Polkadot is a networking protocol that enables blockchain developers to create faster. Previously, launching and securing a new blockchain took years. It will take weeks, if not days, using Polkadot. In this article, we’re going to explore the potential of this project.
1. Polkadot definition
Polkadot (DOT) is a blockchain with a core network called the relay chain, which connects and communicates with other blockchains. The relay chain hosts blockchains and manages their security and transactions, providing smooth cross-chain interoperability (connection between distinct blockchains).
Polkadot, in reality, not only allows users to transmit DOT tokens between blockchains, but it also allows them to converse and exchange actual data.
Polkadot’s flexible and adaptable network architecture makes it easy to build new technology on top, allowing developers to take advantage of the scalability, interoperability, and security that Polkadot has to offer. Polkadot’s network is also a big deal for developers and entrepreneurs who want to start a new blockchain from scratch.
When people try to make a new blockchain, they build a unique state machine and a consensus algorithm, which isn’t easy to do and takes a lot of time and effort. A problem like this can be solved by Polkadot’s basic architecture, which doesn’t need to start from scratch to make a new chain.
2. The Polkadot network’s history
The network’s title is already distinctive: A polka dot pattern on cloth is composed of an array of identically sized huge filled circles. The circles most likely represent the many blockchains and the larger pattern, the Polkadot crypto universe.
Polkadot’s history is inextricably linked to that of Ethereum. It was founded by Dr. Gavin Wood, who formerly served as Ethereum’s chief training officer and core developer. He created Solidity, the company’s smart contract programming language. The principal developer departed Ethereum in 2016 to create a more sharded blockchain, and he released Polkadot’s white paper in October of the same year.
Wood co-founded the EthCore Blockchain Technology Company while he was still at Ethereum, which ultimately became Parity Technologies. The business pioneered key blockchain infrastructure technologies, including the Substrate programming platform and the Polkadot network.
Wood also co-founded the WEB3 Foundation in 2017, a non-profit organization dedicated to funding Polkadot’s research and development and overseeing its fundraising activities.
In July of the same year, the organization had its first unpleasant occurrence. A hacker took advantage of a flaw in Parity’s multisig wallet technology and stole 153,500 ETH (about 33 million USD at the time) from three distinct wallets.
The organization had an initial coin offering in October and raised $145 million in less than two weeks, making it one of the biggest ICOs to date.
However, only a few days after the token sale, Parity Technology was the victim of another attack. The ICO smart contracts were compromised, resulting in the freezing of 66 percent of the cash collected ($150 million). The incident was irrevocable and delayed the project’s early progress inexorably.
The following months, the WEB3 Foundation team raised sufficient cash through a private sale to continue meeting its development goals, and by 2019, all was back to normal.
3. How does Polkadot work?
Polkadot, as described in the article, offers a main network, the relay chain, and secondary blockchains known as parachains.
Let’s take a deeper look at the network’s design, the technological components of the system, and how they interact.
The protocol for the relay chain establishes the network’s shared security, consensus, and interoperability across chains. It is the engine that connects other network members and ensures transaction finality.
The relay chain was purposefully designed to be as simple as possible. For example, smart contracts are not supported, and the major function of the chain is to coordinate the whole system, including parachains.
The unique design and structure of the polkadot network can be displayed as the picture below:
3.1. The relay chain
It is the core of the polkadot network; it serves as the primary communication hub between parachains and is responsible for the network’s shared security, consensus, and interoperability between chains.
These are self-contained blockchains that will run on top of the Relay chain. Each parachain may issue its own coins and tailor its functionality to a particular purpose.
This is a more cost-effective variant of the parachain; it is comparable to the parachain but is leased out for brief periods of time to blockchains that do not require constant network access.
Bridges will connect existing blockchains (like BTC and ETH) to the polkadot network, enabling token transfers between the polkadot network and other networks.
Unlike previous blockchains, polkadot is not attempting to carve out a niche or compete with existing cryptocurrency networks; rather, it is attempting to provide a secure, trustworthy, simply deployable, and upgradeable ecosystem in which diverse blockchains may connect and benefit from collaboration.
4. Polkadot’s Tokenomics
The DOT token, which is Polkadot’s native coin, powers the network. It is used to pay network fees, to vote and validate governance rights, and to facilitate interoperability.
DOTs are used to pay transaction fees when communicating or transferring data between two blockchains on the network. Payments to DOTs are also used to vote on protocol upgrades or corrections.
Additionally, nominators bind their DOTs to a specialized validator they support. Bonding tokens contribute to the network’s attack resistance and enable holders of DOT to receive freshly generated tokens as staking rewards.
Polkadot launched its mainnet in phases. In May 2020, during Phase 1, the Genesis block of its relay chain with staked validators was launched. Polkadot was first run as a proof-of-authority (PoA) platform, which meant that the network was managed by six Web3 Foundation validators.
The majority of users were able to claim their Ethereum contract tokens, stake them, and announce their willingness to validate transactions and propose validators.
The second phase, which began in June 2020, includes the implementation of the nominated proof-of-stake protocol and the election of the first validator. The phase licensed DOT owners and unlocked validator slots and staking payouts.
