
Polkadot (DOT) could be described as being the โmiddlemanโ of blockchains. The central purpose of this open-source platform is gathering blockchains onto a collective central hub, like polkadots on a t-shirt, so that they can communicate and interact with one another.
Polkadot is playing its part in facilitating a multi-coin crypto world which has made it quite attractive for many investors and developers, but what are the features and mechanics that allow it to be so ambitious?
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Furthermore, can an early-stage project with dreams this big really last in the long run? Letโs take a closer look at Polkadot and breakdown why it is considered so special, how it works, and where itโs potentially headed in the near future.
Table of Contents
What Is Polkadot?
Polkadot was brought to life in 2016 byย Gavin Wood,ย who was the co-founder ofย the Ethereum network,ย after he felt that his blockchain wasnโt doing enough to bring true decentralization to cryptocurrencies. It was also backed by the Web3 Foundation, which has supported its growth ever since.ย
They would begin working on Polkadot immediately after Gavinโs exit from Ethereum and quickly published a whitepaper outlining their hopes for the program to offer full interoperability between online blockchain networks.ย
This may have sounded outlandish, but several features and systems have been integrated into Polkadot to turn it into a healthy, popular, and reliable network over the years. Polkadot itself allows users to transfer arbitrary data alongside tokens, making it a quick and convenient alternative that will probably only become bigger and bolder thanks to its infinite scalability.ย
How Does Polkadot Work?
Because of how ambitious it is, Polkadot can be a little confusing to understand at first, so itโs best to start with the most important aspect: the relay chain. This acts as the backbone of the Polkadot network, which validates any data, such as transactions and trades, and ensures that itโs all completely understandable.ย
Connected to the relay chain are parachains, heterogeneous blockchains that run parallel to the relay chain, which enable the different blockchain networks to interact with one another through cross-chain communication. These specific blockchains include Bitcoin, alongside plenty of other altcoins that can be interacted with in real time.ย
Polkadot is also a network that relies heavily on its community to support and decide on projects. As a result, it contains no intermediaries, which would usually be found in regularย crypto exchangesย such as Coinbase.
Users can connect their parachain to the network by partaking in the week-long parachain auctions that regularly occur on the Polkadot ecosystem. These involve users staking their own DOT tokens to secure an available space for their custom parachain to exist.
How are Blockchains Created on Polkadot?
Most developers will use Substrate, a unique framework Polkadot provides to help builders craft their custom blockchains. Creating the core infrastructure of a new project can take a lot of time and technical know-how, so Substrate is designed to encourage builders to focus more on the quality and value of what they are offering rather than how to build it.ย
How Does Staking Work?
Saving up tokens to earn rewards, or staking as it’s commonly known, isnโt anything new in the crypto landscape, but it works a little differently in the case of Polkadot. Token holders can either decide to become a validator themselves or support someone else to become a validator.ย
Just as the name implies, validators are there to reject any invalid transactions while also adding new blocks to the relay chain, therefore โvalidatingโ the whole network in the process.ย
How to Secure a Parachain
Polkadot relies on its parachains to pass information and data between numerous networks at once, but for someone to acquire their own, they must partake in a parachain auction. These are week-long events where the project receiving the most DOT tokens will lease an available slot for a certain amount of time.ย
Not only is this method fair in how it works, but it also allows the community to get involved by deciding which projects and ideas they think would be most beneficial for the network. Other users can participate in crowd loans to increase the total staking bid of a new project that they like the look of. Doing this can even net some rewards, including unique project tokens.ย
How Safe is Polkadot?
Polkadotโs multi-chain network design utilizes a shared security model that is held together by the relay chain. This creates a common open-source security framework that applies across the entire network, making Polkadot very resistant to any outside attackers.ย
It also uses an NPoS (Nominated Proof-of-Stake) system, which utilizes specific roles and jobs to ensure everything is running safely and smoothly. These include the collators, who maintain a full history of the relay chain, validators who reject faulty transactions, and fishermen who actively seek out these invalid transactions and report them to the validators.ย
After two unfortunate hacks cost Polkadot over $52 million, the team has been determined to make the platform as safe and secure as possible to become the standard for crypto transactions.ย
What is the DOT Token?
DOT is the native currency of the Polkadot network, and it can be utilized in a few different ways. For one, it can be used to stake or โbondโ on the network, but it can also be used in the voting referendums that regularly take place and can even be traded directly from on-chain Tradingview charts.
