NEAR Q3 OverviewExecutive Summary
NEAR Protocol stands as a Layer-1 (L1) smart contract blockchain that couples a state-of-the-art sharded architecture with an emphasis on offering a user experience reminiscent of Web 2 platforms. While maintaining the security and decentralization integral to blockchains, NEAR aims to surpass the capabilities of prior chains, such as Ethereum, in terms of usability, efficiency, and scalability. Recognizing and aiming to overcome Ethereum's limitations, NEAR incorporates sharding. This key distinction allows the blockchain to significantly enhance its throughput, accommodating a more substantial transaction volume by dividing the blockchain into smaller, concurrent shards.
A pivotal differentiator for the NEAR Protocol, sharding was introduced in November 2021 as Nightshade. This technique allows validators to process only transactions specific to their assigned shards, enabling potentially infinite scalability. For end users and investors, Nightshade ensures quicker transaction speeds at reduced fees. Diverging from traditional sharding methods that split the blockchain into multiple states, NEAR's design maintains the blockchain as a singularly sharded entity. Additionally, a synchronized state mechanism ensures that a change in one block's state prompts adjustments in other shards correspondingly.
In March 2023, NEAR unveiled the Blockchain Operating System (BOS), a groundbreaking open-source platform that allows developers to craft applications across various blockchain environments using well-known programming languages. Moreover, it provides crypto users with an experience reminiscent of Web 2. Designed to be inclusive, BOS appeals to Web3 veterans and those new to the decentralized web. By ensuring easy onboarding, robust security, and seamless cross-chain interactions, BOS is setting a new paradigm for Web 3 application development.
The NEAR Foundation, with the inception of the NEAR Digital Collective (NDC) and a pivot to community DAOs, is pioneering a transition to a more democratized and decentralized framework compared to the conventional Board-based system. Launched in Q3 2022, the NDC represents a concerted effort to decentralize decision-making within the NEAR network, emphasizing transparency through defined treasury management and embracing decentralized governance with on-chain voting. Furthermore, the NDC aspires to advance validator decentralization and stimulate the development of the core protocol and infrastructure.
Looking forward into 2024, the Near protocol will introduce several pivotal milestones, including the next step in Nightshade sharding, meta transactions, zero-balance accounts, a Global Storage proposal, and more.
Introduction to Near
NEAR Protocol is a Layer-1 (L1) smart contract blockchain with a bleeding-edge sharded design and an emphasis on an intuitive Web 2-like customer experience, all while preserving the security and decentralization users expect with a blockchain. Established in 2018, it sets out to achieve improved usability, efficiency, and scalability over preceding chains like Ethereum. Founded by Illia Polosukhin and Alexander Skidanov and spearheaded by the Near Collective, the NEAR Protocol was envisioned to serve as a community-driven cloud computing PoS blockchain and a decentralized hub tailored explicitly for hosting innovative decentralized applications.
The central motivation behind NEAR's technology is to prevent network congestion and furnish a conducive environment for developers, thereby promoting on-chain protocol development. Early on, NEAR identified certain operational challenges in Ethereum, particularly related to network congestion and high/volatile gas fees, that it looked to solve. To do so, Near turned towards sharding.
A key differentiator for NEAR, sharding, in essence, provides the ability for a blockchain to increase its throughput and handle a larger number of transactions by partitioning the blockchain into smaller parallel shards. In its pursuits, Near introduced an original approach to sharding in November 2021 known as Nightshade, initially unveiled as Simple Nightshade. The underlying principle of Nightshade is that validators are not burdened with the task of processing every incoming transaction. Instead, they only handle transactions that are within specific shards. By doing so, Nightshade paves the way for theoretically limitless scalability. But what does this mean for the end user or investor? Primarily, this approach, which is entirely abstracted from the end-user experience, allows for reduced transaction fees while ensuring rapid transaction speeds.
Additionally, Near recently launched a new initiative in early 2023 known as the Blockchain Operating System (BOS). This development represents a significant shift in how we perceive blockchain platforms. The BOS is designed to integrate seamlessly with various blockchain systems while facilitating decentralization and discoverability, which have historically been impossible to achieve together.
