What is Polkadot?
Created in 2016, Polkadot is a proof-of-stake (PoS) crypto project that aims to promote blockchain interoperability, which means communication among various blockchains. At the time of writing, all blockchains have unique structures that make it difficult for them to "talk" to one another. Developers interested in blockchain interoperability are most concerned about making it easy and safe for different blockchains to connect.
The Polkadot team––led by British computer programmer and Etheruem’s co-founder Dr. Gavin Wood––is committed to helping blockchains and dApps (decentralized applications) communicate. Wood has been the key figure behind the project’s development. Before creating Polkadot, he helped develop the Solidity coding language that's essential for building smart contracts on Ethereum. Wood reportedly left the Ethereum team in 2016 to address ETH’s shortcomings like high gas fees, slow transaction speeds, and network congestion. Many crypto aficionados consider Polkadot an Ethereum competitor, and understandably so.
After publishing his whitepaper "Polkadot: Visions for a Heterogeneous Multi-Chain Framework" in 2016, Wood helped build nonprofit Web3 Foundation and company Parity Technologies. Both of these organizations continue to raise funds and coordinate development for the Polkadot blockchain. By the end of 2017, Parity Technologies raised more than $200 million from Polkadot’s investors. Despite suffering hacks that drained millions of fundraiser money, Polkadot was successfully launched in 2020. Polkadot's DOT coin is available on most centralized crypto exchanges (CEXs) and often ranks high in the overall crypto market cap.
Like Ethereum, Polkadot aims to bring third-party developers onto its site to create new blockchain applications in fields like DeFi (decentralized finance) and play-to-earn gaming. Polkadot's primary goal is to "connect dots" within the crypto community rather than overtaking other blockchains, for which the Polkadot team created a dual-blockchain system that gives developers greater autonomy while making it easy to interact with other projects. The team is also working on cross-chain bridges, also called crypto bridges, to link Polkadot’s ecosystem with existing blockchains like Ethereum and Bitcoin (BTC).
What makes Polkadot unique?
The key feature that sets Polkadot apart is its focus on interoperability, or inter-blockchain communication. The project’s intricate technology hopes to make it easier to seamlessly and securely interact with multiple blockchains. Although Polkadot isn’t the only project interested in blockchain interoperability, it’s one of the most influential and well-funded. Wood’s association with Ethereum also gives Polkadot extra credibility in the blockchain space.
How does Polkadot work?
Polkadot has an intricate dual-blockchain architecture composed of a Relay Chain and Parachains. Here’s how the Relay Chain interacts with Parachains:
The Relay Chain
The Relay Chain is the central PoS blockchain on the Polkadot network where validators can stake their DOT coins to confirm and record transactions. Validators receive DOT rewards for every new block they contribute to the Relay Chain. The Relay Chain also records all significant blockchain governance proposals.
If you want to become a validator on the Polkadot blockchain, you need to lock a minimum of 5,000 DOT and abide by regulations set forth by the Web3 Foundation. However, if you don’t feel comfortable with the responsibilities of a validator, you can nominate a minimum of 10 DOT to a validator pool and receive partial crypto rewards.
Parachains are the dApps in Polkadot’s ecosystem. Like Ethereum, third-party developers build their Web3 applications as Parachains on top of Polkadot’s mainchain.
While these parallel chains connect with the Polkadot Relay Chain, they have greater autonomy to create novel features, tokens, and use cases than dApps on smart contract blockchains like Ethereum. Parachain developers can build their own blockchain ecosystem and use the security, interoperability, and decentralization of Polkadot’s Relay Chain.
However, the number of Parachains that can build on Polkadot isn’t infinite. Polkadot has an estimated 100 Parachain slots available to Web3 developers.
To decide who leases any vacancies on the network, Polkadot routinely holds Parachain auctions, during which DOT holders can vote on which projects they want to see on the Polkadot ecosystem. Each Parachain lease lasts for a maximum of 96 weeks, but winning projects can re-submit an auction application if they want to maintain their slot.
What are the uses for Polkadot?
Polkadot’s ecosystem is still young, but a few Parachains have already become well-known in the crypto community. Below are a few examples of prominent Polkadot Parachains:
- Moonbeam: Launched in December 2021, Moonbeam is a PoS Parachain most interested in connecting Ethereum with Polkadot. The Moonbeam project helps dApp developers on Ethereum port their creations into the Polkadot ecosystem.
- Efinity: The Efinity Parachain focuses on helping blockchain game developers integrate NFTs (non-fungible tokens) into their designs. Efinity is affiliated with the NFT-focused blockchain Enjin.
