated each half-day based on the fees collected during that time period. These fees are ultimately removed from the inflation calculation, decreasing how much inflation the system sees as it attracts more use. New coins generated through inflation are used to pay for block rewards.

Token supply

There was an initial supply of 1 billion NEAR when the genesis block was created in April 2020. Of these, 17.2% were allocated to community grants and other programs, 23.7% went to project backers, 14% were reserved for core contributors, 12% were sold during the ICO, 11.7% were allocated to early ecosystem development, 11.4% went to operations grants, and 10% were placed in the Foundation endowment. All tokens subject to lock-up periods fully vest five years after genesis, in 2025.

How to buy NEAR

You can buy the NEAR coin on Bitstamp. Sign up for a Bitstamp account and start trading NEAR today!

Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.

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