What is Near Protocol? The Beginner’s Guide

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Near Protocol is a smart contract platform using sharding technology. This article explores  Near Protocol’s history, technology, prospects, and the native token NEAR.

Near belongs to the platform category

We divide cryptocurrencies into three different categories: currencies, platforms, and tokens.

Currencies have no other significant purpose than to transfer and store value. The best-known cryptocurrency is Bitcoin. Other popular currencies are Litecoin and Monero.

Platforms are ecosystems for smart contracts. The best-known project in the platform category is Ethereum. More and more challengers have surfaced for Ethereum in recent years. These include Solana, Avalanche, and Terra.

Platforms serve as operating systems on which decentralized applications can be built. Platforms can therefore be thought to be a bit like iOS or Android.

Tokens don’t have their own blockchain and they are always issued on an existing platform. Tokens are usually either utility tokens or governance tokens. DeFi protocols Aave and Uniswap are good examples of this category.

Near Protocol belongs to the platform category. It is a typical smart contract platform and competes with Ethereum among others. NEAR is the native token of the Near protocol. It is used in the ecosystem for paying transactions fees and staking.

Near’s history

Near Protocol was founded in 2018 by Alex Skidanov and Illia Polosukhin. Before founding Near, Alex worked as a software developer at Microsoft. Illia worked at Google to develop technology for the company’s Translate app. Alex and Illia met through the Y Combinator startup program.

Both Alex and Illia operated in the San Francisco area and became famous for the Whiteboard Series on Youtube. In these videos, Alex and Illia invited well-known crypto influencers and protocol founders to share information about their projects.

When it was time to launch the Near Protocol, Alex and Illia managed to raise $15 million in the middle of a bear market. This was even before the project had been developed at all.

The first version of Near MainNet was released in April 2020 with about 50 software developers. The final version was released in October of the same year. This is when NEAR token also started trading publicly. Near held an ICO in August 2020 through CoinList.

Near has since raised additional funding to grow its ecosystem from well-known investment companies such as Dragonfly Capital, a16z, Alameda, and Circle Ventures.

Near leverages the sharding technology

Near Protocol is a Proof of Stake blockchain that uses sharding technology to optimize its efficiency. Sharding allows data processing to be sliced into smaller pieces (shards) which can be processed simultaneously.

The animated video below explains how sharding works.

The sharding variation used by the Near Protocol is called Nightshade. In this sharding mechanism, each shard is maintained by its own set of validator nodes, which add a snapshot of their shard’s status to the Near blockchain each time a new block is created.

Each shard has 100 seats. In order to become a validator, a node must own at least one seat. The price of one seat depends on the total number of staked NEAR tokens. This basically means that the more money is staked in the protocol, the more expensive it is to become a validator.

However, the Near Protocol encourages potential validators to form new shards. If the validator doesn’t own enough NEAR tokens to get its own seat, it can try to convince others to delegate their tokens for staking.

This means that the more validators are associated with the shard, the more expensive it becomes to become a validator, and the more new shards are created to ease network congestion.

The Near protocol doesn’t technically have a minimum requirement for the amount to be staked. In practice, it costs up to about $30 million to get one seat with the NEAR token price in February 2022. However, delegation is made easy with an online wallet, and there is no minimum requirement for delegation.

near wallet

The staking reward is about 12% (APY) for both validators and delegators with a one-day lock-up. Validators charge a fee of approximately 6% from the delegators. Validators and delegates can withdraw their staked capital at any time.

As with almost all Proof of Stake blockchains, validators can lose part of their stake if they violate the protocol rules. This ensures the security of the blockchain. Any lost tokens will be passed on to other validators.

Near’s blockchain can theoretically handle up to 100,000 transactions per second. It can do this with its Doomslug technology. The Doomslug mechanism allows validator nodes to alternate as a block builder.

One epoch lasts 12 hours and a new block is created approximately every one second. In February 2022, Near’s blockchain does not yet have any shards other than Near’s main blockchain, which can handle 800-1,000 transactions per second.

In addition to its own virtual machine environment, Near protocol is also compatible with Ethereum’s EVM. Near’s EVM is run by another project called Aurora.


In addition to the EVM, Aurora also has a cross-chain bridge that software developers can use to access Near’s scalability and low transaction costs in the Ethereum platform.

Aurora can be thought of as an Ethereum layer 2 scaling solution that uses Near technology. Rainbow Bridge also enables the transfer of ERC-20 tokens between Ethereum and Near.

