Today, Ethereum is the number one smart contract platform in the crypto space, with a majority of smart contracts and decentralized applications based (dApps) based on its blockchain. Like Ethereum, there are several other smart contract platforms in the market as well.
However, just because Ethereum is the number one platform when it comes to smart contracts and DeFi, does not mean it does not have problems. Ethereum has one glaring problem, and that is significant scalability problems. It just cannot get its network to scale.
This is where the NEAR Protocol comes into the picture. NEAR’s USP is that it uses a Proof-of-Stake consensus mechanism that utilizes sharding. Before we dive deeper, let us get to know both Ethereum and NEAR.
What Is Ethereum?
If you look at Ethereum’s definition on its website, it is as follows –
“Ethereum is a technology that’s home to digital money, global payments, and applications. The community has built a booming digital economy, bold new ways for creators to earn online, and so much more. It’s open to everyone, wherever you are in the world.”
Founded in 2015 by Vitalik Buterin, Ethereum has firmly established itself as the second-largest cryptocurrency by market capitalization, second only to Bitcoin. Ethereum builds upon Bitcoin’s blockchain, making it more than just another cryptocurrency that allows users to send or receive value without any third-party intervention.
Ethereum ensures decentralization by replacing central servers with thousands of nodes, ensuring that the platform is always online and free from any third-party influence. Smart contracts also form an integral part of Ethereum’s ecosystem, and because the platform supports both decentralized applications and smart contracts, it is exceptionally appealing to developers and users alike.
Ethereum is now moving to Ethereum 2.0 or Serenity. The upgrade will significantly improve the blockchain’s scalability, efficiency, and speed of the Ethereum blockchain. In addition, the upgrade will allow Ethereum to reduce gas costs and process more transactions, improving the scalability of the blockchain without compromising on security.
The upgrade will also see Ethereum switch to a Proof-of-Stake consensus mechanism. PoS will see validators who have been chosen algorithmically provide security to the platform. The validators will secure the platform by locking up their ETH. Any validator that acts against the interest of the platform has their stake slashed, ensuring the platform’s security.
What Is the NEAR Protocol?
The NEAR Protocol came into existence in the summer of 2018. A decentralized development platform, the protocol was designed to create the perfect environment for decentralized applications, focusing on the shortcomings of other platforms in the smart contract and dApp space. These shortcomings are mainly issues with low speeds, low throughput, and poor compatibility with other chains.
NEAR operates on top of the NEAR Protocol, a Proof-of-Stake (PoS) blockchain, incorporating several features and innovations to reduce costs and improve scalability for both users and developers. In addition, NEAR takes a unique approach to “Sharding.”
It also introduces a block generation mechanism called “Doomslug” that was proposed in 2019. Doomslug allows practical or “Doomslug” finality, ensuring that the blocks receive finality in seconds.
The protocol is based on the same technology as Bitcoin, combining it with features such as database sharding. NEAR Protocol is built from scratch and is the most accessible network for end-users and developers while also ensuring scalability and security.
Most scalable blockchains centralize processing, limiting it to high-end hardware, which provides a temporary boost to their throughput, NEAR allows the platform to scale linearly, upto billions of transactions in a completely decentralized way.
NEAR is developed by the NEAR collective, a community of developers and researchers collaborating on building the project. Some important features of NEAR are
- NEAR is a sharded system that allows for infinite scalability.
- An easy-to-use protocol, NEAR allows developers to build apps easily and quickly.
- NEAR is not a side chain but a Layer-1 protocol.
- dApps created using NEAR run on top of the underlying NEAR layer.
What Is The NEAR Collective?
NEAR Collective comprises individual organizations and other contributors that are continuously working on improving the NEAR Protocol. The Collective works on projects such as writing the initial code and implementation for the NEAR Network. NEAR is completely decentralized, operating independently and cannot be shut down or manipulated, even by those that built it.
The NEAR Collective has members such as the NEAR Foundation. The NEAR Foundation is a non-profit organization that is focused on creating a vibrant ecosystem around the NEAR blockchain. It helps in the coordination of governance activities and development. The NEAR Collective has several projects, with the NEAR blockchain just one of several projects under the aegis of the collective.
Why Are Blockchains Like NEAR Necessary?
To understand this, we must first understand the evolution of blockchain technology. Blockchain can be divided into three stages or generations. First-generation blockchains were designed to be a simple payment mechanism. Bitcoin is an example of a first-generation blockchain that has firmly established itself in the crypto space as the number one platform. However, first-generation blockchains have limitations when it comes to complex transactions.
Second-generation blockchain platforms came to the fore with Ethereum and the concept of smart contracts, allowing developers to use them and program more sophisticated transactions and creating dApps. But second-generation blockchains suffer from severe scalability issues. For example, Ethereum can process only about 25 transactions per second, compare this number with mainstream platforms like Visa or PayPal, and you can see how far behind Ethereum is lagging.
