What Is NEAR Protocol? Definition, How It Works, and More

NEAR Protocol is a relatively new Layer 1 blockchain with a stated focus on improving both user experience and ease of development. It harnesses some of the newest scaling technologies to date to scale the network without sacrificing security or decentralization, including dynamic sharding. If built correctly, it could house a blossoming ecosystem of decentralized apps and utilities like decentralized finance (DeFi), NFTs, blockchain games, and more.

In this guide, we will explain what NEAR Protocol is in great detail, exploring exactly how it works, its benefits and limitations, its origin, and more.

What Is Near Protocol?

NEAR protocol is a blockchain protocol that enables fast, scalable, and user-friendly decentralized applications. At the heart of the blockchain is a sharded Proof-of-Stake (PoS) consensus mechanism that allows the network to process transactions quickly and securely. The protocol also includes features such as state sharding and cross-shard communication, making it highly scalable. Note that we will explain these more technical details in-depth in a later section.

The NEAR protocol token (NEAR) is the native currency of the NEAR protocol blockchain. Just like how Ether powers Ethereum, NEAR is used to pay for transaction fees, securing the network, governance, and more. NEAR tokens are required for staking, which allows users to earn rewards for participating in the consensus process and helping to secure the network. NEAR tokens can also be used to vote on governance decisions and help shape the protocol’s future.

The NEAR protocol team is composed of experienced developers and researchers from various backgrounds, including blockchain, cryptography, distributed systems, and software engineering. The team is based in San Francisco and is backed by a number of well-known venture capitalists and cryptocurrency investors.

One of the main goals of the NEAR protocol is to make it easier for developers to create and launch decentralized applications. The second central goal is to make the whole process of using the network and these apps easy for the user as well.

The History of NEAR

If you have heard of the concept of dynamic sharding or sharding in general in the blockchain industry, you have probably heard it in relation to Ethereum. That is because the idea for NEAR Protocol came about in early 2017 when co-founders Alex Skidanov and Illia Polosukhin were working on scaling solutions for Ethereum (ETH).

Skidanov is a former engineer at Google and Facebook, while Polosukhin is a core contributor to the EOS project. The team is backed by a number of notable investors, including Andreessen Horowitz, MetaStable, and Electric Capital.

At the time, developers started to realize that existing top blockchain protocols weren’t well-suited for building large-scale applications. This was mostly because of their high fees and slow transactions, and the difficulty of solving these problems without trade-offs in decentralization and security.

Skidanov and Polosukhin decided that it would be much easier to implement the new technologies they were developing into entirely new Layer 1 networks instead of retrofitting them into ‘outdated’ blockchains. Ethereum simply wasn’t built for this kind of modification, so they decided to start fresh on their own.

After nearly two years of research and development, NEAR protocol was launched in April 2019. Their assumptions seemed to have been correct as Ethereum is still working on implementing sharding many years later. However, it still remains to be seen whether NEAR or a similar new Layer 1 network will be able to overtake giants like Ethereum, even with their head start.

The NEAR team is still led by co-founders Skidanov and Polosukhin.

How Does NEAR Protocol Work?

NEAR protocol is powered by the “Adaptive Proof of Stake” (APoS) consensus algorithm. Similar to Ethereum, validators stake NEAR tokens to help validate and process transactions on the network. Unlike Proof-of-Work (PoW) consensus mechanisms like Bitcoin’s, PoS uses very little electricity, making it especially efficient while maintaining its principles of decentralization and security.

One of NEAR’s core features is called state sharding, which allows the network to scale horizontally by breaking up the blockchain’s state and processing transactions across multiple of these ‘shards.’ Note that a blockchain’s state is simply the current record of all account balances, smart contract data, and other information stored on-chain.

State sharding improves transaction speed and lowers fees at the outset, and it also makes it easier for the network to scale as adoption grows. This is because new shards can be added as needed, allowing the blockchain to grow without spiking fees or making it harder to secure the network.

NEAR has also built out significant infrastructure to make it easy for developers to build decentralized apps (dApps) on the blockchain. Any developer can make an account on-chain and use NEAR tokens to deploy their smart contracts. Smart contracts are essentially pieces of code, stored on a blockchain, that automatically execute when predetermined conditions are met. These function as the building blocks for all complex applications on blockchain networks.

Interestingly, NEAR Protocol supports multiple common coding languages for its smart contracts. This is in contrast to many blockchains, which only effectively allow one specific language. This is important because it allows developers who only know one smart contract coding language, such as Rust or Solidity, to use whichever one they are most comfortable with. The idea is that the more developers they can attract, the more apps that they can host that will bring in more and more users.