There are several wallets that can hold DOT tokens, including Polkadot J Plus, Ledger, and the Polkadot Vault, which uses an old mobile phone as a form of offline-compatible cold storage. When buying DOT though, this can only be done through crypto ATMS, specific crypto exchanges, and local crypto sellers across a peer-to-peer network.ย
The current DOT price will fluctuate depending on the community’s participation, either through staking and holding, voting, or locking up parachains introduced into the blockchain. Because of this, itโs not always a smart idea to be too bullish about price predictions.
Whatโs Next For Polkadot?
Despite already seeming so advanced, the truth is that Polkadot is still in its early stages. Plenty of features and projects are in the pipeline that will enhance the functionality and versatility of Polkadot even more.ย
An example of this is the hotly-anticipated Polkadot 2.0, which aims to make the system much more flexible in allocating block space. Then thereโs Snowbridge, a trusted decentralized bridge between Polkadot and Ethereum, which could unlock many new interactions between the two.ย
The existence of the relay chain means Polkadot can get away with forming new bridges without compromising the security of its users. Pair this with a limitless sense of scalability; it doesnโt look like Polkadot will be slowing down anytime soon.ย
Strengths and Weaknesses of Polkadot
Weโve covered many of Polkadotโs benefits and advantages so far, but there are also a handful of risks that people need to know about when investing in it. Here are the major strengths and weaknesses of the platform that users should always keep in mind.ย
Strengths
- Scalability – Polkadotโs unique relay chain and parachain infrastructure allow it to eliminate maximum scalability. This makes Polkadot faster than a lot of other regular blockchains since thereโs no risk of congestion. For example, while Bitcoin can only handle roughly 7 transactions per second, each Polkadot parachain can register over 1,000, which gives a good idea of how fast it is.ย
- Interoperability – Seamless communication between the biggest blockchain networks such as Solana, Binance and Cardano. Anything from tokens, data, or even smart contracts can be shared between different external blockchains. This grants users even more decentralized control over their precious digital assets.
- Open Governance System – Polkadot is very much a program that revolves around its community. Decisions on upgrades and changes to the network arenโt made by a governing body, but instead, are voted on by the token holders, ensuring that it suits their wants and needs. It also includes Polkassembly, an OpenGove chatroom where users can discuss their ideas for the network, and point out any flaws that they may have noticed.
- Security – The core infrastructure of Polkadot is protected due to its shared security model which can be extremely intimidating for online hackers to try and crack into. The built-in proof of stake model adds yet another layer of security to ensure every transaction made on the network is legit, reliable, and trustworthy.
- Cheap – Transaction fees are cheap on the Polkadot network, especially compared to the likes of ETH and BTC which can be very costly in the long run.
Weaknesses
- Risks of Decentralization – Itโs normal for any crypto user to get excited when the term โdecentralizedโ shows up, and while itโs definitely positive, there are still some risks that come with it. One such example in the case of Polkadot is if larger stakeholders can take control of voting decisions due to having a high number of DOT tokens stashed away. This could come at the expense of smaller participants who could be overshadowed in the process.
- Complexity – The endless ambitions of Polkadot also come at the cost of the platform itself being fairly difficult to use and quite complex in how it works. Getting accustomed to the interface and all of its menus can take some getting used to for investors, and developers can be charged higher costs for development cycles on their projects.
On the Flipside
- Polkadot could very well become the golden standard for crypto transactions in the near future, but keep in mind that itโs still very early on in its development. The dreamy ambitions of Polkadot can only be met if demand for the network remains high, so before you buy Polkadot, be sure that you know about this risk beforehand.
- There are also many up-and-coming competitors to Polkadot, like Polygon and Cosmos, who all offer their own unique multi-chain functionalities, so itโs worth checking these out too.
Why This Matters
When people claim that Polkadot is revolutionizing the crypto space as we know it, they certainly arenโt lying. The sheer level of interoperability this platform provides is unlike anything ever seen before, and with so many investors and designers flocking to the network, itโs never a bad idea to check it out for yourself to see what all the hype is about.
FAQs
For investors, being able to pass data between multiple different blockchains makes the whole process of selling, buying, and storing crypto and NFTs a whole lot easier. For developers, it allows them to bring together the best aspects of each chain to create their own project, granting them greater freedom and heightening their ambitions.ย
Kusama isnโt exactly a test network, since it still requires at least a small portion of actual tokens to start investing in, so itโs more of a canary network. A quick disclaimer though; the amount required is much less than the live servers, so that users can learn how to invest without risking a lot of their assets all in one go.ย
The current price is constantly fluctuating, but a single DOT usually stabilizes between $7 and $7.50. For further reference, the 24-hour trading volume of Polkadot is above 200 million dollars, and the circulating supply is well over 1 billion. The total market cap has also reached an all-time high of 10 billion dollars.ย