Polkadot’s governance structure was enabled by phases 3 and 4 in late July 2020. The Council and Technical committees were chosen for the first time, and public submissions were accepted.
In August 2020, the final step permitted DOT token balance transfers. The current phase is focused on defining the deployment of parachains that have been tested and optimized on the Kusama and parachains testnets. Once the entire procedure is complete and parachains are operating normally on Kusama, Polkadot governance can allow parachains and begin conducting slot leasing auctions.
5. Is Polkadot a good investment?
Polkadot is one of the most intriguing cryptocurrency investments accessible right now, in our opinion. This is why.
5.1. Advantages in terms of technology
Polkadot was developed specifically to support Wood’s Web3 vision. Polkadot, as a layer-zero protocol, is essentially a collection of interconnected blockchain networks that may also connect to additional partner blockchains throughout time. According to Wood, no blockchain is flawless. A long-term victor in this industry should be able to prune bad ideas and replace them with superior ones. Polkadot functions in precisely this manner, making it an integral part of the Web3 platform design.
Polkadot’s network bundle begins with the core chain, which is the blockchain network that powers the DOT coin. In this proof-of-stake network, DOT holders may stake their tokens on the chain to earn staking incentives and contribute to the overall management of the Polkadot system. Polkadot’s para-chains are also connected to this blockchain. The center chain functions similarly to a city’s major railway station, connecting to a plethora of locations.
This is a complex system with unmatched capabilities for cross-chain functioning, project finance, and decentralized platform development, among other things.
5.2. Scaling Potential
Polkadot promises to address three critical issues plaguing blockchain technology at the moment: scalability, interoperability, and multi chain governance. Polkadot is scalable by addressing high-throughput consensus groups and parallelization across chains of varying sizes or security levels; interoperable via Relay chains, which connect multiple heterogeneous blockchains via shared computation resources via Web-Assembly VM instances they maintain; and multichain by allowing the main chain to be linked to any other arbitrary PoS system. Currently trading between $10 and $15, it will reach $100 in the coming years.
6. Polkadot in Comparison with Bitcoin, Cardano, Ethereum
6.1. Polkadot vs. Bitcoin
In terms of functionality and purpose, the Polkadot network and Bitcoin are quite different. While Bitcoin is on its way to become the first worldwide decentralized payment network, Polkadot aims to become a multi-chain platform that allows for currency, data, and communication exchange between blockchains.
A Polkadot company is looking for a blockchain network protocol that will allow it to move arbitrary data across blockchains. A Bitcoin company, on the other hand, is interested in a cutting-edge payment network and a new type of money driven by blockchain.
The mining method and consensus algorithm are the most significant technological differences. Proof-of-work is used by Bitcoin, while Polkadot employs a nominated proof-of-stake system that we saw previously in this article.
6.2. Cardano vs. Polkadot
Cardano and Polkadot were both created to overcome some of Ethereum’s intrinsic flaws. They also have a history with Ethereum, since they were both created by important Ethereum contributors.
Cardano (ADA) is a third-generation blockchain platform that focuses on the creation of decentralized applications (DApps). It is the first proof-of-stake blockchain platform to be built on peer-reviewed research and using evidence-based approaches. It integrates cutting-edge technology to enable decentralized applications, systems, and communities with security and long-term viability.
Polkadot, on the other hand, is a multi-chain application ecosystem, blockchain, and cryptocurrency, as we’ve learnt. The network was created with the purpose of facilitating cross-chain interoperability and enabling next-generation DApp development.
6.3. Ethereum vs. Polkadot
Ethereum is a smart contract platform that aspires to create a distributed finance network. Polkadot, on the other hand, provides a platform for quickly creating particular blockchains as well as the capacity to link various networks.
Both systems are aimed at developers that wish to create decentralized apps and aim to solve scalability problems through parallelized execution. However, Ethereum uses shards to do this, whereas Polkadot uses parachains and parathreads.
From a technical standpoint, Ethereum, like Bitcoin, is currently based on proof-of-work consensus. However, the 2.0 version’s future update will transform it to a proof-of-stake system, which will most likely differ from Polkadot’s NPoS.
Both Ethereum 2.0 and Polkadot are promising sharding-based protocols that promise to address the infamous scalability issue, a long-recognized barrier to blockchain adoption. Sharding enables both networks to greatly boost performance without sacrificing decentralization.
While both systems utilize the notion of sharding, there are several critical distinctions to consider before deciding on Polkadot or Ethereum for your future product. Consider architecture, consensus model, staking mechanics, sharding, governance, and market capitalization.
7. The future for Polkadot
Polkadot’s progress will be fascinating to watch, given the overall benefits for entrepreneurs, developers, users, and investors.
The use of DOT as the protocol’s governance token and for staking to protect the network or create new chains is a strong signal that the project wants to compensate people for using it. With an annual payout of 10% on average, staking DOTs has become one of the most lucrative incentives in the crypto market.
The platform’s robust and dependable network, as well as its adherence to the plan, all contribute to a good project scenario. Polkadot is one of the most inventive blockchain inventions in terms of technical and economic value, and the next few months will be critical in determining the network’s true possibilities.