by Russian DeFi

From Nightshade to Doomslug: The Inner Workings of NEAR Protocol

Have you heard of NEAR Protocol?

It’s revolutionizing the blockchain world with its unique Proof of Stake and sharding approach.

Here’s how it’s enabling 100k transactions per second at just $0.001 per transaction.

We bring A deep dive into a fully decentralized platform driving innovation in DeFi, NFTs, and DAOs.

An Introduction to NEAR

2021 saw the rise of many alternative Layer-1 chains, such as Solana, Terra (Luna), and Avalanche.

Technically, many core considerations are common to all L1s, including decentralization, stability, speed, security, and scalability. These are complicated, highly technical subjects, and creating a distributed system that simultaneously achieves all these goals is a monumental task.

Many great teams are developing L1s with broadly similar plans: to create the best platform to power the new internet/digital economy/future of society.

In the last two years, it has become clear that web3 has arrived and will impact our lives in aspects such as money, art, culture, knowledge, and others. One or more L1 ecosystems will become the infrastructure for this new world.

As much as web3 seeks to break free from the world that came before it, it is clear that many of the insights that informed previous epochs, such as market theory, game theory, and network theory, are vitally important to web3.

L1 success is determined by network effects, use case capture, and the speed with which a project can achieve them.

NEAR is not a company or a platform. It’s a protocol with an open-source developer community.

What is NEAR?

NEAR is a Layer 1 network that optimizes scaling and transaction speeds through a novel Proof of Stake and sharding approach.

NEAR’s Doomslug consensus mechanism and Nightshade sharding framework enable the protocol to achieve a throughput of up to 100,000 transactions per second under ideal conditions and transaction costs of less than $0.001.

NEAR has developed a fully decentralized platform to seamlessly and securely build enterprise-grade applications beyond its L1 network. Eventually, NEAR’s core focus is a highly performant base layer with a permissionless application platform built on top of it.

NEAR is sufficiently scalable and composable to address today’s Defi challenges, but its ultimate goal is to drive the much broader vision of a truly Open Web.

History of NEAR

Illia Polosukhin and Alexander Skidanov, two seasoned engineers with collective experience at Google, Microsoft, and MemSQL, founded NEAR Protocol in 2018.

The project began due to the two founders’ efforts to find a blockchain platform to support their scalable smart contract-based application idea.

They began developing their blockchain, NEAR, after failing to find one that met their requirements.

Within a day of announcing the NEAR Protocol in July 2018, Alexander and Illia grew their team from two to ten people.

They also received approximately $15 million in funding before developing anything, and this was during the bear market. Since then, the team has grown to include multiple International Collegiate Programming Contest medalists and finalists.

How does NEAR Protocol work: Nightshade & Doomslug

NEAR is a delegated proof of stake blockchain that optimizes performance through sharding. All shards on NEAR are considered to be part of the same blockchain. NEAR can also communicate with Ethereum via the Rainbow Bridge.

This is all due to a mechanism which is known as Nightshade. Only a snapshot of each shard’s current state is added to a block on the NEAR blockchain by Nightshade. Each shard is supported by its own set of validator nodes, which broadcast the state of their shard whenever a block is generated.

The simplest way to visualize this is as a junction of several roads. The intersection represents the NEAR blockchain, and each road is a shard. Furthermore, because the transactions executed on them do not overlap, shards on NEAR can work in parallel. This dramatically improves efficiency.

Another crucial component of NEAR is a mechanism known as Doomslug. This allows validator nodes on the network to take turns generating blocks. Every second, a new block is generated on NEAR.

On NEAR, block rewards are derived from inflation, currently around 5% per year. 90% of every block reward is distributed to staking validators and delegator staking pools, with the remaining 10% going to the NEAR treasury, which the NEAR Foundation currently manages.

Rainbow Bridge allows the sending of tokens between NEAR, Aurora, and Ethereum. This reduces the number of transactions required to transfer funds from the NEAR Coin to others. Moving to Ethereum, however, can be very expensive if the network is congested and takes two transactions to complete.

Use Cases of NEAR

NEAR has three broad use cases:

Decentralized Finance (DeFi) – DeFi is essential to finance conducted without a central authority (banks, governments, etc.). Instead, it is an internet-based peer-to-peer financial system based on blockchain technology.
Non-Fungible Tokens (NFTs) – NFTs are digital tokens representing a unique asset, allowing them to be traded and supporting digital artwork marketplaces to digital ticketing.
Decentralized Autonomous Orgs (DAOs) – DAOs are blockchain protocols that are community-led and self-governed by a set of rules. These rules are agreed upon by the members and encoded into smart contracts, which execute actions automatically. DAOs can be used for crowdfunding, in which all members pool funds for a common goal.

Key Features of NEAR

The NEAR platform is built around usability and developer-friendly features. Because of its protocol-level implementations, the platform can support a wide range of use cases and actors. These are some cases:

💻️ Developers: Using its contract-based account model, developers can incorporate advanced permissions into their applications to sign transactions on behalf of users.

NEAR’s infrastructure also provides a highly flexible environment, giving developers access to specific tools and incentivizing them to create seamless apps.
Furthermore, NEAR encourages developers to maintain critical system functions by facilitating a protocol-level fee rebate.

🧑‍🦱 Users: NEAR provides an intuitive user experience, including a flexible account model.

