Ever since its launch in 2020, Near Protocol (NEAR -1.45%) has attracted attention from some big names in venture capital (VC) and hedge funds. In April, it raised a monster $350 million in a funding round led by Tiger Capital, and just months before that, it raised an impressive $150 million. So it clearly has a lot of financial support to develop into a top blockchain project. But does it have enough to mount a serious challenge to Ethereum (ETH 0.85%)?

As a top 25 crypto with a market capitalization of about $3 billion, Near Protocol is arguably in the same class as other, better-known Layer 1 blockchain rivals such as Solana (SOL 2.06%) and Avalanche (AVAX 1.28%). For Near Protocol to be a breakout crypto investment, though, a few things need to happen.

1. Continue to outpace Ethereum in performance

Like Ethereum, Near Protocol is a Layer 1 blockchain that supports both smart contracts and decentralized applications. To date, its primary advantage over Ethereum has been that it is cheaper and faster.

When it comes to transaction processing speeds, for example, there is simply no comparison. Near Protocol can handle as many as 100,000 transactions per second, while Ethereum (before The Merge) has only been able to process 15 to 20 transactions per second.

In part, Near Protocol has been able to achieve these superior speeds by focusing on technical innovations such as sharding, which is a process of breaking down blockchains into sub-chains. This reduces the computational load on the blockchain and boosts throughput capacity.

Excited young person with fists pumped in front of laptop.

Image source: Getty Images.

Vitalik Buterin, an Ethereum co-founder, has promised similar types of transaction processing speeds as soon as The Merge is finally complete. That could take years, though, since Ethereum has already warned that transaction speeds are not going to improve overnight. There is still another long process known as the "Surge, Verge, Purge, and Splurge" before we can expect 100,000 transactions per second from Ethereum. 

So if Near Protocol is ever going to be a real Ethereum challenger, it will need to continue to outpace Ethereum in performance. 

2. Deliver on its Web3 promise

In mid-September, Near Protocol developers met in Lisbon, Portugal, for the annual NearCON event. One of the most interesting news items coming out of the event was the launch of a new $100 million VC fund for the Near ecosystem. 

In partnership with Caerus Ventures, the Near Foundation will search out interesting Web3 culture and entertainment projects for future financing. This will likely include projects related to sports, music, film, fashion, and art. The only caveat here is that the new fund will focus on "seed round" deals, which typically involve projects still at the conceptual stage.

The hope here is that some of these nascent Web3 projects can develop into something of significance. Right now, there are already more than 800 Web3 projects deployed on the Near Protocol blockchain, so there is a strong base in place. 

In addition, there is one showcase project, called Armored Kingdom, that has already attracted a significant amount of buzz, largely due to the involvement of Hollywood actress Mila Kunis. Armored Kingdom, still in development, promises to offer a one-of-a-kind metaverse gaming experience. This is exactly the type of high-profile project needed to put Near Protocol on the radar of casual investors.

Is Near Protocol a buy?

Thanks to a new Coinbase Global (COIN 4.23%) listing, Near Protocol is in a position to attract more mainstream crypto investors. In fact, on news of the listing, Near Protocol surged more than 12% in a single day. Clearly, it is an interesting blockchain project with a lot of money behind it. And it seems to be gaining traction as a potential up-and-coming crypto.

But for now, a lot more building needs to take place before I can recommend Near Protocol as an immediate buy. The tagline for the recent NearCON conference in Portugal was "Building Beyond the Hype," and I think that summarizes where things stand now for the crypto. For example, while some of the Web3 projects coming out of it sound enticing (especially the Mila Kunis project), many are still in the seed or conceptual stage. 

So for now, I'm taking a wait-and-see approach with Near Protocol. I've added it to my watch list of interesting cryptos that could pop in 2023, but I just need to see more building on top of the blockchain before I start buying.