In this article, we will take a closer look at Polkadot. Let’s dive into what the open-source project is all about, what is next for the network and why it could become the protocol that brings blockchain to the masses through real-life use cases.
What is the basic idea behind Polkadot?
Polkadot is a project that aims at creating a blockchain ecosystem capable of unprecedented scalability, interoperability, use cases and security. Additionally, running the ecosystem is said to be easier than expected: creating and updating blockchains using Polkadot can take as little time as a few minutes.
- Polkadot is a multi-blockchain ecosystem designed for mass adoption using interoperable and interconnected blockchains
- DOT, the native crypto token of the network is used for staking, bonding and governance in the network
- Polkadot’s launch is currently in its final stage, so the network is set to soon reach its full capacity
Polkadot’s value proposition
The core value proposition of Polkadot is simple: to bring blockchain technology’s best to the masses. The project aims to accomplish this with a framework that ensures security, interoperability and scalability by having many semi-autonomous blockchains (parachains), connected by the main chain which can process transactions together, but which can also act on their own if needed.
Think of the Polkadot ecosystem as the United States of America: each state has some level of autonomy and special orientation, but they are all bound together by a common federal government, values and goals.
Polkadot’s history and background
The Polkadot network was launched in mid-2020, but the ICO (Initial Coin Offering) of its native token, DOT, was held in 2017. Its founders include highly-reputable industry professionals such as Robert Habermeier, Peter Czaban and Gavin Wood, who is the former co-founder and CTO of Ethereum.
DOT – Polkadot’s native token
DOT is Polkadot’s native token with three core functions: staking, bonding and governance.
Staking DOT is necessary to run the network using its Nominated Proof of Stake consensus algorithm. In a Proof of Stake (PoS) system, staking cryptocurrencies (in this case, DOT) validates transactions and earns certain rewards. In the event of malicious behaviour, however, the stake can be lost. In a Nominated Proof of Stake system (NPoS), nominators vote on who the validators will be by putting their own DOT at stake, meaning that they too are subject to losing their stake together with the validators they nominated.
NPoS provides an extra layer of security in the form of the nominator’s stakes, plus it allows virtually all DOT holders to continuously participate in the network’s maintenance. Also, NPoS aims to improve upon the efficiency of the traditional Proof of Stake (PoS) algorithm.
Bonding DOT is required for connecting parachains to the main Polkadot chain. If the connected parachain later becomes inactive, the bonded DOT tokens are taken by the algorithm and the parachain is disconnected from the Polkadot main chain, which makes this bonding a kind of Proof of Stake in itself.
DOT holders also have governance rights, meaning that they get to vote on upgrades, fixes and the direction in which the network is headed in a coin-weighted voting system. Find out more about Polkadot’s governance on their official website.
Polkadot vs Ethereum and Ethereum 2.0
We were thinking how we could create the next version of Ethereum if we had a greenfield to design upon
said Gavin Wood, the co-founder of Polkadot and Ethereum, which makes it clear that the Polkadot network (in some ways) is influenced by Ethereum and its characteristics. As he mentioned, Ethereum 2.0 had not been delivered at the anticipated date, and the Polkadot founders had identified a need for an interconnected and efficient ecosystem that features elements similar to those of the existing protocols and technologies, but taken to the next level.
To talk numbers, Ethereum’s current TPS (transactions per second) stands at around 25, while Ethereum 2.0 aims to take this up to 100,000. On the other hand, the Polkadot ecosystem’s base TPS is set to be around 100,000. Once it is fully functional, the network has the potential of reaching numbers in the 1,000,000 range, positively influencing future usability and true mass adoption in terms of network limitations.
In terms of functionality, ETH can be used as collateral to create new tokens on Ethereum. DOT can also be used as collateral, but for the purpose of bonding new parachains to the main Polkadot chain. Also, ETH is the main currency of DApps (Decentralised Applications), but it doesn’t provide nearly as many governance rights as DOT, through which holders exclusively get to decide the future orientation of Polkadot.
Currently, in the final phase of the launch, Polkadot is testing and rolling out parachains on its testnet and on Kusama, Polkadot’s experimental environment.
Once all works smoothly, and as benchmarking and auditing are completed, the parachains will be auctioned and launched on Polkadot, with auctions lasting about two weeks each. This will officially mark the completion of the launch of Polkadot and the network’s future will completely depend on the on-chain governance by DOT holders.
Polkadot (DOT) is one of the most popular crypto projects at the moment and with good reason. Its market cap was floating at around €3.4B until late 2020 when the price of DOT skyrocketed and the market cap grew 10 fold. The developers and founders behind the idea and execution of the network are highly-reputed agents in the blockchain industry and in the current, final phase of its launch, Polkadot has a fair chance of becoming one of the first projects in the space that will actually deliver a truly scalable, interoperable and secure system designed for mass adoption.
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Author: Aron Abraham