What is NEAR Protocol?

NEAR Protocol is a highly scalable sharding-based blockchain project that was launched in 2020 and stands out for its unique vision of offering BaaS (Blockchain-as-a-Service) capabilities.

NEAR Protocol uses its network of nodes to create a decentralized cloud infrastructure that allows the deployment of decentralized applications (dApps) on it. Together with this NEAR infrastructure, it guarantees the deployment of two blockchain layers: its Layer1 NEAR and Layer2 Aurora.

Thanks to this way of operating, NEAR Protocol is capable of offering not only high scalability, but also cross-chain interoperability with other networks such as Ethereum. In this way, users can transfer their tokens from these blockchains to the NEAR Protocol network, obtaining greater processing capacity and lower transaction fees.

The platform's native token, NEAR, allows maintaining the necessary incentives for the infrastructure to work at all times, also providing staking and decentralized governance functions within the protocol.

Origin of NEAR Protocol

The development of NEAR Protocol started in the middle of 2018 when Erik Trautma, Alex Skidanov and Illia Polosukhin decided to start developing this project. At the beginning, the development team was made up of just nine people and the work was overwhelming. The idea was to create a blockchain protocol that consisted of a main network, the scalability of which was driven by a system of sharding. In this way, NEAR's Layer1 would have enormous scalability and the ability to serve hundreds of thousands of transactions per second if necessary.  This first development would be possible after the presentation of the NightShade sharding algorithm, created from scratch for use in the NEAR Protocol.

Along with Layer1, NEAR Protocol also provided for a Layer2. This would serve to amplify the functionalities of NEAR Protocol, allowing the installation of an Ethereum Virtual Machine. Thus, NEAR Protocol would be compatible with the Ethereum network and other derived networks, allowing the rapid deployment of smart contracts over the network, which would benefit from the speed and operational cost of NEAR Protocol. In total, these ideas took the team almost two years to develop, and it wasn't until August 13, 2020 that the NEAR Protocol mainnet network it became a reality.

How NEAR Protocol works

NEAR Protocol is a decentralized platform that seeks to facilitate the development and deployment of dApps on its blockchain technology. For it, NEAR makes use of widely known technologies such as the Ethereum Virtual Machine (EVM), construction of sidechains and sharding, use of the AssemblyScript and Rust programming language that is later compiled to WebAssembly (WASM) and other open technologies that allow the operation and development of this platform.

NEARCore, the reference implementation of the NEAR Protocol

The NEAR Protocol owes its existence to NEARCore, which is the software that makes it work. NEARCore is built entirely using the Rust programming language, making it portable to different architectures and very secure against different attacks and exploits. In this way, the developers have created a first layer of security around NEAR making their nodes implemented with security in mind.

NEARCore has everything you need for full node startup for mainnet, testnet and betanet, all of which can be easily launched with the official script, near-up. NEARCore also ensures access to all NEAR technologies, since the implementation is completely free and easily integrated with its different backends in JavaScript, Python, Go, Java, C# and even Ruby.

All this means that NEARCore is built so that the community can take advantage of its capabilities using the tools that best suit their needs.

Nightshade Sharding, the NEAR Protocol sharding scheme

The central core of the operation of the NEAR Protocol is the Nightshade sharding protocol. Nightshade is integrated with NEARCore in order to make an efficient and secure operating partitioned network. In this way, the NEAR nodes can process and validate transactions in parallel, making it work much faster and thus increasing the total scalability of the network.

With Nightshade each shard on the NEAR network will produce a part of the next block. Each of these parts is called a chunk. All the chunks produced are then sent to the rest of the network, where they are compiled, processed and stored, generating a new block within it.

In this new block are the records of all NEAR transactions and their last synchronization status. Once the process is done, it repeats itself in an endless cycle that keeps the computational power of the NEAR network running.

This operating scheme would allow NEAR to offer a scalability of hundreds of thousands of transactions per second. However, the limitation of the system is in the connection and the latency between the nodes that are part of the network. If the nodes are very far from each other on the planet or have connection problems, Nightshade's ability to scale is strongly affected. In fact, under certain conditions this can lead to hard forks of the network.

Nightsghade's Wards

In order to prevent this, Nightshade bets on a consensus protocol hybrid driven Threshold Proof of Stake (TPoS) to select the validators. The consensus protocol, and specifically its part BFT, is built around two well-proven technologies:

1. Bitcoin's longest chain consensus system. In Nightshade, the longest chain is the correct chain, thus cutting off the chance of malicious hard forks breaking its performance.
2. The Casper system of Ethereum 2.0 merged with the GRANDPA concept of Polkadot is used. In this way, the sharding chains have protection against malicious domain attacks, in which a small group of nodes can attack a sharding and end up contaminating the rest of the chains.

