What is NEAR Protocol?

The Ethereum network provided a place for programmers to develop all kinds of applications efficiently and securely, at least initially. But as the network expanded, so did the processing times and gas fees paid by those enacting transactions. A slow and expensive network presents a problem, and many developers have developed sidechains known as Layer 2 protocols to run alongside the Ethereum blockchain (such as the Polygon network).

The NEAR protocol network isn’t attempting to run in tandem with Ethereum - it’s seeking to utilize a version of Ethereum’s protocol and replace it with an entirely new decentralized network with the NEAR token acting as its currency.

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How Does the NEAR Protocol Work?

Alexander Skidanov and Illia Polosukhin, a pair of Ukrainian computer scientists, conceived the idea of the NEAR protocol back in 2017. After attempts to construct their vision on the Ethereum network failed, the duo decided to create their own blockchain network to allow developers to scale their applications more efficiently. The NEAR mainnet was launched in early 2020, and the NEAR token quickly amassed a large market cap.

Unlike Layer 2 solutions like Polygon, the NEAR protocol network is a Layer 1 blockchain that attempts to offload congestion onto parallel sidechains. Instead, Layer 1 blockchains use different types of technology to enhance transaction speeds and minimize network congestion without leaving the main chain. 

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Breaking Down the Blockchain

The NEAR protocol blockchain uses a feature known as sharding technology to handle thousands upon thousands of transactions without bogging down the network. Imagine the blockchain as a company with different departments, like accounting, assembly, purchasing, etc. Each of these departments must perform its duties for the company to run correctly, but they don’t necessarily need to be present in the same office to accomplish this.

Sharding technology works similarly. Through sharding, the blockchain is broken down into different ‘departments’ called shards. Transactions are processed through each shard, which removes the strain on the overall network. Since only a fraction of the processing power is needed to confirm transactions on each shard, the network can clear far more transactions than its competitor. In addition, all shards interact together and recognize transactions processed in different shards, ensuring seamless and secure processing. Developers have estimated that 100,000 transactions per second will be possible when the NEAR protocol network is fully operational. Currently, the NEAR protocol is in Phase 1 of its three-phase operation to implement a fast, secure, and efficient Ethereum competitor.

The NEAR token is the network currency, using a Proof-of-Stake (PoS) consensus mechanism to validate transactions. Validators stake their NEAR tokens to the network to facilitate transactions and receive rewards for securing the blockchain. Since validators have to stake tokens to approve transactions, nefarious actors would need to sink the value of their own holdings to hack the network. Network participants can use NEAR tokens to pay for digital assets, fees, data storage costs, and the ability to run decentralized applications. The maximum supply of NEAR tokens is one billion, and about 5% of the total supply is released yearly. Like Ethereum, the NEAR protocol network has a mechanism for burning existing tokens to reduce supply and inflationary pressures.

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What is NEAR Protocol Used For?

The NEAR protocol can be used for running many different decentralized applications (dApps). One of the perks for developers using the NEAR ecosystem is the ability to program in familiar languages like Javascript or Rust. In addition, NEAR has a digital wallet, and users who want to bring assets onto the network from Ethereum can use a feature known as the Rainbow Bridge to transfer ERC-20 assets across various ecosystems.

The NEAR ecosystem is vast, with over 500,000 members and 4,000 developers working on various Defi, NFT, and Web3 projects. The network contains different sub-ecosystems, each operating under different parameters. Two of the most prominent examples are:

• The Aurora Ecosystem - A platform running as a Layer 2 to Ethereum’s virtual machine that allows developers to build on the NEAR network protocol while still using ETH tokens and the familiarity of the Ethereum ecosystem. Aurora hosts bridging solutions like Rainbow Bridge, Defi applications like the DeBank portfolio tracker, and NFT marketplaces like Paras and Mintbase.

• The Octopus Ecosystem - A network for running appchains, which are decentralized applications hosted on app-specific blockchains. The Octopus network built itself on the NEAR protocol blockchain due to the scalability solutions provided by sharding. Octopus is a newer ecosystem than Aurora and has only six operational appchains currently running.

The NEAR protocol is a solution to Ethereum’s scalability woes that doesn’t require a Layer 2 sidechain for offloading transactions. However, NEAR isn’t the only protocol to utilize sharding technology, and competitors like Solana and Cardano have already amassed more funding and developers. Want to learn more about NEAR protocol and other Layer 1 blockchains? Visit Path today for detailed looks across the cryptocurrency investing landscape.