The NEAR token

The native token of the Near protocol is NEAR. It is used in the ecosystem for paying transactions fees and staking. The protocol burns (removes) most of the tokens used in the ecosystem.

If the transaction involves a smart contract (as it usually does), the developer of the smart contract will receive 30% of the transaction fee. This is to encourage developers to build decentralized applications on the Near platform.

The token-burning mechanism could also theoretically make the NEAR token a deflationary cryptocurrency if the protocol had enough users. However, the utilization rate should be more than 1 billion transactions per day in order to achieve zero annual token inflation. By comparison, Ethereum handles just over a million transactions a day at the time of writing the article in February 2022.

The annual inflation of the NEAR token is 5% and the maximum number of tokens is 1 billion. Approximately 635 million are in circulation in February 2022. Of new tokens, 90% are paid as a reward to validators. The remaining 10% goes to Near Foundation, which is the organization that directs the project’s development.

near foundation

Near Foundation consists of four board members, and one of them is the founder, Illia Polosukhin. The foundation has stated its goal is to decentralize governance to NEAR token holders and various guilds and decentralized communities (DAOs).

Early NEAR token investors and team tokens follow vesting schedules. They last from a few months to five years.

Noteworthy is the fact that Near foundation and early investors can delegate their staked tokens to validators and earn more NEAR tokens while waiting for their tokens to be released. This may create considerable sales pressure on NEAR tokens. The Near Foundation has apparently sold hundreds of millions of dollars worth of tokens to finance the growth of the Near ecosystem.

However, this type of activity is relatively common among growing smart contract platforms, and it does not seem too problematic for investors if there is also a demand for utility tokens.

The future of the Near Protocol

Smart contract platforms have been extremely popular investments since 2021. Near Protocol has been a bit late to this party. Near experienced its own boom in early January 2022, rising to about $20 per token before falling towards the current level of about $10.

Near has recently published interesting partnerships and shown positive signs of development. These ecosystem projects could be for example Spin, a decentralized application operating on Near’s platform. If the Layer 1 narrative continues in 2022, then Near and its ecosystem can expect to grow.

Near organized the Metabuidl hackathon in September 2021, which may bring interesting metaverse, NFT, and GameFi projects to the Near platform. Near also integrated with the Opera web browser in 2021.

Aurora’s partnership with ConsenSys makes many Ethereum tools, such as MetaMask, compatible with Near. Near also announced a partnership with Ardana to build a bridge between Near and Cardano.


Like other EVM chains, you can add the Aurora network to MetaMask. More detailed instructions can be found here.

Near’s sharding technology is also taking steps forward. The Nightshade sharding is scheduled to be completed by the end of 2022, after which the Near protocol would have eight shards. One of these will be Near’s EVM chain Aurora.

According to the Near Foundation, as the sharding progresses, the staking requirement for validators could be reduced. Smaller investments could also be used to become a validator. Near has currently 100 validators, but it hopes to multiply that number in the first half of 2022

Near also has other ambitious goals, such as using zero-knowledge technology to create private transactions. This would allow private shards for institutions, for example.

The plans also include the ability to run Near nodes on phones alone. Near’s adoption is helped by the fact that Near’s wallet addresses are automatically generated in a human-readable format (for example, my_wallet.near) instead of a cryptographic hash.

Near may be a growing smart contract platform, but competition in this sector is extremely hard. Near is a pretty similar project as Solana. The technologies used are alike and both use the Rust programming language in their smart contracts. This means that they are fighting for the same software developers.

Solana has a significant advantage in terms of popularity compared to Near. Solana is also backed by big names of the industry such as Sam Bankman-Fried, founder of the cryptocurrency exchange FTX. Solana also appears to be more acceptable in the eyes of U.S. regulators. The NEAR token is not listed on U.S. crypto exchanges and it is possible that it is not decentralized enough in the eyes of the regulators.

NEAR price and how to buy NEAR

The best place to buy NEAR tokens is the market-leading exchange, Binance. You will find the best liquidity and the most trading pairs. It is also possible to stake NEAR tokens in Binance.

Buy NEAR from Binance

In addition to Binance, NEAR can be found from the popular KuCoin exchange.

Please note that NEAR is not an Ethereum ERC-20 standard token. It is therefore not available on popular decentralized exchanges such as Uniswap.

NEAR can be stored and staked at TrustWallet or Near’s own wallet. You can also download the Near app to Ledger and store tokens in a cold wallet.

The official Near protocol website can be found at The project can be followed at Twitter @NEARProtocol or through the Medium blog.

You should also check this Coin Bureau video from December 2021.

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