For its part, TPoS is similar to an auction system in which a large pool of potential validators indicate how many NEAR tokens they are willing to stake through a signed transaction. In that case, TPoS helps determine the minimum threshold to become a validator every epoch (typically a 12 hour interval) and decides based on those dynamic parameters. In this way, the network adds additional protection against attacks to the staking scheme.

Rainbow Bridge and Aurora, cross-chain capabilities and smart contracts

The second important part in the operation of NEAR we see in Rainbow Bridge and its Layer2, Aurora. Rainbow Bridge is a NEAR app that allows users to transfer ERC-20 tokens, stablecoins, wrapped tokens and even NFTs, between the Ethereum and NEAR blockchains. This allows developers and users to take advantage of NEAR Protocol's increased processing power and low fees.

Rainbow Bridge is a fully decentralized, permissionless gateway that can be used with any Web3 wallet. The system works thanks to a series of smart contracts on Ethereum and Near's Layer2, Aurora. The operation is identical to that of most of the bridges that we know for cross-chain activities (for example, Multichain). This means that the tokens in Ethereum are locked in the smart contract within that network while in Aurora an exact copy of that asset is released, which can then be mobilized in NEAR without limitations. The opposite process is also possible, through the burning of the asset in NEAR and its release in Ethereum.

Now, Rainbow Bridge is possible thanks to the fact that Layer2 of NEAR, Aurora, has a full support implementation of the Ethereum Virtual Machine. This means that any Ethereum smart contract can be ported to NEAR without major modifications. Thanks to this, it is possible to recreate ERC-20, ERC-721 and ERC-1155 tokens (the latter with NFT capacity).

Reasons to do this?

Well, operating in NEAR is much cheaper. For example, creating an NFT in NEAR can cost as much as $1 USD. On the other hand, in Ethereum, that value can be up to $100 or more, depending on the cost conditions of the Gas in Ethereum.

The other reason is speed. Aurora is able to reach the confirmation of a transaction in just 2 seconds. This puts the average 45 seconds it takes to trade Ethereum pretty far (as long as you pay the correct Gas). This means that DeFi applications on the NEAR Protocol are not only possible, but hundreds of times cheaper than using networks like Ethereum. In fact, the DeFi ecosystem on NEAR Protocol has grown rapidly thanks to the facilities it offers to develop these applications on its blockchain.

On the other hand, Aurora uses the same operating principle as Ethereum. That is, the computing commissions of the smart contracts must pay a "Gas" using the NEAR token. There are also limitations on the size and capacity of Gas that smart contracts can use. This is to avoid infinite computing cycles and keep the network protected from spam attacks.

NEAR token

The NEAR token is the native token of the NEAR Protocol. It is a token derived from ERC-20 that works on the NEAR blockchain and takes advantage of the capabilities of Aurora for its operation. The token has a maximum supply of XNUMX billion tokens, making it a deflationary token. Among the main uses of NEAR is the payment of network commissions, payment of rewards, payment for access to dApps and services within the network and governance of the protocol.

A curious point about NEAR is that to maintain its scarcity the rest of the transaction fees are burned. In this way, the inflation of the network is kept under control and the increase in value of the token is encouraged.

Governance within the protocol

Governance within the NEAR Protocol allows the community to participate in deciding the future of the protocol. From making and voting on improvement proposals, to participating in bug fixes and bug bounties, to participating in updating system parameters and introducing large-scale changes to the core technology of the protocol. The ability to manage resources often includes the allocation of grant funds from community sources, such as the allocation provided to the Foundation.

NEAR's design principles apply to its governance:

1. Usability: Governance processes must be clear and understandable. Active participation and voting mechanisms (where available) should be simple and straightforward. Governance must be effective and efficient, so that decisions are made quickly and implemented efficiently. The stakeholder community must have enough voice to support the legitimacy of the decisions and not abandon or fork the platform.
2. Scalability: Governance needs to expand as the scope and complexity of the platform itself, the diversity of its stakeholders, and the breadth of participation grow.
3. Simplicity: The strongest processes tend to be the simplest, so good governance must avoid over-engineering processes and recognize that person-to-person communication is often the easiest approach.
4. Sustainable decentralization: Governance must allow the participation of all stakeholders in the platform, but must be resistant to capture by any of them over time.

To participate in governance, all you have to do is stake within the platform, which will give you voting power within it. You can also participate in governance discussions using the community forum arranged for it.