What is Near Protocol? Explanation and Price Prediction

Discover NEAR Protocol, a carbon-neutral blockchain and smart contract platform gaining attention in the crypto world.

Jul 20, 2023 - 11:58
Oct 19, 2023 - 13:13
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What is Near Protocol? Explanation and Price Prediction
Reading time - 14 min

NEAR Protocol is a carbon-neutral layer 1 blockchain and smart contract platform that makes waves in the crypto world. But what exactly is NEAR Protocol, and why is it gaining so much attention? This guide will look into the ins and outs of NEAR Protocol, its unique features, and its potential price prediction.

What is NEAR Protocol?

NEAR Protocol is a platform for decentralized applications that aims to make apps accessible on the web. The network runs on a Proof of Stake (PoS) consensus mechanism and uses sharding to offer scalability. NEAR Protocol aims to make decentralized applications more widely adopted by focusing on performance and user experience improvements.

NEAR Protocol was founded in 2018 by Alexander Skidanov and Illia Polosukhin, who have impressive backgrounds in the tech industry. Skidanov is a software developer who previously worked at Microsoft, while Polosukhin was an engineering manager at Google. The protocol was officially launched on Mainnet in April 2020.

The NEAR Foundation is a non-profit association based in Switzerland that manages the NEAR Protocol. The foundation has over 50 members and is responsible for developing and maintaining the protocol.

Key Features of NEAR Protocol

NEAR Protocol has several unique features that distinguish it from other blockchain platforms. Let's examine some of these in detail.

Thresholded Proof of Stake

The network's consensus mechanism is the method by which the network "chooses" who will validate the next block and how much they will have to stake to participate in its validation. NEAR uses the Thresholded Proof of Stake (TPoS) system, an alternative to the Delegated Proof of Stake (DPoS) system. In essence, this consensus model selects the validators of the next block through an auction in which the various nodes must decide how many tokens to bet for a specific epoch (lasting 1-2 days), thus determining how many "seats" will be assigned to each of the validators who participated and how many tokens each will receive for this service. There are three different types of block producers on this network:

  • Chunk Producer: These produce the "chunks" (block fragments).
  • Block Producer: These create the blocks and "organize" the "chunks."
  • Hidden Validator: These control the two previous categories and receive rewards only at the end of the validation epoch.

With this consensus mechanism, NEAR seeks to make the validation process and the choice of nodes fairer and less centralized in relation to the number of coins a node has staked.

This process aims to reduce the network pooling found in networks like Bitcoin and the concentration of stake in networks that use DPoS.

In TPoS, whether you hold 100 staked tokens in a single node or distribute those tokens across 100 different nodes, you will earn the same amount of rewards, plus a small extra amount guaranteed by the foundation, specifically to encourage the decentralization of the chain.

DoomSlug

The block generation scheme of this chain is called DoomSlug, which, in conjunction with TPoS and Nightshade, solves the problem known as Practical Byzantine Fault Tolerance (PBFT).

Practical Byzantine Fault Tolerance (PBFT) is a consensus algorithm used in distributed computing systems to reach agreement among network nodes, even if some are faulty or malicious. The Byzantine Generals' Problem, which PBFT aims to solve, is a situation in distributed computing where components may fail, and there is uncertain information on whether an element has failed or not. The name is derived from a hypothetical situation involving Byzantine generals who must coordinate an attack while only being able to communicate via messengers and where some generals may be traitors trying to sabotage the attack.

Thanks to DoomSlug, the network achieves near-instant finality in under 2 seconds, starting from the block immediately following the one containing the transaction to be finalized. This solution is superior to other chains, which require multiple blocks to confirm a transaction.

In brief, DoomSlug works by alternating a series of participants in the network validation, who are selected using the TPoS method beforehand.

Once a block (B0) is created and filled with information, it is received by a series of validators chosen in advance through an auction. These validators check and confirm its validity and then send an endorsement to the validators of the next block (B1), who were also chosen in advance during the auction. The validators of block B1 then endorse those of block B2, and so on.