Essentially, the BOS is grounded in blockchain technology but broadens its application by acting as a universal layer, making it adaptable to different blockchain frameworks. One of its primary features is the provision of a decentralized platform for front-end development. This platform aims to simplify the creation of blockchain applications by emphasizing clarity and flexibility.
One of the core advantages of BOS is its potential to decentralize user interactions, improve security protocols, and enhance the modularity of components. Additionally, it prioritizes compatibility across diverse blockchains, presenting developers with a more intuitive and straightforward development environment.
NEAR Technologies
Blockchain Operating System (BOS)
In March 2023, the NEAR protocol introduced the Blockchain Operating System (BOS), an open-source platform empowering developers with the flexibility to build across diverse blockchain environments using familiar programming languages and equipping crypto users with a familiar Web 2 UX. The BOS is designed to be inclusive and democratize the open, catering not only to seasoned web3 enthusiasts but also to the broader audience who might be newer to the decentralized web. A significant breakthrough in the system is eliminating the immediate need for a new user to own any cryptocurrency, substantially reducing the friction of user onboarding.
Additionally, the BOS interface streamlines access and navigation, making it more user-friendly for both developers and the general populace. Moreover, it enables users to search through a portal to diverse communities and applications, all the while prioritizing data privacy. Further, the BOS's user-centric design, coupled with its focus on accessibility, does not just simplify the onboarding experience but also bolsters the discovery of new applications.
Remarkably, the BOS functions both as a development platform and a social network. It’s an environment where users can both deploy and unearth new applications. In delivering straightforward onboarding procedures, unmatched security, and fluid interactions across all chains, the BOS is reshaping the framework for constructing Web 3 applications.
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BOS Under the Hood
The Blockchain Operating System (BOS) by NEAR seeks to redefine the landscape of Web3 applications through its unique architecture based on three pivotal elements: components, blockchains, and gateways. Here, we will delve into the significance of each element and examine how they collectively shape the BOS framework.
Components: The Building Blocks of BOS
Components exist at the decentralized application (dApp) layer and can be equated with notable platforms such as Lido, Uniswap, Compound, and others. They stand out for their on-chain storage, high degree of transparency, and their ability for developers to fork these applications, harnessing their functionalities and composability to craft comprehensive web applications. Storing the entirety of a component's code on-chain not only ensures auditability but also bolsters security. With the code readily available for scrutiny in blockchain explorers, users can operate these applications locally, enjoying resilience against potential censorship and a streamlined user experience. This ability to natively audit and locally run the applications represents a paradigm shift in the user-app relationship.
Blockchains: The Underlying Infrastructure
The versatility of components and the BOS becomes apparent in their ability to interact with numerous blockchains and smart contracts instead of just one chain. Currently, BOS offers compatibility with all EVM chains, such as Ethereum, Polygon, Arbitrum, and Optimism, as well as, the native NEAR platform. As EVM chains dominate the TVL in the DeFi space, the BOS’ ability to work across nearly all enables users to tap into nearly all the liquidity and top dApps in the crypto economy. NEAR's capability to efficiently and cost-effectively store HTML/CSS/JS makes it the preferred choice for hosting app source codes.
Gateways: Bridging the Gap to Decentralization
Gateways, the third pillar of the BOS, facilitate the delivery of decentralized front-ends to a broader audience. Each gateway is underpinned by a bespoke virtual machine (VM) equipped to load and run frontends for protocols, be they Ethereum-based, Layer 2 solutions, or alt-L1 platforms like NEAR. All code pertaining to these frontends finds its home on the NEAR blockchain. The gateways are diverse, ranging from wallets and portfolio tools to distinct applications like SWEAT. They cater to tasks as rudimentary as adding swap functionality or as intricate as erecting decentralized app stores. Integrating this expansive functionality requires just the addition of a JavaScript library, followed by a selection of desired app front-ends. Prominent gateway exemplars include near.org, bos.gg, near.social, Cantopia, and nearpad.dev.
The decentralization of composable front ends enabled by the BOS is unique to Near, filling a conspicuous and much-needed void in the crypto arena. Instead of relying on centralized data servers, these front ends are blockchain-stored, promoting both composability and resistance to potential censorship. Historical instances, such as Uniswap's token delisting and the sanctions imposed on Tornado Cash, underscore the vulnerabilities of front ends. BOS’s decentralized approach allows developers the flexibility to fork these front ends and build in the truly OSINT environment that the cryptocurrency movement was built upon.
