Michaël van de Poppe - 23 March 2022
The bullish case for NEAR Protocol
Over the past year we have seen established multinationals, like Mastercard, broadening their product offerings with crypto services and features. Additionally, a lot more retail has been interested in the crypto industry as a lot of new money has entered the market over the past year.
There are also huge incentive programs launched by large L1 chains to attract builders, users, and capital to their respective ecosystem. Examples are Avalanche and Fantom, launching incentive funds of $180mln and 370mln in Fantom respectively. This caused huge growth of the ecosystems and a sharp increase in the native tokens. Year to date the AVAX token has increased by around 2,000% and Fantom performed even better with an increase of around 18,000%, which was more recently boosted by their massive incentive programs.
One of the ecosystems that have launched such a program is NEAR. In total they have reserved $800mln to reward users and fund startups on their blockchain network. This is highly beneficial for the ecosystem on NEAR as builders are rewarded for building on top of NEAR. Additionally, a part of the funds are reserved to onboard new users through incentives. It is expected that the NEAR ecosystem will grow a lot due to the incentive program.
How is NEAR different from existing L1s?
NEAR is different from existing L1 blockchains as the network tackles the scalability issue through their version of sharding. In the blockchain industry sharding is referred to as splitting the blockchain into multiple shards. This technique allows NEAR to handle a ton of transactions at the same time.
Furthermore, as the NEAR protocol is a Proof-of-Stake platform it depends on validators staking tokens to secure the network and verify transactions. The great thing about NEAR is that there are low hardware requirements for running a validator node. This is in contrast to Bitcoin and Ethereum. Validators in these blockchains have to sync the entire history of the blockchain. In the case of Ethereum this means downloading over 100GB in data. In the NEAR protocol validators are assigned to a certain shard and only have to download the state of that shard. Ultimately this means that there are low hardware requirements for validators on NEAR. It is fairly easy for people to spin up a validator node and this increases the decentralization of the network.
In Addition to this, and other more technical features, NEAR achieves a fast block finality through a Byzantine Fault Tolerance (BFT) consensus algorithm. The NEAR platform has, thanks to its scalability and fast block finality, near zero fees. This makes the platform very attractive for outside entities and users.
What else is happening on the NEAR protocol?
NEAR has been under the radar for quite a while and over the past couple of months there have been exciting developments on NEAR. The first thing is the launch of Aurora. This is the name of a scaling solution that brings EVM-compatibility to the network.
The code on NEAR is not written in Solidity, unlike other blockchain networks. Therefore it is hard for developers to bring their project or product over from Ethereum or any other EVM-compatible blockchain to NEAR. Aurora solves this problem and makes it easier for developers to build on NEAR.
We already talked about sharding. However, this has yet to be implemented on the platform as it is very complex and only needed when the network runs on full capacity. At the start of last year there was barely any activity on the NEAR blockchain. At that time there was no need for the team to implement sharding as it would not benefit the network.
As the hype around L1s brought a lot of users to the different blockchain ecosystems, NEAR started to experience more activity too. Hence the decision by the NEAR Foundation to start rolling out their sharding technology on the network. Starting from Q4 2021 up until Q4 2022, sharding will be implemented in four different phases. Each phase builds on top of the last phase and gradually brings full scalability to the NEAR blockchain.
Last but not least, NEAR is also planning to introduce private shards. These are essentially private blockchains for either users or enterprises that are connected to the main NEAR blockchain. This is crucial for businesses, as they need to protect the data of their customers. Additionally, the private shard can utilize public chain contracts and vice versa. Transactions between private shards do not involve the public chain, but can be settled through the public chain if information needs to be shared or proven to other public parties.
It is easy to be excited about NEAR. The team has a solid scalability solution to current issues on Ethereum and other blockchain platforms. It also introduces features, like private shards, offering enterprises to host their own chain essentially without giving up the privacy of their data.
Still, the protocol is in its first stages. It is lacking a vibrant ecosystem that most other blockchains do have. However, this might change over the coming months as the money from the $800mln incentive program is put to work and builders receive grants to build their projects. Additionally, Aurora makes it easier for existing smart contract code on Ethereum to move to the NEAR network.
We expect great things from NEAR as it onboards more users and an ecosystem is created. It will be interesting to see whether their tech will be adopted by large enterprises. It is definitely worth keeping an eye on this blockchain.