However, if the validators of block B2 do not validate it within the estimated time by the chain, the nodes from the previous block (B1) send a message to the validators of block B3 to skip the last block (B2) since no one confirmed it.

This means a block produced on NEAR is irreversible, provided that the network does not slash any validator of that particular block. Additionally, to ensure even greater security, the entire operation is supervised by hidden validators to prevent the creation of a group of fraudulent nodes.

The mechanism developed by the NEAR team performs well even under significant node downtime, capable of processing and finalizing transactions even with only 51% of these nodes being honest and active. This is a better result than in BFT networks, which require 2/3 of the network to be active.

Nightshade - Dynamic Resharding

The scalability method proposed by NEAR, known as Nightshade, is a type of scalability derived from the sharding family.

Sharding: The "traditional" sharding method involves dividing an entire blockchain into many small pieces (shards), which are then distributed among the various nodes of the network. This process offloads the large amount of data the network would otherwise have to process. These shards can then process their transactions or interactions with a sidechain. However, the beacon or main chain always coordinates the various shards and their interactions to avoid errors that could lead to a slowdown or a halt in generating new blocks. This scalability mechanism has been used or theorized by other chains like Ethereum before it became Roll-up centric, focused on vertical scaling, and by Polkadot with its beacon chain. These models are similar to each other, but they differ in their specific operations.

In the method proposed by NEAR, these shards are not sidechains managed by the beacon chain as in Polkadot but are parts of a single fragmented blockchain and run parallelly by different validators chosen through the TPoS method.

In short, all the transactions on the chain are aggregated into a list and subsequently divided into "chunks." In this way, the block validator will not have to validate an entire block but a chunk of it, thus reducing the work it has to do and the amount of data to be stored.

These shards can be run in parallel because each transaction within a block of this chain contains a snapshot that allows its validators to accurately reorder the priority of such information. It enables the network to perform highly in terms of Transactions Per Second (TPS), even reaching up to 100,000 TPS.

Though quite advanced, this entire process still needs to be completed. It requires four phases to reach its final state: Dynamic Resharding.

The network approached this Sharding concept shortly before its Mainnet launch in 2020 by overcoming phase 0 (Simple Nightshade), where the various milestones to scale the chain were defined. During this phase zero, the network state was divided into four shards, not the transaction processing part. The network's TPS increased from 1000 to over 4000 thanks to this first phase.

At the end of 2022, phase 1 started, where a new role was created among the validators, the so-called "chunk-only producers," whose task is to validate a single shard and to produce the "chunks." Compared to pre-existing and still-existing block producers, these validators do not need powerful hardware because they play a minor role compared to the latter. This change is expected to increase the network's decentralization over the medium term significantly.

Phase 3, called Nightshade, should be developed and released in Mainnet in Q3 of 2023, and its goal is to remove the need for validators to keep track of all shards and, therefore, the entire blockchain. So the Sharding at the processing level and not just the state level will also be complete. In addition, the performance required for each network validator (block and chunk producers) should also decrease, making it easier for users to participate as validators and further decentralizing the network.

Smart Contract Wallet

Wallets built on NEAR are Smart Contract wallets, which allow users to perform numerous operations that are currently unachievable on other chains. Here is a list of functional features:

  • Modify the wallet name: This makes it more user-friendly to use Web 3 solutions, even for those unfamiliar with their operation. Therefore, we can consider this solution as a native equivalent to Ethereum Name Service (ENS) for NEAR wallets, and it's free.
  • Set up recurring payments or deadlines.
  • Social Recovery: This allows the recovery of accounts through a network of trusted individuals.
  • Collateralize Wallet: You can use your wallet as collateral within DeFi lending applications to obtain loans and execute trading or farming strategies.