- Polkadex: Polkadex is a decentralized exchange (DEX) in Polkadot’s ecosystem. As Polkadex expands, the team hopes to become a multi-chain digital order book dedicated to crypto trading.
What is the Polkadot coin?
DOT is the native coin on the Polkadot blockchain. Validators and nominators can lock their DOT on the Relay Chain to confirm transactions and receive DOT rewards. Besides securing the PoS algorithm, DOT holders can use their coins to vote on blockchain proposals or during Parachain auctions. DOT is also used to pay gas fees when interacting with the Polkadot ecosystem. Because of this, the price of DOT should theoretically accrue in parallel to the value of activity and apps on the Polkadot blockchain.
Initially, the circulating supply of DOT was 10 million coins, but in 2020, the Polkadot community voted to increase this maximum supply to 1 billion coins.
Although Polkadot is a relatively new blockchain, most CEXs like Coinbase, Binance, and Gemini offer DOT trading. Many exchanges, DeFi (decentralized finance) protocols, and crypto wallets offer DOT-staking services.
What are Polkadot cross-chain bridges?
The Polkadot team is working on building cross-chain bridges (or crypto bridges) with other projects like Ethereum and Bitcoin. Typically, crypto bridges let Web3 users transfer coins and tokens across multiple blockchains. Most of these bridges require crypto holders to deposit their crypto as collateral to receive a synthetic, wrapped version of their coins on another blockchain.
While cross-chain bridges aren't unique to Polkadot, the project's leadership has repeatedly mentioned interoperability as a primary concern. Since these bridges can theoretically connect every blockchain, Polkadot can become a significant Web3 "hub" that helps dApp users and developers interact.
What does Kusama have to do with Polkadot?
Kusama is another PoS blockchain that’s integral to the Polkadot ecosystem. Wood created Kusama as Polkadot’s “sister chain” in 2016, and it still serves as the project’s testnet. Before anything goes live on the Polkadot main chain, it has to perform well on Kusama.
The Kusama network has the same dual-blockchain architecture found on Polkadot. This helps prospective Parachain developers code their blockchains in a more relaxed environment. The governance on Kusama isn’t as stringent as on Polkadot to facilitate greater experimentation. Generally, if a Parachain does well on Kusama, it has a stronger chance of winning a Polkadot Parachain auction.
Polkadot also uses Kusama to test any major upgrades before launching them on the main Relay Chain. Instead of DOT, the Kusama blockchain uses the KSM cryptocurrency for staking, transaction fees, and governance.
Which blockchains are Polkadot’s competitors?
Polkadot’s multi-chain mission may seem unique, but it’s not the only project interested in cross-chain compatibility. Here are a few blockchains targeting the same issues Polkadot is interested in:
- Cosmos: Introduced in 2016, Cosmos is an open-source PoS protocol that helps Web3 developers build sovereign blockchains. Like Polkadot, the Cosmos team split its blockchain into two parts: Tendermint Core and the Application Blockchain Interface. Cosmos also provides developers with a software development kit (SDK) to make it easy to build separate blockchains with interoperability. Unlike Polkadot, Cosmos doesn't have an auction system. Instead, anyone who uses the Cosmos SDK can create a blockchain whenever they want. For this reason, some crypto aficionados consider Cosmos to be a more flexible protocol than Polkadot. On the other hand, since blockchains on Polkadot are carefully vetted on Kusama and via Parachain auctions, it may offer enhanced security.
- Ethereum 2.0: In 2022, the Ethereum blockchain transitioned from a proof-of-work (PoW) consensus mechanism to a PoS one. While this update didn’t instantly solve its scalability issues, it laid the groundwork for future developments that may address Ethereum’s slow confirmation speeds and congestion issues. In fact, the Ethereum team is interested in using a technology known as sharding, which shares many similarities with Polkadot’s Parachain architecture. Ethereum does not have Polkadot’s interoperability functionality
- Harmony: Launched in 2019, Harmony is another PoS blockchain that uses technologies such as sharding and cross-chain bridges to increase transaction speeds and connect with other blockchains. Harmony uses its ONE cryptocurrency for governance, staking, and transaction fees.
Projects like Polkadot highlight the growing interest in blockchain interoperability and fast transaction speeds. Although other Web3 platforms are exploring solutions for issues like cross-chain communication, Polkadot remains one of the most influential in this field. Innovations on blockchains like Polkadot might make a multi-chain Web3 a reality.
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