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In 2017, a single Ethereum dApp became so popular it clogged the network, slowing all transaction processing almost to a halt. But at its peak, this dApp – Cryptokitties – had only ~14,000 users. First-generation blockchains like Ethereum are slow in part because every validating node must process every transaction.

Sharding allows the work of validating transactions to be broken up amongst many ‘shards’, each of which is validated by different nodes. This lets the work of validating transactions scale with the number of shards, making it easier for the network to handle large transaction throughput.

Sharding is a difficult engineering problem that has rarely been successfully implemented, and the NEAR team has previously built one of the only sharded databases in production at scale today (which is used by Uber, Goldman Sachs, and Comcast). For a better understanding of the NEAR sharding design called “Nightshade”, see the technical overview here.

NEAR uses a novel Proof-of-Stake mechanism to ensure that transactions are validated correctly and that it is difficult and expensive for an adversary to attack the network and validate false information. Validators stake tokens in order to produce and verify blocks, and in return they earn block rewards that come from token supply inflation, transaction fees and storage fees. Three types of validator nodes contribute to securing the NEAR network:

• Chunk producers, who collect transactions for a shard and produce and communicate shard blocks, called chunks
• Block producers, who produce a single block containing all current chunks
• Fishermen, who watch and verify that state transitions in different blocks are accurate

To learn more about the different kinds of validators and their roles, read the Nightshade overview.  To learn about how block production works, read the Doomslug Paper.

Usage costs are paid in a native token called NEAR, which is used by the system to pay the validators who provide the scarce compute and storage resources that power the network.

Transaction fees are priced based on their complexity and storage fees are priced based on the amount and duration of space used. The system compensates validators using a static inflation rate which is offset by burning the tokens received for transaction and storage fees.

Both of these fees are set in a unit called “gas” which is priced in NEAR tokens by using a simple market-driven process that gets smoothed out by the system’s ability to dynamically add or remove capacity via resharding.

To learn more about NEAR’s economics, see the Economics Paper.