Cryptocurrencies
27
Feb
near protocol

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What is Near Protocol (NEAR)?

Near is a cryptocurrency and a platform for smart contracts and decentralized applications. Alex Skidanov and Illia Polosukhin founded Near in 2017.

Near is a Proof of Stake consensus blockchain that utilizes sharding technology. Near’s sharding implementation is called Nightshade, and its consensus model is called Doomslug. The native token of the Near blockchain is also called Near and is primarily used for payment and staking of transactions.

The DeFi sector is Near’s weakness. Near does not seem like an exciting investment at the moment.

What is Near Protocol (NEAR)?

Near is a cryptocurrency and a platform for smart contracts and decentralized applications. Near is also called Near Protocol, which refers to the entire project or Near’s ecosystem. Near’s biggest smart contract platform competitors are Ethereum, Solana, and Cardano.

Near came to the general public’s attention during the crypto boom 2021. So far, it has been overshadowed by the most prominent smart contract platforms. Near has never entered the top 10 list of cryptos regarding market capitalization.

From a technical point of view, Near is a very high-quality implementation. Near utilizes sharding technology, which allows its blockchain to process thousands of transactions per second. Theoretically, the capacity is enough for up to 100,000 transactions per second.

The table below provides basic information about Near:

FeatureInfo
Founders Alex Skidanov & Ilya Polosukhin
Category Smart contract platform
Ticker NEAR
Circulating supply 1.1 billion NEAR
Max supply Unlimited
All-time high (date) $20.42 (Jan 16, 2022)
All-time low (date) $0.526 (Nov 4, 2020)

The native token of Near is also called Near (ticker: NEAR). You can see Near’s real-time price here: Near price.

The Near token has two primary uses:

  1. The token is used for paying transaction fees on the Near blockchain
  2. Blockchain validators stake the Near token (Proof of Stake)

These uses are similar to the native tokens of other smart contract platforms. Near-token owners can also influence the development of the project by voting.

This article is a beginner’s guide to the Near Protocol. We go through Near’s history, technology, and potential as an investment.

The history of Near

Alex Skidanov and Ilya Polosukhin founded Near in 2017. Before founding Near, Alex worked as a software developer at Microsoft. Ilya was at Google, developing the Google Translate technology. Alex and Ilya met each other through the Y Combinator startup program.

Below is a picture of the founders.

near polosukhin skidanov

Near was initially started as an AI project called Near AI. Its name comes from the phrase, “The Singularity Is Near.”

Research in artificial intelligence led the founders to study cryptocurrencies in 2017-2018. Skidanov and Polosukhin quickly noticed that the blockchain implementations lacked the capacity for their requirements. This is how the idea of ​​establishing the Near Protocol was born.

Near’s founders raised $15 million for the project in the 2018 bear market before the blockchain was even developed. This says something about their reputation in Silicon Valley and San Francisco. Near raised $35 million in the first years of operation.

Near’s MainNet started in April 2020. This is how the project’s X-account posted about it a couple of weeks later when Near’s blockchain had already processed a million blocks.

 

In April, a kind of test version of the MainNet was launched. The final version of the MainNet was launched in October 2020, when Near-token also entered the market. In the spring of 2021, the first token bridge between Near and Ethereum, called Rainbow Bridge, was implemented.

At the beginning of 2022, a rare event was seen. The project secured no less than 500 million dollars in funding from the industry’s most prominent VC firms. The event is rare because the bear market had begun a few months earlier. Usually, such investments are seen at the top of a bull market.

Near came to the general public’s attention in the 2021 bull market. However, it did not reach the same price moves as Avalanche and Solana, which rocketed to 50x and 100x, respectively.

Unlike most cryptos, Near’s price peaked in the first quarter of 2022. By then, most cryptocurrencies had collapsed more than 50% from the 2021 highs.

Near scales with sharding

Near is a Proof of Stake consensus blockchain that utilizes sharding technology. The term sharding has become familiar to many through Ethereum, as Ethereum aims to scale with sharding. However, Near is one step ahead and already uses this technology.

Sharding means fragmenting the blockchain into smaller parts. The idea of ​​sharding is to enable parallel data processing. Think of a congested road with only one lane in each direction and no way to pass. What happens if the road is widened to four lanes? Then, instead of one car, four cars can travel in parallel.

Near currently uses four shards, each of which can handle around 1000 transactions per second. This gives Near a capacity of around 4000 TPS (transactions per second).

Near is developing dynamic re-sharding technology. This enables creating shards on the fly as demand increases. If the demand decreases, new shards can be destroyed. This way, the Near blockchain would dynamically scale according to the usage.

Near’s technology: Nightshade and Doomslug

Near’s sharding implementation is called Nightshade, and its consensus model is called Doomslug. Next, we will also go through these in more detail.

Nightshade

Near’s sharding technology, Nightshade, works on the same basic principle as other implementations. Near’s blockchain is divided into smaller parts (shards), whose transaction data is processed in parallel by different validators. In addition to this, Nightshade has unique properties.

nighthshade

In Nightshade, each shard bundles transactions into a group called a chunk. After this, the chunks created by each shard are processed so that the state of the blockchain is updated uniformly and synchronously.

In Near’s implementation, the blockchain validators are also dynamically assigned into shards. This helps balance the workload and also improves network security. The task of the validators is to produce and confirm the chunks in their shard and to update the information on Near’s blockchain.

Each sharding implementation is slightly different in terms of processing and shard communication. Nightshade offers a simplified and efficient solution focusing on shard independence and a unified consensus mechanism. For example, Ethereum’s sharding focuses on wider compatibility and integration.

