By description, Polkadot is a next-generation blockchain protocol that links many specialized blockchains into a single unified network. It was designed as part of a wider vision for a web that returns control to people over internet monopolies. Polkadot is known to build on the revolutionary promise of the earlier blockchain networks while simultaneously offering many fundamental advantages.
This blockchain protocol is designed to support several chains within one network. Interestingly, it aims to overcome a challenge in today’s blockchain landscape: hundreds of blockchains exist in isolation and have minimal ability to communicate. Polkadot’s main goal is to turn into the new internet of blockchains that will straightforwardly communicate with each other.
Why is it necessary to have such a platform yet many other great platforms like Cardano and Ethereum already exist? The creators of Polkadot think that there is not even one blockchain that can serve many purposes efficiently quickly and securely.
Imagine a future Ethereum with improved transaction speed and hosting billions of smart contracts that serve a plethora of different applications. Such a platform may not work effectively and it will not scale well. Hence, the Polkadot network comes in with solutions. This project aims to bring in all the different blockchains under one place and offer the best platform for all projects that you can think of.
History Of Polkadot
Parity Technologies developed Polkadot led by Jutta Steiner and Gavin Wood who are two former Ethereum executives. Also, this project is supported by the Web3 Foundation which is a closely related organization. It offers the project with advocacy, collaborations, funding, and research.
Parity was founded in 2015 and it started working on node software for Ethereum. The software was known as the Parity Ethereum client. Today, the company has phased out support for that project enabling it to focus on Polkadot and another related project, Substrate. Development started in November 2017, when developers published the initial code on Github.
The firm unveiled two proof-of-concepts in mid-2018. It then deployed Polkadot’s first parachain in July 2018. In May 2020, Polkadot launched in an ‘initial’ state and its token transfers were enabled in August 2020. By September 2020, the platform’s relay chain is yet to be activated and the chain auctions are not yet live.
One of the primary goals of the Polkadot Protocol is to operate as some sort of decentralized center for every type of blockchain. The blockchains should communicate amongst themselves (Inter-blockchain communication/IBC). The key focus is to create the essential technology that makes it quite easy to interconnect older Distributed Ledger Technologies (DLTs), current DLTs, and also future DLTs. Such architecture would make scaling possible.
This phenomenon is made possible via the so-called ‘parachains’ that can be added or removed easily. Parachains can be private blockchains, public blockchains, or any other source of data. That data in the parachain is accessible through specialized nodes which are known as collators, and then sent to Polkadot.
That is almost similar to how the decentralized oracles work. These parachains are activated by staking DOT tokens and removed from Polkadot by unstaking the same tokens.
Relay Chain, the main chain of Polkadot, supports smart contracts. It is well secured by a type of DPoS (Delegated Proof of Stake) that Polkadot refers to as NPoS (Nominated Proof of Stake). This system comprises of validators and nominators.
Nominators are designed to use their tokens to elect the validators, who in turn validate (mine) the new blocks. In the scenario that a validator acts maliciously, he is then punished along with the nominators who voted for him.
Recently, Polkadot’s native coin (DOT) got listed on many exchanges. Users can trade it since August 16. On August 21, the cumulative number of coins were multiplied by 100 at the behest of the community. The total amount of DOT was therefore taken from 10million to 1 billion. Every DOT holder got 100 coins for every previously held old coins.
The market cap was at first not affected by that multiplication since the new coins were worth 1/100 of the old ones. DOT has risen among the ranks in the market capitalization list to even reach the top 5 at some point with a market cap of over $3 billion. Today, there are many established projects working to be integrated as parachains into Polkadot.
What Is Polkadot?
As highlighted above, Polkadot’s design is crafted to support many chains.it is not just one blockchain that exists in isolation. Many advantages come with this approach:
Any blockchain in isolation can only process restricted amounts of traffic. On its part, Polkadot is a sharded multichain network which means that it can process multiple transactions on many chains simultaneously. This mode of operation eliminates the bottlenecks that arise on legacy networks that processed transactions one at a time.
The parallel procession power considerably enhances scalability and then creates the ideal conditions for enhanced adoption and future growth. All the sharded chains that are connected to Polkadot are known as ‘parachains’ since they run on the network in parallel. That enables transactions to be processed efficiently and in parallel.
Networks and applications operating on Polkadot can readily share functionality and information like the apps on a smartphone. They do not need to rely on centralized service providers with strange or questionable data practices. As opposed to the previous networks that operated mainly as standalone environments, Polkadot provides interoperability and cross-chain communication.