Aurora

Aurora is an EVM-compatible sidechain built on NEAR, allowing for more efficient scaling and, most importantly, enabling the easy replication of various applications initially developed on Ethereum. Fees are paid in ETH, and this chain facilitates cross-chain transfers between the two chains, making it possible to "bridge" standard ERC-20 tokens without difficulty via the official "Rainbow Bridge."

This sidechain differs from others because it is a smart contract on the NEAR chain. This leverages the security of both the NEAR chain and Ethereum, making it not only as easy to use as any other EVM-compatible chain but also very safe and fast. It utilizes NEAR's sharding mechanism to process both simple and complex transactions. As a smart contract rather than a stand-alone chain, it doesn't have to deal with complex processes such as:

  • Tracking the operations of the network.
  • Dealing with consensus validation and storage.

Despite its fees being paid in ETH, there are two main reasons why the development of Aurora should benefit NEAR:

  1. Since Aurora is a Smart Contract on NEAR, the fees for transactions to and from the mainchain will be paid with its native coin (NEAR).
  2. A portion of the ETH spent on Aurora is converted into NEAR and then burned.

Regarding fundamental metrics, Aurora creates a new block every second and reaches finality in about 2 seconds. It has commission costs lower than a cent and can handle hundreds of transactions per second, thanks to NEAR's consensus mechanism.

As often happens with EVM-compatible chains, the bottleneck is the Ethereum virtual machine which was designed to work on Ethereum.

Aurora also has a DAO, composed of Guilds, where it's possible to vote changes regarding its operation and future development through the Governance token: Aurora (the token seems useless at the moment).

Guilds

The NEAR chain has also internally developed a DAO, where all NEAR token holders, which thus act as a governance token, are permitted to vote. The DAO is divided into "Guilds." These groups have different aims designed to maximize efforts and results in developing this chain. Currently, there are three Guilds:

  • Marketing DAO
  • Developer DAO
  • Creative DAO

Tokenomics and token distribution

What is $NEAR

NEAR is the governance, fuel, and stake token of the NEAR network. It can be used as gas within the network to execute transactions and approve smart contracts. Additionally, it serves as a token that can be staked to participate in network validation through the Thresholded Proof of Stake (TPOS) mechanism. Users are rewarded with additional NEAR tokens by locking up NEAR tokens in a node that validates the network.

Regarding governance, staking NEAR tokens yields returns and grants voting rights on any changes proposed within the project.

Tokenomics and fundamental metrics 

According to information from Messari, the chain currently has a circulating supply of 941 million tokens. The inflation of the NEAR token is capped at a maximum of 5% per year. It can also have a deflationary trend in case of significant token burns. However, due to the numerous token unlocks in recent months, the circulating supply has increased by more than 28%.

Evaluating some economic characteristics of the network, we find that 90% of these tokens are issued to network validators, while 10% go to the foundation treasury. These can be utilized for network incentives. Thus, 4.5% of this new supply will end up in validators' hands, while 0.5% will go to the foundation's treasury.

Another interesting data point indicates how the chain is "friendly" towards developers. When a user interacts with a smart contract on this network, 30% of the fees go to its developer, and 70% are burned, reducing the coin's current and future circulating supply.

Looking at some fundamental network metrics, we note the following:

  • Active Nodes: 213
  • NEAR staked: 535.8M (58% of circulating supply)
  • Unbonding period: 24-36 hours
  • Block time: 1 second
  • Finality: 2-3 seconds
  • Average gas fee costs: $0.01

Initial Token Distribution

During the initial "Genesis allocation phase," 1 billion NEAR tokens were minted on April 22, 2020. Afterward, NEAR tokens were distributed through linear vesting that can last from 12 to 60 months.

Thanks to the smart wallets on the NEAR chain, all these "locked" tokens can be staked by their holders, thus generating a passive income throughout the lock period.