Popular Projects Based on NEAR

As one of the newest protocols on the market, NEAR has been designed with flexibility in mind. This means that many projects are already being built on top of the protocol that takes advantage of its unique features and benefits.

Metabase, a non-fungible token (NFT) minting platform that allows users to create and sell their own NFTs, is one of the more popular projects on NEAR. This is made possible by NEAR’s support for smart contracts, making it easy to create and manage these digital assets.

Flux is another project that is making use of NEAR’s capabilities. It is a protocol that allows developers to create markets based on assets, commodities, real-world events, and more. This is made possible by using NEAR’s decentralized exchange, which allows for fast and secure trading of these assets.

Locus Chain, a blockchain platform that allows for decentralized application development on NEAR, is also rising up the ranks. This is made possible by using NEAR’s smart contract functionality, which makes it easy to create and manage these dapps.

While the consistent growth in app development on NEAR is promising, it still remains to be seen whether it will be able to continue to sustain this growth and eventually overtake some of its Layer 1 competitors.

How Does NEAR Token Work?

NEAR Token is the native token of the NEAR Protocol. The total supply of NEAR is 1 billion tokens, with a circulating supply of 350 million as of July 2020. The remaining 650 million are locked up in the NEAR Foundation endowment fund.

NEAR’s primary use case is to be staked by validators and nominators to secure the network and earn rewards. As such, it has a high degree of liquidity and is traded on a number of exchanges, including Binance, Kraken, and Gate.io.

NEAR is also used to pay transaction fees on the network. Fees are paid in proportion to the computational resources required to execute a transaction, making NEAR one of the most efficient blockchain protocols in terms of transaction costs.

Benefits and Limitations of NEAR Protocol

Like any other blockchain network, NEAR protocol has its fair share of benefits and limitations when compared with its competition. It’s important to understand both, especially if you are considering investing in the token or using the blockchain.

Benefits of NEAR Protocol

NEAR protocol is a blockchain protocol that enables high-performance decentralized applications. Some of the benefits of using NEAR protocol include:

• Scalability: NEAR protocol can handle up to 10,000 transactions per second. This makes it much faster than other blockchain protocols such as Ethereum.
• Low fees: Transactions on the network are relatively low, making it cheaper than Bitcoin and Ethereum.
• Developer-friendly: NEAR protocol has an easy-to-use development platform that makes it easy for developers to build decentralized applications.
• Security: NEAR protocol uses cryptography to secure its data and transactions. This makes it more secure than other protocols that do not use this security measure.
• Energy efficiency: Because it runs on Proof-of-Stake, it requires vastly less energy than PoW chains.

Limitations of NEAR Protocol

Some of the main limitations of NEAR protocol include:

• Lack of support: NEAR Protocol is still a new protocol and lacks the support of major exchanges, decentralized applications, and wallets.
• Complexity: NEAR protocol is more complex than some other protocols. It hides this complexity well for users, but can make it a bit harder for developers to build certain kinds of apps on it.
• Layer 1 competition: The Layer 1 space in crypto is extremely competitive. NEAR may struggle to keep up.

What Is the Future of NEAR Protocol?

NEAR protocol is a unique sharding protocol that enables horizontal scalability for blockchain applications. The protocol uses state sharding and block sharding to achieve high transaction throughput while maintaining decentralization, security, and flexibility. Its focus on making it as simple and painless for developers to build and deploy apps on its network is a promising strategy if it can attract enough popular apps. However, it is still a relatively new player in a remarkably competitive industry.

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Ibrahim Ajibade

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I’m a research analyst with experience supporting Web3 startups and financial organizations through data-driven insights and strategic analysis. My goal is to help organizations make smarter decisions by bridging the gap between traditional finance and blockchain innovation.

With a background in Economics, I bring a solid understanding of market dynamics, financial systems, and the broader economic forces shaping the crypto industry. I’m currently pursuing a Master’s degree in Blockchain and Distributed Ledger Technologies at the University of Malta, where I’m expanding my expertise in decentralized systems, smart contracts, and real-world blockchain applications.

I’m especially interested in project evaluation, tokenomics, and ecosystem growth strategies, as these are areas where innovation can drive lasting impact. By combining my academic foundation with hands-on experience, I aim to provide meaningful insights that add value to both the financial and blockchain sectors.