It sets up the stage for innovative new services and enables the users to transfer information between chains. Various Polkadot parachains and applications share functionality and information due to the platform’s interoperable design between chains.
For instance, a chain that offers financial services can communicate with others that offer access to real-world data; known as an oracle chain. They can communicate with stock market price feeds for tokenized equities trading.
In the matters of blockchain architecture, one size never fits all. All of the existing blockchain platforms make tradeoffs to support various features and use cases. Each Polkadot parachain can be designed to suit a particular application or use case.
For instance, a single chain may optimize for identity management while another may optimize for file storage. Turning to the Polkadot platform, every blockchain can have a novel design that is customized for a particular use case. Hence, it means that blockchains can provide better services, while also enhancing efficiency and security by omitting unnecessary code.
By creating on the Substrate development framework, developers can set up and customize their blockchains quicker and more efficiently than ever before.
Blockchains, just like all the other software, need upgrades to remain relevant and enhance their operations over time. But, upgrading a conventional chain needs what is known as ‘hard forks’ that create two separate transaction histories that can split a community in two and mostly takes months of work.
Polkadot supports forkless upgrades enabling blockchains to evolve and adapt easily as better technology becomes available. When they are taken together, these integral features open up a world of possibilities for new services that put individuals back in control of their digital lives. Thus, Polkadot can be upgraded without the involvement of divisive and time-consuming hard forks. Also, new features can be added without having to overhaul the entire network.
Many teams are currently building impactful solutions for Polkadot for an assortment of applications. The applications include the Internet of Things (IoT), finance, social networking, gaming, cloud technologies, digital identity, and supply chain management.
The organization responsible for the development and stewarding of Polkadot, Web3 Foundation, supports a majority of the teams with grants. They fund projects at all levels of the Web3 technology stack ranging from low-level infrastructure to ecosystem components like parachains, wallets, tooling, and bridges.
The communities on Polkadot govern their network as they see fit and they hold a transparent stake in the future of Polkadot’s network governance in general. Teams can also customize and optimize their blockchain’s governance to their needs. Moreover, they are allowed to experiment with new ideas and even swap in pre-built modules for faster deployment.
These blockchain governance models can even be enhanced and upgraded as needs and conditions change over time.
Parachains And Substrate
Every chain on Polkadot is known as a ‘parachain’. Developers can set up their parachain with Substrate which is a framework used for creating blockchains. It is also quite possible to run blockchains developed with Substrate without having to be a part of the Polkadot network. Polkadot just offers security, consensus, interoperability, and many other services for Substrate-based chains.
Parachains can readily support features found in a majority of other blockchains which include ZK-snarks (Zcash), smart contracts (Ethereum), and UTXO transactions (Bitcoin). These components and features are not in any way a fundamental part of Polkadot. Instead, the features can be added to and even removed from the parachains.
Interestingly, developers can call functions that exist on other parachains. Many use cases of Polkadot parachains exist. They include data curation chains, oracle chains, transaction chains, file storage chains, IoT chains, identity chains, privacy chains, and finance chains.
At least25 projects are building on Polkadot including Ocean Protocol and Chainlink. Other target projects are listed here.
Parachains are among the several components that make up the Polkadot Network. Others include relay chains, parachains, parathreads, and bridges.
The Relay Chain
The Relay chain is described as the backbone of Polkadot’s network and it is the main communication hub existing between parachains. The validators on this chain accept blocks from all parachains and hence offering security for the entire network.
Parachains are independent blockchains designed to run on top of the Relay Chain. They offer chain-specific features to the Polkadot platform. Every parachain serves a specialized purpose in the network. One could be fine-tuned for smart contracts while the other chain can provide a stable coin for any payments between chains. Another parachain may introduce a decentralized energy industry to the network.
Every parachain is maintained by the collator that is responsible for producing the chain blocks. Parachains also benefit from a shared security model offered by the Relay Chain meaning that they are protected against 51% attacks or similar vulnerabilities.
Nevertheless, there will be just a small amount of parachains in the network and that number will keep increasing in the future. Therefore, there is a system of public auctions where the parachains candidates must compete to get their slot.
Parathreads are quite similar to parachains when reviewed from a technical perspective. But, they are quite different from an economical standpoint. As explained earlier, parachains must compete in auctions to become part of the network. On the flip side, the parathread slot can easily get leased almost immediately and for just a short time.
