By definition, Polkadot is a protocol that links blockchains and allows value and data to be sent across previously incompatible networks, such as Bitcoin and Ethereum, for example. It’s designed to be scalable and fast.
The DOT token is used for governance and staking, and it can be bought or sold on Coinbase and other exchanges.
Like many cryptocurrencies that came after Bitcoin, Polkadot is a token and a decentralized protocol. The protocol is designed to allow blockchains that are unrelated to securely talk to each other so that data and value can flow between.
Also, as we mentioned above it is designed to be scalable and speedy, through the use of many parallel blockchains, or in other words ‘parachains’, that takes much of the processing demand off of the main blockchain.
The Polkadot token (or simply DOT) performs two main functions within the Polkadot network. It’s a governance token, which allows holders to have a vote in the future of the protocol.
It’s also used for staking, which is the way the Polkadot network verifies transactions and issues new DOT. DOT can be sold and bought on exchanges like Coinbase, as a part of an investment strategy.
Why is Polkadot considered innovative?
The project was designed back in 2016 and it took a couple of years to materialize. The DOT token didn’t make it to the market until August 2020, and its ultimate recognition was granted next year in June when Polkadot made it to Coinbase.
Generally, there are a few unique properties of blockchains. Most importantly, they are decentralized, fast, and secure in a trustless environment.
While most blockchains usually offer one or just a couple of these benefits, their architecture is not designed to sustain all of the features at once. Ethereum or EOS, popular platforms, are networks that are isolated from each other, with no information exchanged between them.
How does Polkadot work?
Polkadot can process all of this information, thanks to many parachains that do a lot of heavy lifting for the main chain. In return, the Polkadot network can process more than 1000 transactions per second, which is amazing.
As the networks grow, and more parachains are added, Polkadot can get even faster, with speeds that can hit a million transactions per second.
There are three types of blockchains in the Polkadot network:
- The relay chain
The relay chain is the main Polkadot blockchain, and this is where transactions are finalized. To achieve more speed, the relay chain separates adding new transactions from the act of validating them.
Parachains are custom blockchains that use the relay chain’s computing resources to confirm are transactions accurate.
And finally, the bridges allow the network to interact with other blockchains.
The relay chain
To keep its network in agreement with the state of the system, Polka dot uses a variation on PoS, proof-of-stake consensus, called NPoS – nominated-proof-of-stake.
This system allows anyone who stakes DOT by locking the cryptocurrency to perform one or more roles, that are necessary to its operation.
They can be:
As the name suggests, validators validate data in parachain blocks. They also engage in consensus and vote on suggested changes to the network.
They do most of the work. To become a validator you need to run a node with almost no downtime and stake a substantial amount of your own DOT.
Nominators secure the Relay chain by selecting reliable validators. Nominators entrust their staked tokens to validators and allocate their votes to them.
Collators are nodes that store the whole history for each parachain and collect parachain transaction data into blocks for addition to the relay chain.
Fishermen monitor the network and report errors or bad behavior to validators.
Users who stake DOT and perform these roles are also entitled to receive DOT rewards.
There are three types of Polkadot users that can influence the development of software:
- DOT holders
- The council
- The technical committee
DOT holders are anyone who purchases tokens and they can use their DOTs to propose changes to the networks and approve or reject some big changes that others suggested.
The council is elected by the DOT holders, and council members are responsible for suggesting changes and resolving which changes proposed by the holders are made to the software.
The proposals that are made by council members require fewer votes to be approved than those by ordinary DOT holders.
The technical committee is composed of teams that actively build Polkadot, and they can make special proposals in cases of emergency. Members of the technical committee are voted in by council members.
Polkadot network in the crypto
In simple words, Polkadot is a blockchain with a relay chain, where other blockchains connect and communicate with each other.
By hosting blockchains, the relay chain also handles their transactions and security, allowing cross-chain communication to function effortlessly.
Besides sending DOT tokens across the blockchains, Polkadot also allows them to communicate and exchange data.
Flexible and adaptive network design smooths building new technology on top, giving the developers room to take advantage of the security and scalability. Polkadot’s network represents a significant breakthrough for entrepreneurs and developers who are eager to build a new blockchain from start.
When creating a new blockchain, developers build a unique state machine and a consensus algorithm, which is pretty hard to implement and takes a lot of time and effort. Polkadot’s basic architecture goes for resolving this, as it removes the need for building a blockchain from scratch.
History of the Polkadot
The history of Polkadot is closely related to Ethereum. Its founder is Dr. Gavin Wood, who was the core developer of Ethereum. He developed Solidity, a smart contract programming language.
He left in 2016 to develop a more sharded blockchain, and in October of the same year, Polkadot’s white paper was published.
While he was still working at Ethereum, Dr. Wood co-founded the EthCore Blockchain Technology Company, which was later turned into Parity Technologies. They developed important blockchain infrastructure technology, like the Substrate framework and the Polkadot network.
Wood also co-founded the WEB3 Foundation in 2017, to support the development and the research of Polkadot.
Experimental development platform – Kusama
This is a Polkadot testing development platform where developers can experiment with new projects and ideas before going live on Polkadot.
Kusama has a lower economic barrier than Polkadot, so becoming a validator or launching a parachain is much easier and requires less staking of DOTs. Kusama is up to four times faster than Polkadot.
Anyhow, this speed rate happens at the cost of security and stability which means that stakeholders have to keep a sharp eye, to follow up on all the referenda, proposals, and upgrades.
Polkadot vs Bitcoin
These two are a little bit different in the functionality and goals they want to achieve. While Bitcoin is on the verge of becoming the first global decentralized network for payments, Polkadot wishes to grow into a multi-chain platform, which allows consistency between blockchains to leverage token, communication exchange, and data.
Polkadot looks for blockchain networks to enable random data to be transferred across the blockchains. However, Bitcoin is more interested in a payment network that is innovative.
From a technological point of view, the main difference is in the consensus algorithm and in the mining process. Polka dot adopts a nominated proof-of-stake as we mentioned earlier, while Bitcoin uses proof-of-work.
Polkadot vs Ethereum
Polkadot offers a structure for building specific blockchains easily to connect different networks, and on the other hand, Ethereum is a smart contract platform. Ethereum seeks to be a blockchain for distributed finance.
Both of these platforms are designed for developers who want to build decentralized applications and fix scalability based on parallelized execution.
Polkadot vs Cardano
Both Polkadot and Cardano were designed to address some of the limitations of Ethereum. Also, they share a history with Ethereum given that they were both designed by Ethereum developers.
Cardano is a third-generation blockchain platform that gives its attention to DApp development. It’s a proof-of-stake blockchain platform and the first to be developed through evidence-based methods and founded on peer-reviewed research.
We’ve seen by now that Polkadot is a multi-chain blockchain, application ecosystem, and cryptocurrency. It was built to streamline cross-chain synergy with the final goal to power the next-generation DApp development.
The future of Polkadot
Taking into consideration the overall benefits for developers, entrepreneurs, investors, and users, it seems that Polkadot’s evolution will be very interesting to follow.
With DOT serving as the protocol’s governance token, and with staking to secure the network or connect new chains is a clear sign that the project focuses on encouraging usage by rewarding participants.
After all, staking DOTs has become one of the most valuable motives in the crypto environment with an annual capital of 10% on average.
The platform’s reliable and stable network, along with its roadmap agreement contribute to a promising case for the project. From the perspective of economic value and technology, Polkadot is among the most creative innovations in the blockchain industry and the next few months will be critical to estimate the network’s actual capabilities.