Ethereum has tried to fix its scalability issues by implementing Layer-2 solutions like the plasma protocol, creating an additional layer that runs in tandem with the main chain. However, Layer-2 solutions still have not gained enough traction.
This brings us to NEAR, a third-generation blockchain. NEAR discards the idea that each node on the network has to run the entire code as the team believes that all it does is create bottlenecks. Instead, the blockchain fixes scalability issues by utilizing a sharding technique, allowing the blockchain to scale up the network’s capacity. And unlike second-generation blockchains that use a Layer-2 solution, sharding is a Layer-1 solution.
What Is Sharding?
Before we move ahead, let us understand sharding. Sometimes systems have to deal with a lot of data. This affects the performance of the system, reducing throughput and affects the performance of the system. Sharding overcomes this by partitioning data horizontally, making it smaller, manageable, and, more importantly, quicker to process.
NEAR and Ethereum: How Do NEAR And Ethereum work?
Ethereum functions as more than just a financial platform carrying out transactions; it also supports decentralized applications and smart contracts. Ethereum is based on blockchain technology and uses a public ledger where all verified transactions are stored. The transactions are accessible to anyone who wants to view them, ensuring complete transparency while ensuring that the data stored in the blockchain cannot be changed or manipulated.
Ethereum’s blockchain is similar to the bitcoin blockchain and acts as a public ledger that keeps a record of all transactions and smart contract history. Volunteers worldwide store a copy of the entire Ethereum blockchain, making the blockchain completely decentralized. Each time an action like a transaction or smart contract takes place on the blockchain, all nodes worldwide process it, ensuring that the blockchain rules are followed.
All nodes are connected and follow the same set of rules regarding smart contracts and transactions. Ethereum’s nodes also keep track of the state of all applications, user balances, and the smart contract code, ensuring that all information is always up-to-date.
Thanks to Solidity, developers can write smart contracts that can manage transactions on the blockchain and their outcomes. Smart contracts differ from traditional contracts as they ensure that the terms of the contract are fulfilled. In addition, they automatically execute transactions when a set of predetermined conditions are fulfilled, eliminating all third parties involved in any transaction.
NEAR uses blockchain technology, just like other blockchains such as Ethereum and Cardano. NEAR acts as the base blockchain upon which applications can be built and deployed. It uses a consensus mechanism known as Nightshade that helps it achieve its high throughput. NEAR’s consensus mechanism assumes that transactions from all shards combine to make a block, which is why each shard submits a segment of each block. This segment is called a chunk.
Validators are chosen at random then process transactions across multiple shard chains, improving the transaction capacity of the NEAR protocol. The chunks are processed and then stored on the blockchain, finalizing the transactions.
NEAR does not run on the idea that each node has to process the entire code. Instead, it addresses scalability issues by using sharding. Through sharding, the data is horizontally partitioned, making it easier to manage and quicker to process.
NEAR and Ethereum: Consensus Mechanism
Currently, Ethereum uses a Proof-of-Work consensus mechanism, but with Ethereum 2.0 on the horizon, the platform will shift to a Proof-of-Stake consensus mechanism. Proof-of-Stake will be implemented with the Casper protocol, creating a trustless ecosystem. Before completely switching to a Proof-of-Stake mechanism, Ethereum will implement a hybrid PoW-PoS consensus mechanism.
Let us understand how both Proof-of-Work and Proof-of-Stake work. Proof-of-Work requires that miners compete with each other, utilizing massive amounts of computational power to solve complex mathematical problems to validate transactions. Once a transaction is validated, the miner is rewarded. Ethereum is switching to a Proof-of-Stake mechanism because Proof-of-Work has several issues, such as high energy consumption. The switch is also being made to address Ethereum’s scalability issues.
In a Proof-of-Stake consensus mechanism, validators stake their ETH, after which they are randomly selected to attest a block. The selected validator proposes a block, while the other validators need to attest that they have seen the block. Once they have validated the block, it is added to the blockchain, and the validators are rewarded. Thus, validators are rewarded for both proposing and attesting the block.
NEAR Protocol has implemented Nightshade Sharding as their Proof-of-Stake consensus mechanism. We have already discussed what sharding is, so we can skip past that. However, the sharding method in use today has its issues, such as the fork choice rule in both the shard and beacon chains needs to be built and tested differently.
However, Nightshade treats the system as a single blockchain, and each block contains transactions for all shards. However, participants need not download the full state, instead maintaining only the state that is part of the shard they are validating transactions for. A list of all transactions in each block is created, which is then split into chunks, with each shard being assigned one shard.
Validators are a key part of the NEAR protocol, maintaining consensus on the protocol. Therefore, they need to keep their systems updated at all times while also keeping their servers online.
- Validators are selected with every epoch based on their stake.
- Validators can be enrolled again by re-staking their tokens and rewards.
- Validators can strengthen their stake in two ways, buy a token or borrow them through a stake delegation.
