- Polkadot system is designed to address the core limitations of Ethereum.
- It has the backing of Ethereum’s Chief Technology Officer.
- The presence of a testbed is reassuring.
- It is aimed to make block gain networks interoperable.
- It has a fast and scalable network.
- DOT support is growing among hardware crypto wallets.
- Polkadot has more than 250 projects powered by its network.
- The learning curve is quite steep.
- The wallet hacking attacks shook the faith of investors.
- Polkadot Relay Chain needs a bridge to connect “external” Blockchain systems.
- It faces steep competition from Cardano and the upcoming Ethereum v 2.0.
With time, the number of cryptocurrencies available in the market is growing, the lack of regulation notwithstanding. Earlier, it was only the geeks and tycoons but now you will find people in your friend list investing in the crypto sector. Some of the new crypto coins indeed look promising. One such example is Polkadot. The Proof of Concept design was published 4 years back. However, after 2017, Polkadot gained traction and the top-notch developers got involved in its ecosystem. It is now deemed as one of the top cryptocurrencies in 2021.
The origins of Polkadot
Polkadot is often hailed as a serious challenger to Ethereum but its proponents think it is designed to transform the cryptocurrency sector in unprecedented ways. Dr. Gavin Wood who was a co-founder of Ethereum gave shape to Polkadot. He is also credited for creating the coding language for making smart contracts in Ethereum- namely Solidity. He left the Ethereum project after getting weary of the delay and came up with a new cryptocurrency.
The DOT ICO happened in October 2017 and 145 million USD was raised through Ethereum. 50% of the initial total supply of DOT was sold to private and public investors in 2 rounds. The Polkadot team faced a vulnerability exploit attack which froze 90 million USD. The development however did not come to a halt. There were 2 hacks actually but the Polkadot team came up with documentation and solutions to thwart any recurrence. In January 2019, another funding was held to compensate for the frozen funds, and over 60 million USD was raised. In July 2019, the third funding round was done and 43 million USD was raised.
What is Polkadot, after all?
Polkadot is a crypto project powered by a programmable Blockchain system with a distinct aim. The project is meant to resolve complexities that affect the Crypto sector. It aims to make varying Blockchain networks interact with one another. It also supports the creation of smart contracts as well as new blockchains. The network is run by protocol governed by owners of DOT. The project is run by a Swiss non-profit entity named the Web3 Foundation. The latter deploys UK-based Parity Technologies to maintain the project. Polkadot is run on a blockchain building tool Substrate.
The basic working mechanism of Polkadot
Polkadot can be deemed as an ecosystem of blockchains. The core Blockchain is named the Relay Chain which is linked with Para chains. Any “external” blockchains like that of Ethereum need a bridge to get connected to the Relay Chain. The Parachains serve as the foundational layer of the architecture of Polkadot and represent the idea of an interoperable blockchain ecosystem.
The Polkadot network relies on a hybrid consensus mechanism. Polkadot’s hybrid consensus has 4 major players- Fishermen, Validators, Collators, Nominators. Validators on the core Polkadot network check transactions of various Parachains and add these to its Relay Chain Blockchain. They have to stake DOT to earn a nomination for functioning as a network Validator. Polkadot’s PoS consensus is called Nominated Proof of Stake. The quantity of DOT needed to be deemed as a Validator can change over time and it is based on the network.
- Validators- Polkadot began with only 20 open validator positions and the number has shot up with time. The capping on number of validators is yet to be decided. However, the team proposes having a maximum of 1000 Validators for authenticating all transactions taking place on its Network. Validators get era points by verifying Parachain transactions.
- Nominators- Nominators on the core Polkadot Blockchain have to select the Validators. They vote using their DOT tokens. A Nominator can pick multiple Validators and he can get a section of the block rewards gained by such validators.
- Collators- Collators on the core Polkadot network make blocks on Parachains that are linked to Relay Chain. These blocks contain updated transactions taking place on respective Parachain. Collators have to stake DOT to link their Blockchain with the Relay Chain.
- Fishermen- Fishermen in the network observe Validators and Collators activities. A Fisherman spotting misbehavior by a Validator or Collator gets an unspecified “large reward” through DOT.
Polkadot’s governance structure has 3 major players, namely regular DOT token holders, the Technical Committee, and the Council. The last one comprises 13 elected members belonging to the Polkadot network. Council members get changed every 24 hours, just like the validators. Council members decide how the Treasury funds will be spent. Only they can access the Treasury. The Technical Committee is made of 3 entities with expertise in the Polkadot network. The Technical Committee ensures proposed changes to the network take place.
The DOT cryptocurrency
Every cryptocurrency system has its own token and Polkadot is no exception. Its native crypto coin is DOT. It is used for staking and governance on the Polkadot network. The DOT holders can vote for proposed alterations to the network. DOT is used by Fishermen, Validators, and Nominators for staking. It is also deployed to link Parachains to the networks’ Relay Chain. In the beginning, DOT supply was capped at 10 million but that was altered later. The 10 million DOT tokens were multiplied by 100x. So, the existing DOT holders saw a 100x multiplication of their coins. Throughout 2020 and 2021, the crypto sector has hailed DOT for being a strong crypto coin. DOT is supported by the top crypto exchanges.
One thing you have to remember is that storing your DOT tokens is not easy. You can use Polkadot.js which is a browser plug-in or use the Polkawallet mobile app. The good thing is many wallets now support DOT.
The journey of Polkadot
The Polkadot project has made headlines since the time of its inception, for a number of reasons. The Web3 Foundation has ensured the proposed plans get executed in the right way. The team launched Kusama in the middle of 2019. Kusama is a distinct cryptocurrency project meant to assess Polkadot elements in real-world scenarios. It has a native KSM token. Kusama will be deployed as a testbed for developers. The developers may test new Dapps on it.
Initially, DOT tokens could be staked and issued, but now you can also trade them. This was made possible by discarding the Sudo protocol. Polkadot now serves as a DAO or decentralized autonomous organization.
The Parachains are now being assessed on the Kusama Network. They will get ready for Polkadot deployment after considerable optimization, auditing, testing.
Summing it up
Polkadot is a unique and promising cryptocurrency project that has the backing of some of the authentic people in this sector. The planning and execution have taken place as per plan, to a large extent. The concept of Blockchain interoperability is something you can’t overlook. However, it would be wrong to assume investing in DOT is devoid of risks. DOT, much like other crypto tokens you can buy, is subjected to sector volatility and its price has risen and plummeted. It’s too early to say how successful Polkadot will be. It faces competition from rivals like Cardano and Ethereum v 2.0 is looming on the horizon too. So, it would be prudent to invest in DOT with moderation.