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Hello & Happy Sunday,

here is Just The Metrics - your newsletter with the latest Layer1 Proof-of Stake Blockchain Comparisons.

This week we will dig into NEAR Protocol and answer the question:

Is NEAR a solid L1?

by looking into the Team, ICO, consensus mechanism, and accounting model before we dive into the Assessment Framework checking out the decentralization, scalability, and security of the network.

Curious?

Ok, let's dig in!

Near Protocol

A Fundamental Assessment based on the Blockchain Trilemma

Just The Metrics

Your Weekly Newsletter explaining Layer 1 Blockchain Metrics.

The Background

The Team

• Illia Polosukhin and Alexander Skidanov started NEAR.ai in early 2017 as a machine learning project before it became a blockchain development platform

• NEAR Protocol has been named after the science fiction novel "The Singularity Is Near".

• The project drew from Illia’s work as a lead contributor for TensorFlow at Google and Alexander’s as the lead engineer at MemSQL

• In 2018 Erik Trautman joined the team.

The ICO

• NEAR protocol created 1 billion NEAR tokens at genesis, which were allocated to individuals and organizations on an ongoing basis during the rollout of its mainnet on April 22, 2020.

• Inflation, transfers, and vesting schedules did not begin until the final phase of NEAR's mainnet rollout, which started on October 13, 2020.

• To date, NEAR received $533m in funding from almost every A-list Venture Capital which gives NEAR a huge backing when it comes to development and attracting developers to their ecosystem.

The Consensus Mechanism

• NEAR also introduces a new consensus mechanism called Doomslug which allows validators to take turns when producing blocks rather than having to compete based on individual stakes.

• With Ethereum, for example, you would have to wait for quite a few more blocks, whereas with NEAR you only have to wait for one.

• Accordingly, NEAR should allow more transactions to be carried out in less time and at a lower cost.

• By combining the Doomslug consensus mechanism with a horizontal scaling approach the network splits into parallel shards and dynamically distributes the computation to increase the network's processing capacity.

The Accounting Model

• Although Near generally uses the account model like Ethereum, private transactions use the unspent transaction output (UTXO) model, which is similar to Cardano and Bitcoin.

• NEAR leverages human-readable accounts to simplify remembering them. In this way, accounts have addresses such as Alice.near instead of long strings of random characters.

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So, once we have understood the general setup, let's look at our well-known Assessment Framework comparing NEAR to Cardano and their performance in the 3 dimensions of the blockchain trilemma.

1. Decentralisation

2. Scalability

3. Security

So here is the Blockchain Trilemma as Assessment Framework

Let's take a look at certain metrics of NEAR that determine its degree of

• Security

• Scalability &

• Decentralization

General Decentralization Metrics:

Initial Token Distribution:

• Near had an initial Token distribution with 60% going towards insiders and the foundation.

• Compared to other Layer 1 chains like Ethereum and Cardano, the initial token allocation of Near protocol is skewed towards insiders. For example, Ethereum and Cardano distributed around 80% of their tokens through a public sale.

• Compared to L1, like Solana & Avalanche, Near allocated 12% to the public, whereas Solana just distributed 1% and Avalanche allocated 16%.

• So overall, the fairness and decentralization of Near protocol's initial token distribution are somewhat similar to Avalanche or Solana than to chains like Cardano or Ethereum.

The number of individual staked wallets & staking ratio:

• Near has over 79,878 unique staked wallets with a staking ratio of 42.79%, which reflects a relatively low degree of decentralization.

• Near protocol is way behind Cardano in this metric, the number of unique staked wallets could be compared to blockchains like Polkadot and Avalanche.

Permissioned vs Permissionless Node (Yes/No):

• Near is a permissionless public blockchain.

The total number of active validator nodes:

• Due to the tradeoffs for a fast block finality, the active validator set is limited to 125. This is one of the lowest validator numbers among the top blockchain networks out there. This low number certainly hampers the decentralization of Near protocol.

Factors Enabling Decentralization:

Size of a full node: 

• We could not find any sources pointing towards the current size of the blockchain.

Minimum hardware & connectivity requirements for running a validator node/relay nodes/stake pool:

• Storage: 1TB SSD

• Memory: 24GB DDR4

• CPU: x86_64 (Intel, AMD) processor with at least 8 physical cores

 Source

• A node can become a NEAR validator only if the amount in the staking transaction is above the seat price defined by the protocol. The seat price is dynamically calculated and is a function of the amount of NEAR tokens staked by other validators.

• The current seat price for validator is around 60,306 NEAR tokens (183,933 USD)

General Security Metrics:

Cost of 51% attacks:

• An attacker controlling 51% of the Near protocol will cost over $1.26 billion, not factoring in the price appreciation that will occur with a buyer trying to purchase that much NEAR.

Vulnerability to denial-of-service (DoS) and distributed denial-of-service (DDoS) attacks:

• Near protocol has a low vulnerability to such attacks.

Propagation network types (a peer-to-peer propagation network or a relay propagation)

• Near protocol has a Peer-to-Peer propagation network.

Factors Enabling Security:

Full Node/Partial Node Ratio:

• Low, considering the relatively high requirements to run a full node. Most personal computers won't be able to host a full node of Near protocol.

Client Diversity:

• Near has clients in Rust and JavaScript.

General Scalability Metrics:

Transaction throughput:

• Near protocol is capable of up to around 2000 transactions per second.

Transaction latency & finality time:

• Near protocol reaches finality within 2,4 seconds.

Active Layer 2s:

• Aurora is an EVM-compatible layer running on top of Near Protocol. However, Aurora isn't a sidechain or a rollup, but it's simply a smart contract on NEAR's main network. Assets from Ethereum could be bridged to Near and Aurora through a fully trustless bridge known as Rainbow Bridge.

Factors Enabling Scalability:

Status of data availability that enables rollups:

• Near has a horizontal scaling approach using shards. Near protocol is not optimized for implementing rollups.

• Near has a Dynamic sharding approach which would be implemented through the 4 phases of Nightshade, a novel sharding design. Currently, it is in phase zero.

So what does now the overall verdict look like:

Decentralization: Low

Security: High

Scalability: High

Near could be seen as a scalable and secure L1 but not decentralized enough to claim the status of Cardano or Ethereum.

It shows a relatively low degree of decentralization due to its centralized initial token distribution and a relatively low number of validators and individual wallets participating in staking compared to public blockchains like Cardano.

Near protocol's horizontal scaling model could eventually enable a very high throughput using the novel dynamic sharding approach. Currently, this is in phase zero.

The much-touted phases of "Nightshade" should be able to scale Near further and increase the minimum number of validators that could participate in the consensus. Whether this plan would be successful, only time can tell.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.