What is Near Protocol? & How it works
https://www.youtube.com/watch?v=D_zfOW8gook
Transcript:
the ethereum blockchain is currently the most popular platform for decentralized applications however it has some big issues that prevent many people from using these applications mainly two big problems the very high transaction fees also called gas fees and the low number of transactions the network can process per second the ethereum network currently can process only 15 transactions per second so what if there is an alternative platform with much lower fees and a much faster blockchain well there are a lot of
alternatives and the near protocol is one of them welcome to crypto b where we explain cryptocurrencies and d5 topics in the most simple and beginner friendly way in this video you will know what the near protocol is how exactly it works and finally we will talk about some tokenomics of the near token we have included timestamps so you can easily skip to any part you want so let’s get started Nier is a decentralized platform that allows developers to build decentralized applications on top of it.
Just like Ethereum but with much faster blockchain and much lower transaction fees. NIR was founded at the beginning by two software engineers, Alex Skidinov and Ilya Polisakin. Alex worked at Microsoft as a software developer before moving to MemSQL as the director of engineering. Ilya was an engineering manager at Google, and they both started working on near in 2018.
so what is the purpose of near well near aims to be a widely used decentralized applications platform you know amazon aws or google cloud where a lot of applications like facebook and netflix are hosted and running near aims to be like that for decentralized applications except that it is not owned by a company like amazon or google decentralized here means that it is run by the community and no company can steal or sell your data near currently is being maintained and updated by the near team which they call the near collective which consists of the near core team the near foundation and the
guilds the guilds are basically teams that do specific jobs to help NEAR, like the Marketing Guild which focuses on the marketing of the NEAR protocol, and the Legal Guild which is a group of lawyers that give legal advice and recommendations to members of the NEAR community. Anyone can form a guild and help in the building of NEAR.
The NEAR Foundation on the other hand is responsible for coordinating the early development of the NEAR protocol and for trying to increase the adoption of NEAR. Let’s now get to how NEAR actually works. So, NEAR is a proof-of-stake sharded blockchain. We will explain what that means pretty simply, so don’t be confused with these words.
Proof-of-stake means that there are no miners in the system only validators these validators lock up a large amount of tokens to be able to verify transactions and earn rewards locking up these tokens is called staking if these validators do anything shady like verifying fraudulent transactions to give themselves free tokens for example they lose their stake tokens in the crypto space this is known as getting slashed. This is the proof of staked part. We still have the sharded part. Sharding means
splitting a blockchain into multiple chains, which is a way to decrease congestion and increase the number of transactions a network can process. Most of the times there is a central chain called the beacon chain or the relay chain, this central chain coordinates the work of other chains and verify that everything is working correctly.
So if one chain can process 100 transactions per second, with sharding you can have 4 chains and the network can now process 400 transactions per second. That is how sharding generally works, but sharding in NEAR is a little different. In NEAR we don’t have multiple chains. We have four shards and a main blockchain.
Each block in the main blockchain contains little pieces of each shard. These little pieces are called chunks, and a chunk contains the hash of the transaction verified by the shard. You can think of a chunk as a snapshot of the shard’s transactions. So if we have four shards, each block on the main blockchain will have a chunk from shard. You can think of a chunk as a snapshot of the shard’s transactions. So if we have four shards, each block on the main blockchain will have a chunk from shard number one, a
chunk from shard number two, a chunk from shard number three, and a chunk from shard number four. This sharding mechanism in NEAR is called Nightshade. Each shard has 100 seats, and to be a validator for a shard you need to have at least one seat. The price of a seat is calculated by dividing the total staked tokens in a shard by 100 seats.
So, for example, if shard number 1 has 500,000 NIR tokens staked, the price of a seat in this shard will be 5,000 tokens. Summing up to stake at least 5,000 tokens to be a validator on this shard. So, what if the seat price is very high but you still want to earn money on the near protocol well you can give your tokens to a validator and he will give you a share of the rewards he earned this is known as delegation shard validators on near are called chunk producers as they produce the chunks from the shards transactions and the
validator who takes all the chunks from all shards and produces a block on the main blockchain is called a block producer currently all validators on near do the two roles so one validator can produce both a chunk and a block however this will change in the future with the next phases of nightshade in the next phase of nightshade which is called phase one there will be chunk only producers these validators will verify transactions on shards only they won’t produce In the next phase of Nightshade, which is called Phase 1, there will be chunk-only producers.
