What is the NEAR Protocol?

1. What is NEAR?

The NEAR Protocol is an open-source, high-bandwidth smart contract platform for creating decentralized applications (dApps).

2. Who created NEAR Protocol?

NEAR Protocol was created by programmers Alexander Skidanov and Ilya Polosokhin. Work on the project began in late 2018. Since then, the team has grown to fifty people and includes developers from Facebook, Google, and Niantic, as well as many medalists and finalists in international sports programming competitions. Two members of the team have twice won world programming championships (there are nine in total). Almost all members of the team come from the Russian Federation and the former Soviet Union.

During the NEAR ICO, which took place in August 2020 on CoinList, 120 million NEAR tokens were sold (12% of the original issue of 1 billion tokens) at a price of $0.30.

The remaining tokens from the initial stockpile will be distributed as follows:

  • 17% to grants and community programs;
  • 14% to the NEAR team;
  • 17.6% of tokens sold in seven closed rounds of fundraising for $35 million;
  • 11.7% to fund implementation of ecosystem initiatives;
  • 10% to the NEAR Foundation, which will be allowed to delegate those tokens to validators on the NEAR network. Tokens in all of the aforementioned categories will be blocked for a period of three months to five years.

On October 13, 2020, the main NEAR Protocol network was launched.

3. Who manages the NEAR Protocol?

The governance structure of NEAR is under development. All suggestions for specific parameters are published and discussed, after which users will decide by voting.

The creators of the project expect that over time, control of the network will pass into the hands of native token holders, and the protocol will become a decentralized autonomous organization (DAO).

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At present, NEAR is managed and developed by NEAR Foundation, a non-profit organization registered in Switzerland. Its leaders include well-known industry representatives, including NEAR co-founder Ilya Pololokhin.

The NEAR Foundation also manages the project’s treasury. After the launch of the collective management mechanism, the users will have full control over the funds.

4. How does the NEAR protocol work?

The NEAR protocol operates on the Delegated Proof of Stake (DPoS) consensus algorithm and uses sharding to optimize performance. However, unlike sharding in other cryptocurrencies such as Polkadot, all shards in NEAR are treated as parts of a single blockchain. In addition, NEAR uses Rainbow Bridge to ensure interoperability with Ethereum.

The integrity of the blockchain is ensured by the Nightshade mechanism, which only adds a snapshot of the current state of each shard to a block on the NEAR blockchain. Each shard maintains its own set of nod-validators, which transmit the state of its shard whenever a block is produced.

You can think of this mechanism as an intersection of multiple roads. The intersection is a NEAR blockchain, each road is a shard. The shards are capable of running in parallel because the transactions performed on them do not intersect. This model greatly improves the performance of the system.

Another important component of NEAR is a mechanism called Doomslug, which allows node-validators to take turns creating blocks, which happens every epoch of 12 hours. A new block is created approximately every second.

The source of the block creation reward is inflation, which is currently approximately 5%.

Stacking validators and delegated stacking pools receive 90% of the block creation reward. 10% is received by the NEAR treasury.

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5. How is staking done in the NEAR protocol?

To become a node-validator in NEAR, tokens must be staked. The specific amount of funds in a stack depends on the number of tokens that other validators in a particular shard are stacking. This figure also determines the proportion of block rewards that are paid out each epoch (12 hours).

Each shard in NEAR contains 100 “seats”. You have to have at least one “seat” to fulfill the function of a validator. The value of each “seat” is determined by the total number of NEAR tokens stacked in the shard. Validators who break the rules risk losing a portion of their steak. Validators and delegates can opt out of steaking at any time.

This model is designed to motivate validating nodes to provide new or smaller shards with a lower entry threshold. If a user does not have enough money to buy enough NEAR tokens to buy a “seat,” they can try to persuade delegators to delegate their tokens to them via stacking pools. For delegating tokens, users receive a portion of the reward for creating blocks from the validators they bid on.

6. What is the role of NEAR token?

NEAR is the native cryptocurrency of the NEAR blockchain. It is used for stealing by validator nodes and delegator participants. Although the source of rewards for validators and delegators is an annual inflation rate of 5%, NEAR tokens are burned to pay network fees.

Commissions in the NEAR network are minimal. Given sufficient network activity, the NEAR token becomes a deflationary asset in theory. Annual inflation becomes zero if the network processes more than 1 billion transactions per day, and can fall to -2% if more than two billion transactions are processed daily.

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7. How is the NEAR project evolving?

NEAR is currently in the process of putting full control of the blockchain into the hands of token holders. According to the project roadmap, the NEAR team intends to implement several additional options during the current “Post Mainnet” phase. Many of them are of a purely technical nature, but the project whitepaper also identifies key milestones in development.

The first one is the implementation of the zero-knowledge technology, similar to the one used in Zcash – it will allow private transactions in NEAR blockchain.

The second possible upgrade is the implementation of private shards. It would allow user groups or entities to capitalize on the security and speed of the NEAR blockchain while keeping their activity private, hiding it from the rest of the network.

Finally, NEAR intends to implement mobile nodes. Using phones to enable blockchains is nothing new, but so far there are limitations in the form of insufficiently powerful mobile Internet and mediocre phone equipment. NEAR co-founder Alexander Skidanov has sought to integrate the protocol with mobile telephony since the project’s inception. In the near future, when cell phones and networks become sufficiently efficient, the final decision on integration will be made by the user community through voting.

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