VeradiVerdict — Issue #45
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Pantera recently invested into Near Protocol, a blockchain that uses sharding for scalability and really focuses on the developer and user experience. We were impressed with the team which comes from top companies like Google and Facebook but more importantly had experience creating decentralized and distributed computing systems at MemSQL. After seeing a demo of the developer experience and hearing their vision, we knew we wanted to be part of the journey. Below you can read more in-depth about the scalability problem, how Near unique solves these problems, and what makes them compelling.
The most common blockchains today (namely Ethereum and Bitcoin) run into a huge problem regarding scalability; their consensus protocols and computational architectures aren’t designed to handle huge transaction volumes and frequency, which is becoming more and more common as dApps and arbitrage grow and become extremely more complex.
The NEAR Protocol is a new blockchain addressing many of these scalability concerns. NEAR uses sharding, or distributing transaction validation across multiple nodes, a customized proof-of-stake protocol that natively works with sharding, and smart contracts powered by WebAssembly (and TypeScript & Rust, and eventually the entire ecosystem of languages that compile to WASM) to create huge advances in speed and scalability for blockchain.
NEAR also makes usability a key priority––from onboarding users onto the platform to making transactions easy. Blockchain apps tend to have pretty steep drop-off rates (on the scale of 90%), so NEAR’s work in this field may very well power long-term usage of blockchain apps––and an explosion of the Dapp ecosystem.
NEAR’s team is incredibly stacked too––including multiple ex-Googlers, many of the early architects of sharding technology, a ton of ACM-ICPC (the most prestigious collegiate programming contest) winners, and way too many honors and accolades to list.
Ultimately, the NEAR protocol addresses many of the biggest concerns around scalability with the current blockchain ecosystem today, and might very well be the next step towards the next generation of blockchain.
The Next Generation of Blockchain
It’s been 10 years since Satoshi Nakamoto published the infamous Bitcoin whitepaper, inspiring an entirely new field of technology, finance, and the still-ambiguous potential to combine the two. It’s been 4 years since Ethereum launched their blockchain––powering the world’s first truly-decentralized applications and smart contracts, concepts that fuel much of the innovation in the cryptocurrency space today.
With new tokens, consensus protocols, and blockchain tech suites on the rise, the gaps in the initial iterations of blockchain are slowly being identified––poor scalability, high computational costs, low latency with consensus, etc. And with each of these newly-identified problems, new companies are scrapping together to produce the next generation of what blockchain might look like.
That’s where the NEAR Protocol comes in. NEAR is a team of developers and blockchain researchers that has come together to create a new open-source blockchain that promises to be faster, more scalable, and more user- and developer-friendly than ever before.
Why NEAR? What’s wrong with Ethereum or Bitcoin?
A ton of problems regarding the initial iterations of blockchain have been uncovered in recent years. The vast majority of these problems center around scalability––Ethereum and Bitcoin both fail to support high transaction volumes or frequencies, which throws immense barriers in the road when companies try to use the blockchain for high-speed arbitrage or decentralize applications with thousands of users.
NEAR differentiates itself in three key ways from the current blockchain market, again, namely around the ethos of scalability.
Previous blockchains are fundamentally limited by how many blocks can be produced and how fast validators can actually validate transactions. This has created huge obstacles as blockchain applications scale in size, because at larger user-bases, they require a ton of blocks and validators at any given time. In 2017, an Ethereum dApp called Cryptokitties which had only 14k users (fairly small for a consumer-focused app) almost blocked up the entire Ethereum network, because of the blockchain’s inability to handle the volume of transactions.
The NEAR team identified this gap and began to introduce a computational concept called “sharding” into the blockchain space. At a high-level, sharding is breaking up computational work amongst a variety of nodes or computers. In a blockchain context, sharding breaks up the total work to validate a volume of transactions among a set of shards, each of which is validated by different nodes. The idea here is to further decentralize the computational expense and complexity of validating huge amounts of transactions, by parallelizing the work amongst many computers.