BOS Advantages
The BOS aims to integrate decentralization with discoverability and developer flexibility. Central to the BOS framework is its array of Web3 development tools that are crafted with the intent of pushing Web3 mainstream. From the onset, the system is designed to enhance user onboarding, improve cross-chain development and app discoverability, and create a seamless UX for Web3 users.
This last point on abstracting away different blockchains for a seamless Web3 experience has benefits beyond simply improving UX. It can potentially also reduce the liquidity fragmentation and tribalism associated with a fragmented crypto economy built around disparate, siloed blockchains. The BOS proposes a solution to this by striving for a consistent user experience across multiple blockchains and allowing developers globally to access and implement various Web3 components. With users and developers now (potentially) unable to discern which blockchain they are using, there is no longer a need to promote one over the other.
None of this is possible without the composability offered by the BOS. The system aims to be chain and language-agnostic, allowing developers to reuse and adjust different components while utilizing the language of their choice. The BOS supports a variety of languages for smart contract development, including JavaScript, Rust, AssemblyScript, and Solidity. Complementing this are their collaborations with established cloud providers, namely Google, Seracle, and Alibaba Cloud, to make transitioning from Web2 to Web3 as comfortable as possible.
In addition, NEAR has initiated the NEAR Dev Hub, a platform envisioned as a resource hub for developers. Preliminary outputs from this initiative include sponsored hackathons and the establishment of community groups.
Thresholded Proof of Stake
The NEAR Protocol operates on a distinct consensus mechanism known as "Thresholded Proof of Stake" (TPoS). Similar to other PoS implementations, TPoS still uses validators, who must stake NEAR tokens to participate, to validate transactions and ensure the integrity/security of the network. However, within the TPoS environment, validators can assume one of four pivotal roles:
Chunk Producers: Their primary responsibility is to authenticate transactions on individual shards, subsequently crafting a chunk, often referred to as a "shard block", from their designated shard.
Block Producers: These validators gather chunks from their chunk-producing counterparts associated with discrete shards. Their function culminates in the production of a block, which is then added to the primary chain.
Hidden Validators: Operating under a veil of confidentiality, these validators authenticate random shards — shards whose identity remains a secret to them and is undisclosed to the public. This veil serves a dual purpose. Firstly, it considerably complicates the task for any malevolent entities attempting to compromise them. Secondly, it robustly augments the chain's overall security measures.
Fishermen: Actively overseeing certain chain segments, these validators act as the guardians against fraudulent activities. They constantly monitor, ready to flag any nefarious activities. Interestingly, their operational requirements are modest — a minimal stake. However, this role, though critical, doesn't confer any rewards.
Central to TPoS is its innovative auction system employed to select validators. This methodology, in essence, discourages the practice of pooling. When validators amass resources, they not only amplify their individual rewards but also consolidate control over the chain. Such centralization runs counter to the foundational principles of blockchain, which emphasize distributed control. The TPoS design confronts this challenge head-on by placing natural barriers against pooling.
Additionally, TPoS tackles the issue of consensus forking — a scenario in which multiple validators simultaneously contribute blocks to the chain. Such events can elongate the time required for transaction finality. By minimizing the possibility of these forking instances, TPoS ensures swifter transaction finality.
Validator Requirements
Validators bear the critical responsibility of validating and executing transactions across the entirety of NEAR's sharded blockchain. Additionally, they monitor their peers (other validators), ensuring no invalid blocks are produced or alternate chains are formed. Validators found compromising network stability undergo "slashing," where part or all of their staked assets are confiscated. To compensate for their services and inherent risks, NEAR validators receive a inflationary protocol rewards, amounting to 4.5% of the total supply annually.
Given the complexity of the validator role, there are stringent hardware requirements (e.g. costs) for anyone looking to run one. To effectively run a validator, a robust system configuration, consisting of an 8-Core CPU, 16GB of RAM, and 1 TB SSD storage, is necessary. Current estimates indicate that the monthly expenditure for hosting a block-producing validator node stands at $330+.
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