Dec 20, 2021
How NEAR’s Simple Nightshade Will Re-Imagine DeFi
Simple Nightshade is now live, poised to change both NEAR and DeFi as a whole, for the better. With our recent series of articles on sharding, which detail the changes it brings to NEAR like higher transaction capacity, faster transaction speeds, lower overall costs, and improved environmental sustainability, you should have a much better grasp of how sharding works and why it’s so groundbreaking.
Below, we dig into sharding, followed by defining DeFi and how Simple Nightshade and NEAR’s development phases will impact it. All in all, for DeFi to scale, sharding needs to proliferate as the dominant blockchain architecture. With this discussion, you’ll see why.
A Refresher on Sharding and Why It’s Needed
Blockchain networks, as they exist today, are limited. If the blockchain community ever aims to achieve widespread adoption, this must change and NEAR is doing just that. That’s where sharding comes in.
If you read our last post on sharding and the Simple Nightshade launch, then you’ll remember that from the get-go we’ve always had sharding in mind. The reason why is simple. Instead of placing the burden of processing all transactions on all validators, sharding spreads out the responsibility so more transactions can be processed without slowing down the blockchain.
Through sharding, the upper limit on transactions NEAR can process in a given amount of time can be adjusted as more and more users start to use the NEAR network. Consequently, sharding will underpin all of NEAR’s efforts in preparing for mass adoption by billions of users.
Though Simple Nightshade’s launch is only the first of several steps toward a fully-sharded, truly agile NEAR, its impact on DeFi and Crypto in Phase 0 is immediate and potent.
DeFining DeFi
Before diving into what makes Simple Nightshade groundbreaking for and integral to Decentralized Finance (DeFi), it’s important to understand what DeFi really is and why it matters.
DeFi is both a segment of the crypto industry and a term for the bulk of the crypto industry itself. At its’ core, it refers to the practice of building all sorts of financial services with smart contracts that are underpinned by blockchain networks. This mix of technologies will force banks, as we currently know them, to adapt.
A smart contract, carefully coded, can act as a bank in and of itself, setting interest rates algorithmically (instead of arbitrarily), storing capital, and matching lenders with borrowers. Rather than a single organization taking fees for providing these services, as traditional banks do, the network itself takes much smaller fees for doing the same.
Smart contract lending services exist today and already have billions in capital under management. Though they aren’t DeFi on their own, they are its bedrock because it is atop such “lending protocols” that all sorts of more specialized, still decentralized financial services are being built.
While this sort of system may sound revolutionary, it is not perfect. Because it runs on smart contracts, its transactions have to be finalized on a blockchain. This, in turn, means that the more transactions come to said blockchain in a given amount of time, the slower it gets. To understand why blockchains have this issue, it’s important to grasp a concept called “finality.”
Finality
Finality is perhaps the most important term in the crypto world. In case you’re unfamiliar with it, picture yourself shopping online. When you type in your credit card number and hit “pay,” it doesn’t mean your transaction is truly done. In reality, the merchant still hasn’t received your money, only the assurance that they will receive it within a reasonable amount of time. When the money hits their bank account, finality has been achieved.
Circling back to crypto, finality refers to the time it takes for a transaction to both reach its intended destination and be confirmed on the blockchain. With Simple Nightshade’s launch, NEAR’s finality is undergoing a massive upgrade to address the scaling required for mass adoption. NEAR finality remains 1 to 2 seconds — the crucial difference is that the blockchain can now do many, many more transactions in that timeframe.
If the network were to ever become as congested as Ethereum, Nightshade’s sharding approach would simply increase the amount of transactions happening within that 1 to 2 second timeframe, preventing them from moving to the next block and being slowed down.
With this, the future of DeFi is far brighter. The decentralized banks we described above will be leaps and bounds ahead of the traditional financial system once they leverage NEAR’s finality. Building on NEAR has never been a more attractive value proposition.
