What is NEAR Protocol ($NEAR)?

This guide will cover everything you need to know about NEAR Protocol, a developer-friendly blockchain and foundational layer for autonomous AI agents, as well as its native token, $NEAR.

What is NEAR Protocol?

NEAR Protocol is a Layer 1 blockchain designed for speed and providing a platform where autonomous AI agents can transact and interact on behalf of the user.

It was founded in 2018 by Illia Polosukhin and Alexander Skidanov, with the mainnet launch taking place in 2020. NEAR aims to address several blockchain challenges, with three primary focuses:

• Scalability: To withstand millions of users without spiking fees

• Usability: A blockchain that was accessible to users of all experience levels, including beginners

• Developer experience: Familiar coding languages to encourage more users to develop

NEAR achieves this through Nightshade sharding for scalability, chain abstraction and bridging, and by supporting builds from accessible coding systems, including JavaScript and Rust.

How NEAR Protocol works

NEAR has several unique ways of operating compared to the major blockchains we know:

Consensus mechanism

It operates on a variant of the proof-of-stake (PoS) consensus mechanism, specifically Thresholded PoS. This is partnered with Doomslug, a block production mechanism that secures transactions and speeds up transaction finality.

• Thresholded PoS: This operates like proof-of-stake, but validator seats are assigned via an auction. The number of seats is determined by the number of users who register as validators and the number of tokens they stake. The goal is to prevent large holders or staking pools from gaining too much control. To maintain integrity, each validator’s stake remains locked until they choose to stop validating.

• Doomslug: Validators take turns producing and confirming blocks, achieving transaction finality in just one round. If a validator fails to produce a block, the system will skip them. This approach enables faster transaction confirmation without slowing down the network.

Nightshade

NEAR employs a sharding architecture called Nightshade to handle periods of high network usage. Sharding splits the network into smaller, parallel sections, or “shards”, so each validator only needs to maintain a portion of the state rather than the entire network. This approach helps keep processing times fast and the network efficient.

Rainbow Bridge

NEAR aims to create more interoperability between blockchains. To achieve this, it offers the Rainbow Bridge, a permissionless and trustless bridge that allows assets to flow between Ethereum and NEAR. It supports ERC-20 tokens and NFTs, so users can benefit from both Ethereum's liquidity and NEAR’s transaction speeds.

The Aurora virtual machine

To promote cross-chain functionality, reduce high fees, and boost transaction speeds, NEAR uses Aurora, an Ethereum Virtual Machine (EVM). Aurora enables developers to deploy Ethereum smart contracts and applications directly on the NEAR blockchain without needing to rewrite any code.

What are the key features of NEAR Protocol?

With the goal of making blockchains more user- and developer-friendly, NEAR has introduced several features:

• Account names: Instead of relying on cryptographically complicated addresses, NEAR uses human-readable account names (similar to a username) to help users manage their transactions.

• Chain signatures: Your NEAR account can control and authorize transactions across multiple blockchains.

• AI autonomous agents: The infrastructure is designed for users to have their autonomous AI agents make transactions, decisions, and interact on their behalf.

• Developer-friendly features: Developers can create smart contracts using JavaScript or Rust, leverage modular SDKs to customize their tech stack, and take advantage of NEAR’s developer toolkits and resources designed to support newcomers.

• Carbon neutral: NEAR is a certified carbon-neutral network, with annual energy consumption significantly lower than proof-of-work blockchains.

NEAR Protocol's use cases

NEAR aims to encourage the creation of apps across its ecosystem with a developer-friendly design that uses familiar coding languages. Its ecosystem supports dApps, decentralized exchanges, lending platforms, and yield farming.

This versatility extends to NFTs, with NEAR being used for minting, buying, and trading. Users can also use it to build and deploy autonomous AI agents, capable of executing complex, multi-chain operations.

NEAR Protocol's Tokenomics

NEAR has its own native token, $NEAR, which powers the network.

The mainnet launched with an initial supply of 1 billion tokens. It targets an annual inflation of ~5% per year, to fund validator rewards and the protocol’s treasury. As the network grows, this rate is expected to decrease, stabilizing at around 4.5% since 2023. To maintain deflationary pressure, 70% of all transaction fees are burned.

$NEAR serves multiple purposes within the ecosystem: it’s used to pay transaction fees, stake for network security, and participate in governance, including voting on protocol upgrades and allocating treasury resources.

Cons of NEAR Protocol?

There are a couple of cons to be aware of when it comes to NEAR:

• Limited adoption: NEAR’s user base is still relatively small, with around 11,700 holders.

• Volatility: $NEAR is subject to market fluctuations and inflationary pressures.

NEAR Protocol tax implications

If you’re using NEAR, there is a chance you’re earning, and those earnings are subject to either income or capital gains tax.

You can use a crypto tax calculator, like Koinly, that directly integrates with the NEAR blockchain, to import your transaction history. Koinly will then calculate your tax and generate specialized tax reports for you.