In a blockchain ecosystem dominated by Bitcoin and Ethereum, Polkadot – which launched only in May 2020 – is already establishing itself as a next-generation blockchain .
Bitcoin ‘s ability to facilitate the transfer of value without a central authority has come up against limitations in terms of scaling and interoperability. This led to the rise of Ethereum and its more flexible network.
Ethereum has not only given birth to a decentralized system in which many applications can be created and run without an intermediary; it has also created an ecosystem in which value can be transferred more flexibly through smart contracts . However, an increasing number of projects are being crowded out by Ethereum network congestion and high running costs. This is where new rivals like Polkadot come in .
In today’s universe of over 4,000 cryptocurrencies, Polkadot’s rise has been stratospheric. DOT, its native token, entered the top 10 cryptocurrencies just months after the launch of Polkadot. With Polkadot creator Gavin Wood announcing the launch of parachains in a blog post, the final phase of the Polkadot rollout is now underway.
What is Polkadot?
Polkadot, created by Wood – a British computer scientist who also co-founded Ethereum – is a platform that allows different blockchains to reliably transfer value and share their unique characteristics while using a secure channel. Wood sees the Polkadot network as the answer to Ethereum’s 2.0 network upgrade, which is currently in development.
Polkadot focused its attention on creating a fully scalable heterogeneous network, focused on building multi-chain technology. The Web3 Foundation – the Swiss organization that runs the network – has described Polkadot as a “next generation blockchain”.
How was Polkadot created?
Polkadot began with a white paper that Wood published in 2016. Wood, a former CTO of Ethereum, is credited with writing Ethereum’s Solidity programming language during his time at the Ethereum Foundation.
Working closely with Ethereum co-founder Vitalik Buterin in 2015, Wood was reportedly dismayed when the proposed start for Ethereum 2.0 development was delayed.
Wood left Ethereum in 2016 to build another version of Ethereum. After that, he started the Web3 Foundation, which focuses on the research and development of decentralized technologies, including Polkadot.
Wood and Jutta Steiner, a former chief security officer at Ethereum, also co-founded Parity Technologies, which was tasked with further developing Polkadot.
Polkadot originated from the Kusama precursor project in 2019 as an unverified canary network. The canary feature helps the development team discover any major issues before they hit the mainnet. The Kusama network is already running the updated logic for hosting parachains, Gavin Wood announced – meaning the deployment of parachains on Polkadot is very close to launch.
The Kusama project, with faster governance settings and lower entry barriers, is also an autonomous and independent network. The company views Kusama’s end-to-end system as a tool for experimentation and early deployment.
Polkadot was first released in May 2020 as a Proof of Authority (PoA) protocol. Its governance was controlled by a single sudo (superuser) account. After launch, validators joined the network to participate in its consensus protocol.
On June 18, 2020, the network quickly moved away from the Proof-of-Authority consensus algorithm to the proven Proof-of-Stake (PoS) protocol.
With its blockchain network secured by a decentralized community of validators, its superuser account was discontinued in July 2020, with the network passing governance into the hands of its DOT token holders. This paradigm shift saw Polkadot achieve its goal of becoming a decentralized platform.
Polkadot’s Native Token (DOT)
Polkadot’s DOT token is currently the eighth largest cryptocurrency by market capitalization at the time of this article’s publication. This utility token provides governance, bonding, and staking functions in the network.
The governance feature allows DOT holders to exercise control over the Polkadot network. DOT holders can determine network operating costs, auction dynamics, and the timing of adding new parachains. They can also decide when it is necessary to perform upgrades and fixes on the platform.
Additionally, the DOT plays an active role in securing the network. As a proof-of-stake protocol, DOT holders are responsible for validating transactions between parachains. To participate, DOT holders must stake their DOT tokens.
The third role that DOT plays in the network is the ability to add new parachains by holding DOTs – which is known as “bonding”. During this period, DOT tokens are not redeemable and will only be released once the holding period is over and the parachain is removed.