Faster Transaction Speeds
Alongside exponentially decreasing block time and finality, Simple Nightshade points the way for DeFi and crypto as a whole toward transaction speeds that truly rival the traditional financial space. With the launch of Phase 0 (Simple Nightshade), NEAR’s minimum throughput has already risen to the range of 2500–3000 t/ps (transactions processed per second). As for its maximum, it’s theoretically limitless since t/ps rises with finality.
Once Phase 3 goes live in Q4 2022, that will become even clearer, since shards will be able to multiply as needed. DeFi, as a whole, in turn will be able to do the same, leading to it reaching true scalability for the masses since all of its services will be settled in near-instantaneous fashion.
The Power of Chunk Producers
By January 2022, NEAR will launch — with Phase 1 of its’ roadmap — the ability for users to become “chunk producers.” If you’ve already read our last post, then you’ll know that this refers to validators who only work on the blocks of a dedicated shard and require only inexpensive hardware to do so.
The importance of such a feature cannot be overstated. Today, the bulk of the networks that DeFi products and services run on are controlled by users with specialized computers and, therefore, deep pockets.
This is, in part, because none of these networks have anything like the role of a chunk producer. With the launch of Phase 1, that will begin to change with the aim of making DeFi one day truly run by the masses and decentralized. As Phase 1 goes live, chunk producers will be able to validate shard transactions with minimal hardware, as outlined here.
The impact of chunk producers on DeFi is simple to understand yet profound. Any DeFi project building on NEAR will be able to leverage this capability, which will engineer a paradigm shift in who leads or “governs” the future of DeFi itself. Instead of most decisions being made by those with deep pockets and high performance hardware, they will, to a much larger extent, be made by truly average crypto users.
Decentralized Finance will earn its’ title, from its’ foundational processing layer all the way upward.
Beyond Simple Nightshade: Pure Widespread Adoption
If all of this hasn’t convinced you yet of why DeFi needs Simple Nightshade, consider this: without sharding, DeFi will never truly be DeFi. Instead, it will act as a shadow of its potential, limited by the structure of the blockchains upon which it rests.
Sharding would move both DeFi and the crypto to speeds on par with and beyond today’s leading payment networks because each time the networks involved reach major speed-related bottlenecks, their shards could be increased.
Imagine an internet provider which could grow its maximum speed or bandwidth the more it was used. The sky’s the limit and starting with Simple Nightshade, NEAR will become the endlessly scalable, agile blockchain network it was always meant to be. And the beauty of it is that the NEAR community will be able to do this while remaining good environmental stewards.
The reason why is simple.
A fully-sharded, Proof-of-Stake blockchain uses far less energy than, say, Bitcoin since blocks are validated instead of mined. If you don’t already know, the more a Proof-of-Work network like Bitcoin grows, the harder it gets to mine, which leads to more computing power being pointed at the network. The more computing power Bitcoin uses, the more carbon emissions it gives off.
NEAR offers a more sustainable system through its’ unique approach to sharding, which features the optimal number of validators (not the maximum) using minimal hardware by design, while keeping emissions generally low. Moreover, any emissions NEAR does create will continue to be offset through climate-related dApps like Open Forest Protocol and other innovative sustainability projects.
Any time you have further questions on anything NEAR, you should check out the NEAR protocol development roadmap.
About NEAR
NEAR is a high-performance blockchain that is designed to be super-fast, incredibly secure, and infinitely scalable. NEAR’s vision is to create a network that enables people to re-imagine finance, creativity and community in new and inclusive ways.
NEAR is built by an award-winning team of engineers and entrepreneurs to be simple to use, inclusive and good for the environment. NEAR is backed by top VCs such as A16Z, Pantera Capital, Electric Capital, Dragonfly Capital, Coinbase Ventures, Blockchain.com, and Baidu Ventures.
Join NEAR’s community:
Telegram: https://t.me/cryptonear
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Twitter: @NEAR_Blockchain & @NEARProtocol