Most decentralized platforms require users to go through the time-consuming process of creating an account and a wallet and managing their tokens.
Even inexperienced DApp users can benefit from NEAR’s simplified onboarding process, eliminating the need for multiple steps and pop-ups.

⛓️ Validators: The platform also enables projects to diversify their offerings and improve service quality for the end user.

It accomplishes this by granting validators access to delegation features at the contract level.
This makes NEAR an appealing location for validator node operations.

NEAR Token

The NEAR token is the main asset of the NEAR network, and its function is transparent to all users and accounts. Each token, like Ether, is a digital asset that can be used to pay the system to perform transactions and store data—actively participating in the staking phase by operating a validation node as a member of the blockchain network.

Participation in governance mechanisms long-term impacts network service distribution and technical direction. The NEAR token enables all network participants to collaborate financially.
NEAR tokens can be obtained in various ways, including earning, purchasing, or requesting them from a friend. Users can earn NEAR by participating in development bug bounties, winning NEAR-focused hackathons, or helping maintain the network’s communities.
Those already owning NEAR tokens can increase their earnings by staking them with a validator node. Even though NEAR is traded on the most popular cryptocurrency exchanges, anyone can receive NEAR tokens using the platform’s NEAR “Drop” feature, which does not require a NEAR account.

NEAR Protocol ICO

The NEAR ICO occurred on CoinList in August 2020. It was delayed by one day due to the high demand for the token. The NEAR ICO raised approximately 33 million USD by selling 120 million NEAR tokens at an average price of around 30 cents, representing 12% of NEAR’s initial supply of one billion tokens. These ICO tokens have a 1-2 vesting schedule, depending on the price at which investors purchased them.

One-seventh of NEAR’s remaining initial supply has been set aside for Community Grants and Programs. Core Contributors will receive 14% of NEAR’s initial supply (the NEAR team). Prior Backers received 17.6% of NEAR’s initial supply. These tokens were sold during seven private funding rounds dating back to 2017. Together, they raised more than $35 million.

Early Ecosystem initiatives will receive 11.7% of NEAR’s initial supply. The NEAR Foundation has received 10% of NEAR’s initial supply. The NEAR Foundation can delegate these tokens to NEAR network validators. All categories above are subject to various lock-up schedules ranging from three months to five years.

NEAR Ecosystem

During this time, the NEAR ecosystem has grown dramatically; it contains hundreds of projects and DAOs.

Here are some of the most popular NEAR dApps:

Paras: NFT marketplace utilizing IPFS decentralized storage with its PARAS token. Interestingly, NEAR has its version of CryptoPunks called NPunks.
Flux: Open predictive market protocol using FLX tokens
Burrow: Lending protocol similar to Ethereum’s Aave.
Ref Finance: Token swap exchange like Uniswap.

To efficiently interact with Ethereum’s dApp ecosystem, NEAR launched Rainbow Bridge (we mentioned earlier), allowing for the exchange of crypto funds between the networks. Once a user deposits tokens on Ethereum, they are locked. The Rainbow Bridge creates new tokens on the NEAR Protocol, accessed via NEAR’s Wallet.

NEAR Cryptocurrency Wallets

Because cryptocurrency is so new, there are few NEAR wallets available.

Currently, only two mobile wallet options are the Trust Wallet and the Math Wallet.
NEAR also has a web wallet, but it is still in the beta stages, so use it cautiously.
Do not, under any circumstances, leave your NEAR tokens on a cryptocurrency exchange.

NEAR vs. SOL

Solana is more similar to NEAR than any other L1; however, a significant difference could suggest NEAR as the superior option.

The main difference is the type of server required to become a validator.

For Solana, validators must pay upwards of $100,000. A minimum of 128 GB of RAM is required for the server.
It also necessitates using more than 16 cores from a modern server CPU.
These processors are typically thousands of dollars instead of a few hundred dollars for commodity hardware.
Solana also requires an SSD that must be replaced regularly and many Solana tokens on hand for voting and validating.

The vast majority of validators on the network are operating at a loss in the hope of increasing fees. It could be a more sustainable model, as evidenced by the low number of validators compared to other systems.

Strengths and Weaknesses of NEAR?

Strengths:

Fast processing times
Near zero transaction fees
Widely available on crypto exchanges
Environmentally friendly with its carbon-neutral certification
User-friendly with human-readable account names instead of long strings. For example, if Mohsin were to open a NEAR account, his account name would be Mohsin.near instead of his wallet.
NEAR is connected to Ethereum by a bridge which makes it easy for any Ethereum-based projects to migrate over to NEAR’s network
Sharding functionality allows it to scale continuously, addressing one of Ethereum’s main weaknesses.
NEAR attracts developers by sharing a portion of the transaction fees earned from smart contracts that they create

Weaknesses:

There is a lot of competition as the smart contract space is quite congested
.NEAR has some way to go to catch up to the runaway leader Ethereum
If Ethereum successfully executes its planned migration to POS and incorporates sharding, this could reduce NEAR’s competitive advantage
NEAR has high price volatility and thus is a high-risk investment

Conclusion – Where will NEAR be in 5 years?

NEAR blockchain will become a leading decentralized application and digital asset platform in the next five years. Scalability, security, and low latency make it an appealing solution for businesses and developers interested in leveraging blockchain technology.

NEAR will be important in connecting businesses to the decentralized world as more companies adopt blockchain technology. Its infrastructure will provide businesses with a secure and scalable solution for digitizing assets, streamlining operations, and entering new markets.