Sharding is an extremely complicated computer science problem––one that the brilliant NEAR team has been able to crack in a blockchain context, creating much of its competitive advantage. It should be noted that Ethereum 2.0 (the projected next version of the Ethereum blockchain) also plans to use sharding to address scalability concerns. There are differences between the two, though subtle; put simply, NEAR’s algorithms use smaller consensus committees in their node validation than Ethereum does because NEAR wants to capture the low-end device space. The trade-off here is that NEAR’s blockchain can have many forks, which tends to hurt sharding. It’s unclear which of the two algorithms will outperform the other––but Ethereum 2.0’s launch is well in the future, putting NEAR at somewhat of a first mover advantage here.
Ultimately, by introducing sharding, NEAR hopes to drastically improve the scalability of decentralized applications and blockchain usage.
Customized Proof-of-Stake (Nightshade)
Older blockchains like Ethereum and Bitcoin use the classic proof-of-work (PoW) mechanism to validate consensus on the chain. As a refresher, proof-of-work essentially presents a computational puzzle to all the nodes on a network; the nodes must “team up” and combine their collective knowledge of the blockchain to solve the puzzle. The “team” of nodes that solves the problem first effectively “wins” the challenge and their record of the blockchain is the new record of the blockchain for the entire network.
At its inception, proof-of-work was computationally brilliant––an unheard of way to determine whether computerized records of something agreed or not. But as the Ethereum and Bitcoin ecosystems scaled, the inherent problem in PoW became obvious; the protocol requires that every transaction be validated across the entire network, which exponentially racks up computational complexity. Put simply, older blockchains can’t scale as fast because it’s too much computational expense to validate a million transactions each across a million nodes (that’s on the order of 1012 validations). Some solutions to this issue have popped up––namely, second-layer solutions which create another layer to the blockchain that helps speed up consensus and distribute the validation work. Still, these mechanisms are fundamentally limited by the fact that all transactions must be ultimately validated across the entire network.
Proof-of-stake (PoS) is a newer consensus protocol that operates a little differently. The network chooses a node to create the new block for a transaction based on a weighted probability inferred from the node’s “stake” in the blockchain (essentially, how much financial or network value they hold in that ecosystem). This still guarantees that the only way to maliciously add a block to the network is by owning >50% of all of the cryptocurrency on the network.
PoS itself doesn't provide much scalability benefits, but significantly reduces the cost of operating the network, and is more green since no electricity is wasted to maintain the network. On top of PoS, NEAR implements sharding, which splits the work among the nodes instead of having all nodes validate all the transactions. Since sharded systems do not rely on validating every transaction across the entire network, it is orders of magnitude faster than traditional blockchains––creating huge advances for scalability. Designing secure sharding for blockchains, however, is extremely complex, since not all the transactions are now validated by all the nodes, it must be ensured that the set of nodes that validate the transaction is not adaptively corrupted and doesn't let an invalid transaction become finalized.
NEAR uses a customized version of PoS to implement consensus for its network because of its unique sharding structure. There are three types of validator nodes that implement consensus. First, chunk producers aggregate all the transactions for a given shard and turn that into a computational unit called a “chunk”. Block producers then take individual chunks and turn them into a single “block,” which is analogous to the same block discussed in validating transactions on Ethereum 1.0 or Bitcoin. Lastly, validators actually validate the transactions using the PoS mechanism to ensure that the transaction history is accurate. This entire process is called “Nightshade.”
The entire goal with the PoS transition is to create a faster consensus mechanism that natively integrates with NEAR’s sharding infrastructure to allow for stable, and efficient node validation.
Web-Assembly Powered Smart Contracts
Smart contracts are one of the largest use cases for blockchain today; NEAR’s taken apt note of that and designed their protocol to integrate well with smart contract design. Most notable about NEAR’s implementation of smart contracts is that it runs entirely on WebAssembly (WASM) virtual machines (VMs).
There’s a ton of computational reasons why this is huge for the scalability of smart contracts, namely that it’s incredibly fast, deterministic, compiles from many different programming languages, and has a rapidly growing community of developers improving and making tools for the space. NEAR’s WASM smart contracts use Rust VMs and Wasmer, both of which are top-of-the-line in terms of speed and scalability. Aligning with the thesis of better scalability and speed, NEAR’s transition to smart contracts on WASM creates huge strides for the second generation of blockchain.
Additionally, WASM is one of the fastest growing developer communities today; on top of the scalability value, it’s smart that NEAR is going after a growing space to further bolster their tools and libraries for creating VMs.
So, from a theoretical computer science angle, NEAR sounds great. But what’s the actual drive to use it?