These validators will verify transactions on shards only, they won’t produce blocks on the main chain. This will help increase the number of validators, but in this phase, we will still have some validators that produce chunks and blocks. But they disappear in Phase 2 of Nightshade. In this phase, we will have chunk only producers, and block only producers.
No validators will do the two things, this will make the hardware requirements to be a block producer lower, making it more easier for a lot of people, which will improve the network’s decentralization. In the final phase, which is phase 3, the network can automatically create new shards, or merged shards to adapt with the load of transactions. So, for example, when there is a large number of transactions needs to be processed, the network automatically creates new shards to be able to handle the load.
These new shards will have low seat prices compared to old shards, which will make a lot of validators go and take seats on these new shards. Currently, the near network should be able to handle up to 100 000 transactions per second which is pretty fast and when near enters phase three the team claims that the network can theoretically scale infinitely so what happens after a block is produced well after a block producer produces a block, let’s call him producer number one, other validators send confirmations on the block to the next block producer.
Let’s call him producer number two, and when he receives confirmations on the previous block from more than 50% of the validators or more, the new block is produced. This consensus mechanism is called Doom Slug and it really helps NEAR confirm transactions very fast. You should also know that near has its own virtual machine and an ethereum virtual machine called aurora you can think of a virtual machine like a computer that runs decentralized applications having an ethereum virtual machine through the aurora project means that developers can very easily move their apps
to near and benefit from the very fast transactions and the low fees without redeveloping their applications. This is actually one of the best ways to increase NEAR’s adoption. Also, to make it easy for users to use the NEAR protocol and the NEAR token, NEAR has very simple wallet addresses you can choose.
So instead of the random characters like in any Ethereum address address you can choose your wallet address and have it in a very simple form like jennifer.near and to make to make the process even easier near developed a bridge called the rainbow bridge which allows you to get your ethereum tokens like tether or usdc on near or on the aurora layer let’s now get to the tokenomics of the near token which is the native token on the NEAR protocol.
The NEAR token is used in rewarding validators, voting on changes, and in paying the transaction fees. You should know that validators on NEAR don’t get paid the transaction fees, as they are pretty low, but they get rewarded with newly issued tokens. The total supply of NEAR is 1 billion tokens, and each year NEAR issues new tokens with the rate of 5% of the total supply, 4.5% go to the validators, and 0.5% go to the treasury.
So if in the first year year NEAR issues 50 million tokens, 4-5 million tokens will go to validators and 5 million tokens will go to the treasury to help in future developments validator rewards are distributed according to the number of seats each validator has we should note here that 70 of the transaction fees on near are burnt and the other 30 percent go to the developer of the smart contract involved in the transaction so for example if you interacted with a smart contract on near and paid one in fees, the developer of this smart contract will get 30 cents.
Burning 70 percent of the fees should theoretically decrease the inflation rate as the network is used by more people. However, the fees on NEAR are very low, and for NEAR to be deflationary the network will have to process one billion transactions per day, which is a very large number.
And for reference the bitcoin network currently process 300 thousand transactions per day, and the ethereum network currently processes 1 million transactions per day. As for the token distribution, 12% of the total supply were sold in the ICO in 2020, but the tokens unlock at specific dates depending on the price they chose. 17.2% were allocated to community grants, 11.
4% for operation grants, which are for people who operate and maintain the system, 10% allocated to the NEAR Foundation, 14% to the NEAR core team, 11.7% for early participants in the system through building apps or tools 17.6 percent to backers which include coinbase and 6.1 for small backers you should know that all these tokens unlock gradually at specific dates and you can take a look at these dates at the link we put in the description and if you are wondering where can you buy the near token description. And if you are wondering, where can you buy the NEAR token? It is available on Binance, Kucoin, and Crypto.com.
