What is Polkadot?
There have been a number of blockchain projects in recent years that have focused less on specific applications and more on general infrastructure-related improvements. Among them is Polkadot (DOT), arguably the most successful of the projects work to improve the fundamental technology that powers decentralized applications.
The Polkadot protocol attempts to break down barriers between different blockchain ecosystems, enabling unmediated communication between these networks. We explain what Polkadot is, how it works, and why it’s important in this guide.
Key points to remember
- Polkadot uses the designated Proof-of-Stake consensus algorithm.
- Polkadot uses parachains and relay chain to facilitate a much more scalable blockchain ecosystem.
- Protocol bridges allow different blockchain networks to interact with each other.
- The protocol also includes the DOT token, which is used in governance and staking.
Industry experts and developers list three major obstacles hindering the growth of blockchain technology: speed, scalability, and security. Most “first-generation blockchains,” a somewhat vague term, have made incremental improvements over time, but they remain inhibited by their technical limitations. Ethereum is something of an exception, as the network is gradually moving towards a more scalable solution.
But the benefits are not limited to these technical issues. Polkadot’s substrate, a blockchain development framework, is a key part of the project’s offerings and has strong implications for the evolution of development in the industry. Its design is such that teams, companies, and individuals can focus on building the actual product, as much of the initial work of designing a blockchain is done by the framework.
The end result of this system is that developers can easily build blockchains and applications, leveraging a protocol that overcomes speed and scalability issues, while maintaining security.
Polkadot can be thought of as a network of networks, allowing even very different blockchain architectures to interact with each other. It does this by using parachains or specialized blockchains that have their own functionality and tokens. The network uses the designated Proof-of-Stake consensus algorithm and is inspired by the Ouroboros protocol which also inspired Cardano (ADA).
Parachains are essentially Proof-of-Stake blockchains that can operate independently and be customized to a great extent by the owner. They focus on applications with features and programming logic that are limited to themselves. But what connects these parachains is the relay chain, which is responsible for the security, consensus, and interoperability of the shared network. These chains serve as the governance layer of the network and provide a management mechanism. The relay chain validates the data and ensures that it is understandable, i.e. it is responsible for reaching consensus and ensuring the execution of transactions.
Polkadot also contains bridges, which connect blockchains and enable data transfer between them. Bridges are what establish interoperability. It can also be used to connect to external networks such as Bitcoin (BTC) and Ethereum. Another part of the network is Parathreads, a smaller-scale version of parachains that operates on a “pay-as-you-go model”. It is useful for blockchains that do not require continuous connectivity to the Polkadot network.
The DOT token itself has two uses: for staking on the network to enhance network security and in the governance mechanism.
History of Polkadot
Polkadot was started by Ethereum co-founder Gavin Wood, someone who, incidentally, coined the now ubiquitous term Web3. Wood published the Polkadot whitepaper in 2016, launching the Web3 Foundation alongside Peter Czaban the following year. The foundation then raised $145 million for the development of the protocol by selling DOT tokens. There was another private sale in 2019.
The Polkadot network first launched in May 2020, followed by several technical releases in the months that followed. Polkadot was considered fully launched with the release of five parachains in December 2021.
The future of Polkadot
Many see Polkadot as one of the most promising networks of the future as it attempts to lay the groundwork for how value is traded on the internet. Although the project is still at a relatively early stage, there are many promising developments that indicate the path it has charted could be the standard for value exchange.
Polkadot may not convincingly become the go-to development platform, especially when Ethereum is about to release its own scalability improvements and with the arrival of other new protocols. However, what is particularly favorable is the combination of the Substrate development tool with the fundamental technical advantages, which could attract a lot of development.
Polkadot can process around 1,000 transactions per second, which is significantly higher than Ethereum’s 30 transactions per second. The potential upper limit of Polkadot’s transaction throughput is 1 million transactions per second.
Polkadot says the parachain model is more decentralized and trustless than only Layer 2 scaling solutions. Many teams have already started building parachains, so the future bodes well for this ecosystem. nascent. In 2022, millions of transactions were processed on parachains.
Polkadot transactions acting in parallel via parachains – 100 are currently supported – offer great freedom to developers. Those building on parachains have a lot of flexibility regarding state changes and creating general rules.
Three stakeholders exist in the consensus model on Polkadot. They are nominators, who choose validators; assemblers; and fishermen.
Nominators secure the relay chain and select trustworthy validators. The latter are themselves responsible for the staking of the DOT, the validation of the proofs of the collators and the participation in the consensus. The next group, assemblers, require less involvement than a validator – they are responsible for keeping a record of valid parachain transactions and sending them to validators in the relay chain. Anglers, the last group, are responsible for reporting malicious behavior on the network.
Where is Polkadot available?
As one of the most popular assets in the market, the DOT token is widely available on centralized and decentralized exchanges (DEX). However, when trading it on a DEX, remember that it is an indexed version which is a representation of the asset on a specific blockchain. The actual DOT token can only be transferred to and from DOT addresses on the Polkadot network.
What is Cryptocurrency?
Cryptocurrency is digital or virtual currency secured by cryptography, which makes counterfeiting or double spending almost impossible. Many cryptocurrencies are decentralized networks based on blockchain technology, which is a distributed ledger enforced by a disparate network of computers.
What is the purpose of Polkadot?
Polkadot allows all parties involved to take public and private blockchains and connect them to a shared connectivity layer, enabling unmiddled communication between networks. Chains can choose to maintain their own set of validators or use Polkadot’s shared security system to verify transactions through the relay chain, which is responsible for the security, consensus, and interoperability of the shared network.
What is a Blockchain?
A blockchain is a distributed database or ledger shared between nodes in a computer network. As a database, a blockchain stores information electronically in digital format. They are best known for their essential role in cryptocurrency systems such as Bitcoin, namely maintaining a secure and decentralized record of transactions.
Investing in cryptocurrencies and other initial coin offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the author to invest in cryptocurrencies or other ICOs. Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decision. Investopedia makes no representations or warranties as to the accuracy or timeliness of any information contained herein. As of the date of writing this article, the author does not own Polkadot.