Great question. With any blockchain, there’s too main users to capture.
First, developers. Again, in terms of scalability, NEAR pretty much outpaces every other solution out there; with sharding, its customized PoS, WASM smart contracts, etc., there’s no other blockchain that can support the volume and speed of transactions that NEAR can––creating a huge incentive for developers to use NEAR to build applications and financial systems.
Second, conventional users who might download NEAR-powered dApps or use it as a trading platform. This is a smaller focus, since most users would interact with technologies built on-top of NEAR, not NEAR itself, but still NEAR makes itself easily accessible. They use decentralized web, much like the web2 used by a ton of Ethereum projects. It’s super simple to make an account and create a wallet on the web, which requires no plug-ins and is entirely self-contained. The idea is to make the experience as whole and supported as possible––and NEAR’s done a great job of supporting non-technical customers who still want to interact with its blockchain.
On top of its incredible developer and user support, NEAR is also launching a token of its own (unsurprisingly called the NEAR token). Block creation rewards, transaction fees, and storage fees are distributed through the NEAR token; pricing is fixed for transaction and storage fees and is correlated with inflation for block rewards. The ecosystem rewards its contributors well, which hopefully incentivizes even more to join, fueling natural, rapid growth.Take a look here.
What’s the team like?
One-word: brilliant. Pretty much the entire team, from its C-level executives to individual contributors, has held a stint at a major tech company like Google, Facebook, Microsoft, Niantic, etc. Tons have worked in the CS industry at a research angle, building machine learning models and frameworks, creating decentralized and distributed computing systems, etc; many used to be the chief architects of MemSQL, a hugely popular distributed relational database today (used by Goldman Sachs, Morgan Stanley, Uber, etc.). If that wasn’t enough, multiple team members have either championed or medaled at the ACM’s Intercollegiate Programming Competition (ICPC), the world’s most famous and prestigious computer science concept. If anyone can pull off a blockchain revolution on the scale of NEAR, it’s this team.
Blockchain has made incredible advances in the last decade, but there’s also been huge areas for improvement. The biggest of these thus far has been scalability, stemming from poor architectures that required cross-network validation and poor computational load distribution. The NEAR protocol makes huge advances in pretty much every aspect of the scalability problem––presenting a blockchain that might actually be able to support insane transaction volumes and huge computational loads.
With sharding, its customized PoS consensus protocol, and use of WASM VMs, NEAR’s scalability is unlike any other blockchain before it. That’s on top of its quickly-growing developer ecosystem and toolkits for users and developers that make it easier than ever to engage with the NEAR blockchain. The future of blockchain and cryptocurrency is incredibly ambiguous, but it’s clear that NEAR presents a huge advance towards the next generation of blockchain: easy-to-use, secure, and stable.
Libra claims it’s no bank like Trump accuses.
IN THE TWEETS
Veil, the crypto-focused prediction market and derivatives platform, is closing its doors.
Creditors of Mt Gox waiting to get their bitcoin back from the long-defunct exchange can now get pennies on the dollar by selling their claims to Fortress Investment Group.
The program is set up by IDEO CoLab Ventures, a venture arm from design firm IDEO.
The United States Senate committee of commerce, science and transportation approved the Blockchain Promotion Act on Tuesday, tech news outlet CNET reports on July 11.
The U.S. is increasingly running the risk of being left behind other nations unless its authorities soon address issues surrounding Bitcoin. One of the main problems facing the cryptocurrency is tax treatment. In this regard, Singapore is now taking the lead.
NEW PRODUCTS AND HOT DEALS
Set Protocol launches Trend Trading, a new category of Sets that auto-rebalances based on technical indicators. ETH 20 Day Moving Average Crossover, the first Trend Trading Set, is now available on TokenSets. Set is reinventing asset management using DeFi infrastructure.
Altonomy, a Singapore-based market maker, just raised a $7 million seed round led by Polychain Capital.
Multicoin, Coinbase Ventures, BlueYard Capital and Collaborative Fund are backing a new protocol to help developers more smoothly interact with decentralized file storage. The investment takes the form of a $1.5 million seed round in data startup Textile.
The investment is led by Blockchain Capital, with participation from Visa and existing investors such as Andreessen Horowitz
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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early investments and want to share my thoughts and what’s going on in the industry in this weekly newsletter.
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