NEAR Protocol Technology

As dApps have grown in popularity, the crypto community has faced a growing scalability problem. Scalability in this context refers to a blockchain’s ability to handle a large number of transactions with reasonable speed and cost. Ethereum has particularly faced scalability challenges due to the high demand for its usage, and while some people advocate for scaling solutions to be built on top of Ethereum (Layer-2 solutions), other projects like NEAR have decided to build entirely new blockchains with different architecture.

NEAR Protocol’s proposed solution to this scalability problem is the implementation of sharding. Before diving into what this means, it’s useful to identify the three main functions of blockchain nodes: they process transactions, communicate validated transactions and completed blocks to other nodes, and store the state and history of the entire network. As network congestion increases, these tasks become more and more demanding for the nodes.

Sharding lessens the computational load by splitting or partitioning the network into shards (or fragments). With this tactic, every node is not required to run all of the network’s code — just the code that’s relevant to its shard — so shards can conduct computation in parallel with one another, thereby scaling the network’s capacity as the number of nodes in the network increases.

To achieve consensus among the nodes in the network, NEAR uses a PoS system. With PoS, nodes who wish to become transaction validators must stake their NEAR tokens to be considered for participation. Token holders who do not want to operate a node can delegate their stake to validators of their choice. NEAR uses an auction system to choose validators every epoch (approximately every 12 hours), and validators who have larger stakes have more influence in the consensus process.

Some validators are responsible for validating “chunks” — an aggregation of transactions from a shard — while others are tasked with producing blocks, which contain chunks from all the shards. Other nodes, called “fishermen,” observe the network and detect and report malicious behavior. If a validator behaves badly, their stake will be slashed.

NEAR Token Economics

The NEAR token is primarily used to pay transaction fees and as collateral for storing data on the blockchain. NEAR also rewards several stakeholders in the blockchain with NEAR tokens. For their services, transaction validators receive a NEAR token reward every epoch that amounts to 4.5% of the total NEAR supply on an annualized basis.

Additionally, developers who create smart contracts receive a portion of the transaction fees that their contracts generate. The remainder of each transaction fee is burned, increasing the scarcity of the NEAR token. NEAR has also established a protocol treasury, which receives 0.5% of the total NEAR supply annually, for the purpose of reinvesting in the development of the ecosystem.

NEAR Protocol is capable of supporting tokens that are “wrapped” from other chains in addition to NFTs. Likewise, NEAR has constructed a bridge with Ethereum, allowing users to transfer ERC-20 tokens from Ethereum to NEAR.

NEAR Platform Governance

Resources allocated to the protocol treasury are distributed by the NEAR Foundation, a Switzerland-based non-profit dedicated to protocol maintenance, ecosystem funding, and guiding the governance of the protocol. Technical upgrades to the NEAR crypto network are carried out by the Reference Maintainer, which is selected by the NEAR Foundation board, though all nodes in the network must consent to updates by upgrading their software. Eventually, oversight of the Reference Maintainer will be conducted by community-elected representatives.

NEAR Protocol aims to pull ahead in the crowded race to provide the infrastructure for Web 3.0 and has sought to distinguish itself through its unique developer and user friendly features.