NEAR and Ethereum: The Tokens
Ethereum’s native token, Ether, incentivizes programmers to continue running the blockchain’s protocol since the hardware that powers Ethereum is expensive and consumes a significant amount of power. Thus, miners and programmers are both rewarded in Ether for utilizing their resources and keeping the Ethereum ecosystem secure and functioning.
Developers also use Ether to pay so that they can launch smart contracts or decentralized applications on the Ethereum blockchain. It is also used to access smart contracts.
NEAR’s native token, the NEAR token, is used to incentivize validators on the network. The token also drives transactions and smart contracts on the blockchain. Since NEAR is a community-governed platform, token holders play a significant role in the NEAR platform’s governance, voting on potential changes on the NEAR platform.
Projects On Ethereum And The NEAR Protocol
Ethereum is the leader when it comes to decentralized apps and decentralized finance, with over 3000 dApps running on its blockchain. Most of Ethereum’s projects focus on DeFi, expanding on the uses of cryptocurrencies to fulfill more complex financial uses.
Some of the top projects on the Ethereum blockchain are
Even though NEAR’s mainnet was launched a little over a year ago, several platforms are building on it. Some of the projects on the NEAR Protocol are
- Mintbase – A platform dedicated to simplifying issuing and selling NFTs while also making the entire process cheap.
- Flux – Flux is a decentralized open-market protocol. It launched on the NEAR Protocol in 2020.
- Paras – Paras is an NFT marketplace focusing on works created by select artists.
The NEAR Grants Program, currently operated by the NEAR Foundation, supports projects that enable the growth of the NEAR ecosystem.
Aurora On The NEAR Protocol
Aurora has also launched on the NEAR Protocol, providing an Ethereum Layer-2 experience A solution that allows developers to reach out to additional markets, Aurora takes advantage of the NEAR Protocol features such as gas fee remuneration and sharding. It runs on two critical components, the Aurora Bridge and the Aurora Engine.
Some of the enhancements that Aurora brings are
- The ability to process thousands of transactions per second, a 50x increase over Ethereum.
- A block finality time of 2 seconds, as compared to the single block confirmation time of 13 seconds on Ethereum. The fast finality also reduces frontrunning attacks.
- Futureproof ecosystem growth, NEAR protocol’s sharding approach allows horizontal EVM scaling, and asynchronous communication between multiple shards.
- Fees on Aurora are 1000x times lower than those on Ethereum. To take an example, Transferring an ERC-20 token on Aurora costs less than $0.01, while on Ethereum, it costs around $5.40.
- Aurora offers uncompromising compatibility with Ethereum over the NEAR Protocol.
Aurora provides a solution for the challenges faced by the Ethereum ecosystem, while preserving both smart contracts and the front-end code.
Advantages Of NEAR Protocol
NEAR’s sharded solution gives it a huge advantage over platforms like Ethereum and Bitcoin, solving the problem of low scalability and frequent bottlenecks on the Ethereum network. By making their protocol sharded, the founders of NEAR break the blockchain’s code into chunks run on parallel nodes. This results in the entire code processed quickly and freeing NEAR from scalability issues thanks to this ability to fragment the code.
The NEAR Protocol has several unique features that make it an attractive proposition for users and validators.
- A flexible UX and access to services that run on the NEAR platform also feature an easy onboarding process.
- Due to NEAR’s sharded protocol, validators can join the platform without downloading complex software. They can then earn tokens by validating transactions on the network.
- NEAR allows businesses to customize permissions for their users. With steady growth in the market, developers also gain access to a growing customer base.
The Road Ahead For The NEAR Protocol
With the launch of the Ethereum-to-NEAR bridge, also called the Rainbow Bridge, users can bridge their Ethereum ERC-20 tokens to NEAR, and start using them within NEAR’s decentralized application ecosystem. This development is a huge step towards the founding team’s vision of making the platform as accessible as possible.
NEAR is also working on implementing Ethereum Virtual Machine (EVM) support. Once this process is complete, developers can re-deploy their dApps on NEAR with minimal changes, and enable cross-chain launches.
The NEAR Protocol announced a partnership with Chainlink, along with the launch of Rainbow Bridge, allowing NEAR and Ethereum interaction.
The NEAR Protocol has shown a lot of promise, utilizing sharding to solve second-generation blockchains’ scalability issues. In addition, NEAR significantly increases throughput without compromising the security of the platform.
Thanks to the NEAR collective, hundreds of blockchain engineers and developers are working on improving the protocol 24/7. NEAR also launched its mainnet, and the network is ready to support dApps and other services. With its focus on ensuring that the NEAR Platform is easy to use for validators, end-users and developers, NEAR has emerged as a force in the smart contract platform space.
Ethereum, on the other hand, has retained its position on the throne thanks to its enviable developer community and the thriving DeFi and NFT ecosystems. Both of these protocols provide a brilliant platform for developers to build the decentralized ecosystem of the future.