Let's now look at how these billion NEAR tokens were allocated:

  • Community Grants, Programs (17.2%): Grants and funding programs for development on the chain (vesting for 60 months)
  • Core Contributors/TEAM (14%): Allocated to the developers and the team that actively participated in NEAR's development before the Mainnet launch in 2020 (distribution began 12 months after the launch, and vesting will occur over 48 months).
  • Backers (17.6%): Various institutional investors and VCs that have funded the project. The team informs us that none of these obtained more than 3.5%, and few are even close to 1% (vesting for 60 months with an increase after the first 12 months)
  • Small Backers (6.1%): Various smaller investors who have funded the project. The guidelines applicable to Backers also apply here.
  • Community Sale (12%): Sale open to the community, totaling 125M tokens (25M were unlocked immediately, and the remainder distributed through linear vesting over 36 months)
  • Early Ecosystem (11.7%): Grants and funding programs for early adopters and developers who participated in the Beta phase and various grants used by the chain to boost its development in its early stages. Part of these grants has not yet been announced (linear vesting up to 48 months)
  • Foundation Endowment (10%): A portion designated for the foundation that will be distributed in various ways. It's divided into two parts: the first, in which tokens did not have vesting, and the second, where these are locked for at least 24 months.
  • Operations Grants (11.4%): Another portion designated for team members developing NEAR as a reserve in case they need to increase their salary or pay extras. Additionally, a part could also be allocated as a grant for app development on the chain (60 months of linear vesting)

Biggest Venture Capital Firms

There are companies, such as FTX Ventures or TAC (Three Arrows Capital), which are significant among the various venture capital firms that participated in the different funding rounds. It's essential to be aware of the amounts of tokens held in their portfolios and the unlocking dates for these locked tokens. This is because when there is a significant release of liquidity, these tokens will likely be sold on the market, triggering intense selling pressure.

RoadMap and Most Important Updates

Over the past two years, NEAR has seen many developments that have significantly increased the chain's performance. Moreover, the developers are expanding their reach by developing other Layer 2 chains compatible with the Cosmos and Polkadot ecosystems and introducing unique innovations like the Blockchain Operating System (BOS). Let's examine these innovations and their expected rollout according to the roadmaps. The official NEAR roadmap is divided into two separate maps:

  • Protocol Experience: This includes developments that impact both developers and users.
  • Protocol Core: This comprises developments that will improve the network's scalability, security, and decentralization.

Protocol Experience Roadmap 2023-2024

  • Meta Transactions (NEP-366): This would allow a third party to cover the transaction fee costs for one or more transactions, thus allowing anyone to engage with NEAR without having tokens in their account. In phase 2 of this development, the possibility of paying fees in stablecoins or even fiat will be introduced.
  • Zero Balance Account (NEP-402): This will enable the creation and maintenance of accounts even with a zero balance, which was previously impossible. It works similarly to the mechanism in Polkadot and Kusama.
  • Secp256r1keys (NEP-312): The support for Secp256r1 keys would allow iPhone users to have an on-chain account without the need to create an account via a wallet.
  • Global Storage (NEP-173): This would remove the fee a smart contract developer must pay each time they decide to deploy the smart contract on the network. This makes using and forking smart contracts easier without paying fees for their storage.
  • Running wasm in wasm (NEP-385): This would enable the synchronization of interactions between NEAR contracts within its chain. It would greatly simplify the development of smart contracts for developers and make their operation within the chain much more efficient and functional once the chain has transitioned to dynamic sharding.
  • Zero-knowledge Light Client: The NEAR team is also contemplating the creation of private Zero Knowledge (ZK) layers on its native chain, thus providing private blockchain solutions for businesses that require this feature.

Protocol Core Roadmap 2023-2024

  • Scale to 100 Shards - Sharding phase 2: Over these months and those that follow, the chain should evolve and increase the number of sustainable shards. This will enable parallel processing of many more chain parts, thereby increasing its Transactions Per Second (TPS).
  • Hidden Validator: The role of the hidden validator, as previously discussed, will be implemented. This validator will check the work of various block and chunk producers.
  • Gas Price Auction: Implementing gas price auctions will allow users to prioritize the execution of their transactions by validators, functioning similarly to Ethereum.
  • Dynamic Resharding: This will enable the various shards to be "aware" of the network's state and to increase or decrease accordingly. This system will function like a lung, adjusting its capacity based on the network's needs at any given time. If the network needs high TPS, it will increase the number of shards; therefore, the demand for computational power, or vice versa, will decrease in times of low TPS demand.

