NEAR

Most recent update: [June 26, 2023]

What is NEAR? 

In the age of rising gas and transaction fees on traditional blockchain networks, more value is being put on efficient, cost-conscious blockchains that offer quicker and more voluminous transaction rates while shedding some of the costs. NEAR Protocol (NEAR) is one such network – it is a layer-one blockchain that aims to solve these problems by offering the abilities to decrease transaction time and increase throughput, all while being compatible with other blockchains. Built by the NEAR Collective, it is an Ethereum alternative that is primarily designed to host decentralized applications (dApps) and is validated by a developer-friendly proof-of-stake (PoS) consensus mechanism. Its derivative token, NEAR, is used both for validation via staking as well as for governance.  

Apart from simply improving on older blockchains like Bitcoin and Ethereum, NEAR is designed to allow cross-chain interoperability with these older networks; for example, users can bridge ERC-20 tokens and assets to the NEAR protocol network, allowing them access to higher throughput and lower transaction fees using the same assets. Furthermore, its focus on user accessibility has allowed a plethora of creative projects to be built on the network, including NFT minting platform Mintbase.

Who created NEAR? 

NEAR Protocol was founded by computer scientists Alex Skidanov and Illia Polosukhin. Skidanov was formerly director of engineering at MemSQL, a database company, whilst Polosukhin previously worked for Google as an AI and search engine developer. While both are prolific developers with over ten years of industry experience each, NEAR Protocol has an extensive team of experienced developers that include several International Collegiate Programming Contest (ICPC) gold medalists and winners.   

How does it work? 

Like Ethereum, NEAR Protocol is a decentralized blockchain that functions as a platform that developers can build dApps and projects with. Unlike Ethereum, however, which suffers from scalability issues and exorbitant gas fees during high transaction periods, NEAR Protocol utilizes different implementations to help mitigate these issues on their own network, all while being more user-friendly to boot. For example, NEAR uses human-readable account names, whereas other blockchains use cryptographic wallet addresses.  

Sharding 

One of the innovations that NEAR uses to optimize its network is a method called sharding, which allows the network to grow as more nodes are introduced. PoS-based blockchains rely on validators and nodes to maintain the integrity of the network; as the networks grow, data needs to pass through an increasing number of nodes, potentially slowing down transaction throughput. Sharding lessens this computational load by partitioning the network into fragments (or shards), meaning that each node does not need to run all the network’s entire code, only the sets of code that are relevant to its shard. This allows each shard to run in parallel with each other, mitigating the scalability issues that come with traditional PoS networks like Ethereum.  

The NEAR token’s job in this process is to be used for staking by nodes that wish to become validators. Not every token holder is required to validate a node, as only stakers are considered for participation; token holders can instead delegate their tokens to validators of their choosing, and this system may be familiar if you have dabbled with other currencies that feature a staking and validation mechanism. To choose these validators, NEAR Protocol uses an auction system that selects participants every 12 hours, with validators that have more tokens stake commanding greater influence in the consensus process.  

Ethereum interoperability 

Another major feature of NEAR Protocol is to allow a seamless experience between NEAR and Ethereum. Using an application called Rainbow Bridge, users can easily transfer ERC-20 tokens between Ethereum and NEAR. This process involves executing a smart contract that creates duplicates of the desired token on either network, and can easily be reversed as the original funds are held within the smart contract. 

NEAR also features a Layer-2 solution called Aurora, which allows developers to launch Ethereum-developed dApps on the NEAR network. This allows developers to take advantage of the low fee and high throughput advantages of the NEAR network while still retaining the familiarity and network of applications on Ethereum. 

NEAR Tokenomics 

The total and maximum supply of NEAR Protocol’s proprietary token, NEAR, is exactly 1 billion. 5% of additional supply is issued each year to support the network as rewards, of which 4.5% goes to the validators and the other 0.5% to the protocol treasury. Applications on the NEAR network pay storage fees for any data that they store on the network and for performing computations. To combat inflation, the tokens taken as fees are burned to reduce the overall circulating supply of NEAR tokens.  

Developers that create smart contracts on the platform receive a portion of the transaction fees that contracts generate as rewards, with the remainder additionally being burned. As a reward for maintaining the integrity of the network, validators staking their tokens also receive a percentage of tokens back.  

The NEAR token is also used for governance on the platform, where holders can stake their tokens to participate in the on-chain governance system. Token holders may also delegate their tokens to validators to vote on their behalf. Token holders can further participate in the development of the platform by submitting suggestions to the NEAR Enhancement Proposals repository on NEAR’s Github.  

Other ways for users to earn NEAR tokens include participating in development bounties, operating developer communities, winning NEAR hackathons, or even just being an active community member.  

Security 

NEAR uses a variation of the PoS consensus mechanism that it dubs Doomslug. This is based on two rounds of consensus, where a block is finalized once it has received the first round of communication. This allows for quicker finality by having validators take turns producing blocks rather than competing solely based on the number of tokens that they have staked.  

Drawbacks and Risks 

Due to its scalability benefits over traditional blockchain networks along with its seamless interoperability with Ethereum, there are few downsides to utilizing NEAR Protocol for its intended purpose. Investors should be mindful, however, that the value of the NEAR token comes from its utility on the NEAR network, which includes being used for staking as well as for governance. Fully understanding how the network functions is paramount when investing in NEAR, as its value could tank should the token’s use cases diminish. 

Due Diligence  

Before listing NEAR on the VirgoCX Platform, VirgoCX performed due diligence on NEAR and determined that NEAR is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:  

• The creation, governance, and location of NEAR and/or its primary development team; 
• The supply, demand, maturity and liquidity of NEAR; and 
• Legal and regulatory risks associated with NEAR.  

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision. 

Further reading 

For a more in-depth look at NEAR Protocol and its proprietary token, have a look at these useful resources: 

NEAR Protocol on CoinMarketCap Alexandria 

NEAR Protocol on Gemini 

NEAR Protocol on Kraken 

NEAR Protocol on CoinTelegraph 

NEAR Protocol on Decrypt