That might provide another way how to run projects on the Polkadot. Some of these projects can benefit from trying out the network before buying a large parachain slot. Others can operate as a parathread before they win an auction for a slot.
Think about a modern blockchain platform that runs in total isolation from the other already established networks. It is now possible with Polkadot since its authors could not imagine such a scenario. They designed a special type of parachain known as the bridge.
These bridges connect other already running blockchains into the ecosystem including ETH and BTC. They support transfers of various tokens between Polkadot and the outside networks. Moreover, there are other actors existing in the Polkadot network than ensure that the blockchain remains operational always:
Validators are designed to stake DOT tokens, authenticate proofs from collators and participate in consensus. The nominators stake DOT tokens and secure the relay chain by choosing trustworthy validators. On their part, the collators collect transactions and create different proofs for validators. Fishermen monitor the entire network and report any malicious activity that arises.
The DOT Token
Polkadot acquired almost $140 million by selling its DOT token in a 2017 initial coin offering (ICO). The firm also conducted two private sales in 2019 and 2020 raising almost $100 million in these later sales.
Almost 50% of the original ICO tokens were frozen as a result of a bug in the Parity’s Ethereum wallet. So far, the frozen tokens are yet to be recovered but that loss has not hindered Polkadot from operation.
Polkadot started allowing investors to trade the remaining tokens starting in August 2020. Since that time, DOT has now been listed in at least 40 exchanges. High trading volumes have made the coin’s market capitalization to explode into the top-five list.
The DOT token has also “redenominated” by a factor of 100x by the time its trading started. That never changed the token’s market cap since it simply made the token amounts more readable. Apart from the basic financial transactions, the DOT token is used in three other ways including staking, governance, and bonding.
In the case of governance, the DOT token holders have total control over the protocol. The Relay Chain participants get all privileges that on other platforms are exclusive to miners. The DOT holders can manage exceptional events like protocol upgrades and fixes.
For staking, game theory incentivizes token holders to always behave in honest ways. The good actors are rewarded through this mechanism while the bad actors lose their stake in the network. This strategy guarantees that the network remains secure always.
Interestingly, new parachains are added by bonding various tokens. Outdated and the non-useful parachains are eliminated by removing bonded tokens. That method is a form of proof of stake.
There are two blockchains that can be considered to be competitors of Polkadot. One of these is Cosmos which went live in March 2020. It aims at creating a network of chains similarly to Polkadot. But, technical differences exist between each platform. If Polkadot is correct, its approach offers a more cooperative and shared security model.
Ethereum 2.0 also has features that can be compared to those that exist on Polkadot. Both blockchains rely on sharding which translates to different chains dedicated to particular purposes. Nonetheless, there are some technical differences. Polkadot alleges that its approach provides better availability and validity and that it can easily and efficiently work with a lower number of validators per shard.
This project can also be compared to Tezos. Tezos is designed to support upgrades without the need for hard forks. However, there are other few similarities that exist between the two platforms.
The Polkadot ecosystem is growing bigger with every passing day since development teams are now realizing the benefits that come with these effective, flexible, and secure networks. The unification of many specialized chains into one highly scalable and interconnected network enables blockchains to reach their full potential for all real-world scenarios in preparation for a new and decentralized economy.
The platform’s unique design gives the projects more possibilities for innovation coupled with flexible iteration than was ever possible in the old networks. When projects set up on the Polkadot network, they do not have to compete with each other anymore. They can cooperate in the network to achieve independence from the centralized world.
Some of the projects that are already in the development include
- Robonomics — robotics, smart cities and industry 4.0
- Sora — decentralized exchange
- Energy Web Token — decentralized energy market
- ChainX — inter-operability bridge
- Kusama — kind of “testset” with real-world incentives for Polkadot
- Acala Network — stable coin, think of MakeDAO
Polkadot is a nascent project but it is quite promising. Since most of the app developers are seeking ways to reach a bigger audience, and since there are many different blockchains that exist today, this platform might become useful to many in the long term.
The DOT token’s high-ranking market position could also prove to be beneficial to the project’s reputation. Nevertheless, some issues exist on Polkadot which may hinder it to operate optimally: the platform has challenges with token management. Also, there are more established platforms that are its direct competitors. These are some of the issues that may limit the extent of the network’s adoption.
For now, Polkadot is yet to produce a ‘killer app’. Analysts and commentators now wait to see whether Polkadot will enter the spotlight beyond its initial price-related hype.