Doomslug

Near’s consensus protocol is called Doomslug. Doomslug is partly based on the PBFT (Practical Byzantine Fault Tolerance) consensus. Its goal is to enable quick confirmation of blocks and minimize the possibility of blockchain forks.

In Doomslug, creating and confirming blocks takes place in two steps.

  1. Proposal phase
  2. Confirmation phase

In the first step, the validator proposes adding a new block to the blockchain. Proposal turns are based on a predefined schedule. Once a new block is proposed, other validators vote on its validity. A sufficient majority approves the block, considers it final, and adds it to the blockchain.

As a process, Doomslug is fast, efficient, and safe at the same time. The system can withstand an attack where even 1/3 of the validators would be hostile. Doomslug and Nightshade work hand-in-hand and enable Near’s scalability.

Near-token and staking

The native token of the Near blockchain is also called Near and is primarily used for payment and staking of transactions. Near entered the market in October 2020. At that time, one billion Near tokens were created and allocated.

near token

Epoch Rewards refer to block rewards. Near-tokens’ release to the market (vesting schedule) has been quite aggressive. This has hurt the price of Near, but from the point of view of a new investor, the situation is favorable. Almost 75% of Near tokens have been unlocked at the time of writing.

New tokens will also enter the market with a five percent annual inflation.

Near has quite tough requirements for network validators. This is probably the main reason there are only 215 validators when writing the article. Each validator has to stake at least 26,000 Near tokens, which means almost 100,000 dollars. The requirement is roughly the same as Ethereum’s validators have when measured in dollars.

Fortunately, small investors can delegate their tokens without minimum restrictions. Staking fees are in the 8.5-9 percent range.

Less than 50 percent of the Near tokens are staked when writing the article. This is not a high number because, e.g., Cardano, Solana, and Avalanche have over 60% staking ratio. On the other hand, many smart contract platforms also have lower staking ratios.

Validators of the Near network do not receive block rewards for themselves. Block rewards are burned, except for a smart contract-based transaction. In the case of smart contracts, 30% of the rewards go to the smart contract, and 70% are burned. The purpose of this is to act as an incentive for application developers.

Near and DeFi

The DeFi sector is Near’s weakness. Near Protocol is only ranked 30th in the blockchain ranking list with a modest $126 million liquidity. The table below shows the largest DeFi platforms and their TVL (Total Value Locked) figures for comparison.

PlatformNative tokenTVLMarket share
Ethereum ETH $50.3 billion 57.0%
Tron TRX $9.5 billion 10.7%
BNB Chain BNB $5.7 billion 6.3%
Solana SOL $4.6 billion 5.2%
Arbitrum ARB $3.2 billion 3.6%
Blast BLAST $1.3 billion 1.5%
Avalanche AVAX 1.2 billion 1.4%
Base - 1.2 billion 1.3%

Near’s most popular DeFi app is a lending service called Burrow, which very few people have heard of.

Fortunately, there are other applications on the Near platform. Its most popular app has nearly 27 million active users! This is Kai-Ching, a popular cashback reward app in Singapore. In addition, the Sweat Economy app for exercise has collected 3.7 million users. Check the dappradar website for more information.

Near as an investment

Near does not seem like an exciting investment at the moment. This is because Near seems to be in the wrong position in the market; it is not big enough to attract more fans but not small enough to attract speculative investors.

In the world of crypto, popularity is everything. Assessing cryptocurrencies’ valuation and price potential is tough, so most investors decide based on popularity. The more the coin appears in the news, social media conversations, and influencer videos, the more successful it will be.

Ethereum dominates the category of smart contract platforms. In the next group are projects like Cardano and Solana. After this, there is a third group where you can put Polygon, Polkadot, and Tron. Popularly, Near belongs only to the fourth group, which can be bundled with 10-15 other projects.

cryptos

Near’s position in the market gets increasingly crowded as Ethereum’s Layer 2 grows in popularity. In addition to this, modular blockchains will be the hottest thing in 2024. There are many options for investors, and Near is a bit out of favor. Of course, many other cryptocurrencies have the same problem.

One problem is the lack of native EVM support, so Ethereum apps cannot be easily cloned to the Near platform. This has been a significant factor in the success of BNB Chain and Avalanche. Near provides EVM support via a separate Aurora protocol.

There is nothing inherently wrong with Near’s technology. It scales innovatively and will be able to meet competitors’ challenges in the future. Near needs something to differentiate it from dozens of other smart contract platforms. Is the dynamic sharding “the golden ticket”? Time will tell.

Many investors are excited by the final quarter of 2023. Near’s price is almost 4x higher than four months ago. For example, Bitcoin’s price has risen by slightly more than 50 percent during this time.

If you want to invest in the Near token, you can easily buy it on the Binance exchange. Binance is the market’s most popular cryptocurrency exchange and has the best liquidity for Near. Besides Binance, other reliable and reasonable alternatives are ByBit and Kraken.

Antti Hyppänen

Antti Hyppänen is the founder and editor-in-chief of AboutBitcoin.io. Antti has written articles about cryptos since 2017. He follows the crypto market every day of the year and is responsible for the daily operations of AboutBitcoin. Antti is not a maximalist regarding any cryptocurrency but looks at the industry objectively. Antti’s investment profile is “buy & hold,” i.e., he does not trade or use leverage. His crypto portfolio consists of mainly Bitcoin and Ethereum. Antti also follows macroeconomic events. In addition to cryptos, his interests include gold, silver, and the US stock market.