Polkadot’s architectural technology
Polkadot operates differently from the Ethereum network in its drive to become a heterogeneous blockchain network . It uses parachains and parathreads , which connect to Polkadot’s main relay chain. Chains also connect to external networks through bridges in the platform.
Polkadot includes three types of strings.
The relay chain is the heart of the Polkadot protocol. She is responsible for shared network security, consensus and cross-chain interoperability. It is the main blockchain of the network. This is where value transmission and transaction blocks are completed.
The relay chain performs very minimal operations at its interface with the mechanism, parachain auctions and nominative proof of stake (NPoS). Its lighter feature base allows the relay chain to process new transactions faster. This unique method allowed Polkadot to process 1,000 transactions per second (TPS), according to a 2020 report.
Parachains are autonomous and independent blockchains hosted on the Polkadot platform. These custom blockchains are built to achieve specific goals and address particular challenges. They leverage Polkadot’s computing resources to validate the accuracy of transactions made on the network. Parachains have the freedom to develop their own governance systems while using Polkadot’s shared security feature.
To be eligible to run a parachain on Polkadot, projects must rent a slot on the relay chain through a slot auction.
Parathreads share the same functionality as parachains, with a few differences. Parathreads are parachains built on a pay-as-you-go model, rather than renting a slot. Parathreads are primarily suitable for projects that do not require continuous network access.
Other features of Polkadot are as follows.
Gateways fulfill the interoperability goal of Polkadot. This important feature allows Polkadot to connect and communicate with external networks like Bitcoin and Ethereum. Polkadot is currently working on extending the bridges to other blockchains in the ecosystem so that tokens can be traded without a central authority.
Nominative Proof of Stake (NPoS)
Polkadot uses a more modern consensus protocol in the named proof-of-stake algorithm. This is designed to maximize the shared security of the network so that no parachain is corruptible. Named Proof of Stake allows those who stake DOT tokens to nominate validators that they believe will best serve and secure the network. Unlike the similar delegated Proof of Stake system, NPoS allows nominators to be subject to a loss of stake if they nominate a bad actor.
Substrate is a software framework developed by Parity Technologies for creating custom blockchains. Polkadot uses a Substrate framework as part of its underlying technology. As developed by the Parity team, Substrate allows developers to create bespoke blockchains without spending as much time or requiring blockchain experts to do so.
Substrate is additionally a toolkit for accessing a library of custom templates to increase the ease of blockchain development. Its “Wasm” (WebAssembly) protocol allows development teams to create ready-to-use smart contract platforms.
Why do some investors think Polkadot can compete with Ethereum?
The founders of Polkadot cut their teeth on Ethereum. The influence of Ethereum can be seen in the development of the Polkadot ecosystem. Many industry experts see similarities between the two networks.
However, Ethereum’s overwhelming popularity has also led to network congestion, high fees, and disgruntled users looking for alternatives. The Ethereum 2.0 upgrade should fix these issues when it launches, but some believe Polkadot presents a more viable and scalable solution. Its independent heterogeneous multi-chain network would allow developers to easily create and deploy new projects, quickly and inexpensively.
Polkadot’s idea of an interconnected blockchain ecosystem appeals to developers who want to leverage Polkadot’s established blockchain community to publicize their projects. Its drag-and-drop templates allow teams to create blockchain networks in minutes instead of building them from scratch.
These functional improvements have sparked the interest of developers and investors in Polkadot. In the four months since the launch of Polkadot, DOT skyrocketed to become the 7th largest cryptocurrency, with a market capitalization of US$3.7 billion. Polkadot has since jumped to US$39.1 billion in market capitalization at the time of this article’s publication.
Polkadot’s vision for the future
In its quest for a decentralized internet, Polkadot seems poised to continue its mission of developing a reliably functioning blockchain network to verify data and value transfers.
Earlier this month, the network launched “bridges” to connect external networks to its ecosystem. Bridges aim to provide fast and secure transfer of values and data through an interoperable rule.
To kick things off, the Web3 Foundation sponsors some programs – solutions using bridges. Among these are the Interlay Bridge that connects Bitcoin and the Snowfork Ethereum Bridge.