Cloud computing is one of the strongest growth markets worldwide. In the past 4 years, a couple of blockchain projects have tapped into this field. Many concepts involved the idea of decentralized data storage that is distributed and node operators get rewarded for offering their free disk space to the network.
NEAR is a new blockchain technology that is focused on cloud computing rather than cloud storage. It has a few similarities to older projects but offers a completely new approach on how to use and incentivize the network and shape it so that cloud computing becomes available as a decentralized application that is easily accessible by anybody.
In this article, we are going to explore the basic features of the NEAR protocol and put things into perspective of what to expect from the token that is associated with it under the same name.
What is NEAR protocol?
NEAR is more than a storage solution, it aims to create an incentivized network of computers that allows the development and launch of decentralized applications on top of it. It operates very similar to systems like Amazon Web Services (AWS) by serving a base layer that allows building applications on top of it. But unlike AWS it is not controlled by a single entity.
Instead, the network is distributed through thousands of computers that serve as nodes. The blockchain technology of NEAR is based on sharding. This is a term that you’ve might have heard of from other cryptos like Ethereum 2.0 or Zilliqa. Sharding allows the distribution of smaller segments of a blockchain rather than distributing it entirely.
In effect, NEAR becomes highly scalable which is the prerequisite to fulfill its ambitious goal to become a piece of infrastructure for developers around the world who can build decentralized apps that can serve millions of users at the same time.
NEAR is a proof of stake blockchain
Like many other blockchains technologies that evolved in the past three years or so, NEAR is based on proof of stake consensus. Its sharding technology is called Nightshade. As pointed out before sharding splits the computational load into fragments that are called shards. This allows each node only to store a small set of data that is only relevant in its own shard which results in higher overall scalability of the blockchain because the nodes can conduct parallel computations.
NEAR uses a proof of stake system that shares similarities with other existing solutions like Ethereum 2.0, Solana, or Tezos. Nodes can validate transactions but in order to be considered for participation, they need to have skin in the game by holding a stake of NEAR tokens. Such nodes are called validators and NEAR is using an auction system that chooses validators every 12 hours. Each of these 12-hour cycles is called an epoch.
It is also possible to delegate NEAR to a validator if you don’t like to run a node or lack the ability to maintain it. In return, validators and delegators are rewarded with NEAR tokens for their contribution and effort involved.
The validation process is a little bit more complex since not all validators are taking part in block production. Some are validating aggregated chunks of transactions from a shard, while other nodes that are called “fishermen” are actively scanning for malicious actors.
NEAR is also secured by slashing, again a term that you’ve might have heard before. Staking rewards for the validators and delegators are an incentive. Slashing involves the punishment of malicious nodes by putting their stake on the line. If a fisherman finds a cheater that node loses the stake that is involved.
NEAR token – The native currency
NEAR has also a token under the same name and exchange ticker that serves as native currency on its blockchain. The token serves three different purposes:
- Allowing access to services on NEAR protocol
- Incentivizing nodes by participating in proof of stake
- Taking part in the governance of the protocol
Staking is something that has become very common among crypto investors. As we have pointed out before proof of stake on NEAR is very similar to other solutions on the market and therefore lowering the entry bar for investors. Even without any deeper understanding of running a validator, investors can delegate their stake and earn a passive income with comparably low effort.
Aside from earning staking rewards, the NEAR token is also needed for interaction on the blockchain. In order to use services that are built on NEAR or building those services yourself, one does always need to pay for in NEAR token.
Governance on NEAR protocol
Governance on NEAR is slightly different than with other blockchain protocols. The holders of NEAR token can participate in the governance and vote on updates and therefore determine the future of the protocol and how it is going to be developed further.
The process of proposing updates however is different. On top of NEAR is the NEAR Foundation which is a non-profit situated in Switzerland. The foundation holds funds in a treasury that allows allocating financial support where it is needed. Its sole purpose is the support and the funding of the development as well as the maintenance of the protocol.
The board of the foundation elects a so-called reference maintainer that is responsible for the technical upgrades. While the community can vote on these upgrades it is still a very different approach to governance. With only Polkadot comparable to this system, but with the distinction that more checks and balances between the different groups are involved.