Other Developments

Octopus 2.0

Octopus network is a multi-chain platform that allows the connection and creation of application-specific blockchains, also known as app chains (parachain, IBC chain, etc.) and EVM-compatible chains. Its relay chain is built via a series of smart contracts on NEAR's Mainnet, so the latter handles security within Octopus. The chain has its coin, OCT, which is non-inflated and shares features with other app-chain currencies like OSMO, KUJI, GLMR, etc. The only difference is that on this chain, you don't pay in OCT but with the coin of the Mainnet on which it's built, which is NEAR.

BOS (Blockchain Operating System)

An operating system acts as an intermediary between hardware and software applications. It's the primary software that manages the resources of a PC (files, processes, peripherals, memory, network, etc.) and simplifies hardware-software communication, making it more user-friendly through an intuitive interface.

The BOS is an open-source operating system that enables developers to build and connect ANY chain using "common" programming languages and a wide range of components. It also allows users to connect to the "Web 3 world" with ease, increasing initial onboarding.

It's an intermediary designed to facilitate the work of developers and Web 3 users, connecting more blockchains and removing various "obstacles" that currently hinder mass adoption. Here's a list of some of its elements designed to increase the accessibility, discovery, and functionality of crypto applications for developers and users:

  • FastAuth: Users can quickly create a free account using biometrics and email without the need for passwords or acquiring cryptocurrencies. It uses NEAR's Meta Transactions and Zero Balance Accounts for cost-free user registration and initial Sponsored interactions.
  • Developer Enablement: The BOS provides tools and features that simplify the development process, allowing developers to create and deploy applications using standard languages like Javascript.
  • Universal Search: The BOS incorporates a comprehensive search function, allowing users to quickly find applications, components, and connections within the ecosystem, similar to how the Play Store or Apple Store works.
  • Gateways: These are access points to Web3 applications that pull frontend code directly from the NEAR blockchain.
  • Trust and Safety Content Moderation: This is a content moderation system providing users with a platform for self-management, promoting a healthier online environment suitable for younger audiences.
  • NEAR Tasks: A gig-economy platform that allows users to earn NEAR by completing tasks.

NEAR Price Prediction

Predicting the price of cryptocurrencies is a complex task that involves various factors, including market trends, technological advancements, regulatory news, and the overall economic environment. However, several experts and business analysts have made predictions about the price of NEAR Protocol.

According to AMBCrypto, NEAR Protocol's price for 2024 should range between $2.23 to $3.34. On the other hand, PricePrediction.net suggests that NEAR Protocol can hit the highest price of $47.26. Cryptopolitan estimates NEAR to trade between $12.31 to $14.77 in 2029, with a maximum possible value of $6.10 in five years. CryptoNewsZ's analysis and NEAR crypto price prediction for 2030 suggest that the token will trade from $12.51 to $18.01, while the average price may be around $15.26.

It's important to note that these predictions are based on the current trends and the overall performance of NEAR Protocol. Various factors, including changes in the overall crypto market, advancements in blockchain technology, regulatory changes, and economic factors, could influence the future price of NEAR Protocol.

Researching and considering multiple factors before investing in any cryptocurrency is crucial. The world of cryptocurrencies is highly volatile, and while the potential for high returns exists, so does the risk of significant losses.

NEAR Protocol is a promising project with a strong team and unique features. Its focus on scalability, user experience, and interoperability makes it a strong contender in decentralized finance. Whether you're a developer looking for a robust platform to build your next app or an investor hunting the next big thing in crypto, NEAR Protocol is worth your attention. However, as with any investment, it's crucial to research and understand the risks involved.