Blockchain-based peer-to-peer networks allow anyone to transfer information and value to anywhere in the world. Yet countless blockchains still remain siloed, existing separately from one another—unable to communicate or share value. Interoperability protocol Polkadot aims to change that.
What is Polkadot?
Conceived in 2016 by former Co-Founder and CTO of Ethereum Gavin Wood, Polkadot positions itself as a linchpin for the decentralised web—a system of censorship-resistant services and applications.
Connecting the dots of disparate blockchain networks is Polkadot’s ultimate purpose. In other words, the protocol envisions a web of interconnected blockchains that can communicate and scale collectively.
As we’ve witnessed with both the ethereum network and with bitcoin’s often sluggish transactions, blockchains—especially proof of work-based blockchains—struggle to scale and can become hugely congested with excessive use. A prime example is seen from the decentralised finance (DeFi) sector, which has caused ethereum transaction fees (gas) to skyrocket in line with the DeFi’s burgeoning popularity.
Scaling solutions, such as Ethereum’s switch to proof-of-stake (PoS), and the Lightning Network, bitcoin’s second layer payment protocol, are in the works. Though given the diverse range of use cases, it’s doubtful we’ll see a future where a single blockchain rules them all; we may, however, see a single blockchain combine them all.
Alongside providing interoperability, Polkadot also streamlines blockchain development. Much like how the introduction of the world-wide-web extended the internet to everyone, instead of scientists alone, Polkadot aims to increase the viability and ease of crypto development.
By shouldering the underlying networks processes, Polkadot allows devs to focus coding industry-disrupting smart contracts rather than the headache-inducing particulars of Byzantine fault-tolerant consensus mechanisms.
How does Polkadot work?
The idea may sound great in theory, but how does Polkadot work in practice?
The Polkadot protocol is a blockchain made up of several individual chains known as “parachains.” As the name suggests, these sovereign blockchains work parallel to each other, each bringing its own niche to the table.
One example is Moonbeam, an ethereum-compatible smart contract parachain. As well as fostering smart contract unity, Moonbeam allows developers to easily migrate their ethereum-compatible projects over to the Polkadot network.
All parachains connect to the Relay Chain — the main Polkadot blockchain responsible for standardising data so that every blockchain can read it. The Relay chain also does most of the heavy lifting (achieving consensus, securing the network) and providing computing resources for the parachains.
Meanwhile, Polkadot enables interoperability with external, established blockchains (Bitcoin, Ethereum, IOST and others) via its aptly named “bridge” technology. Once the bridge is in place, disparate blockchain networks that would otherwise remain incommunicado—will be able to transfer value or execute smart contracts with one another.
As of today, Polkadot has over 250 projects working within its walls. These range from bridges to bitcoin and ethereum to integrated projects such as Polkastarter, a decentralised exchange which recently migrated to the protocol with help from the Moonbeam parachain.
What is Polkadot’s DOT token used for?
DOT, the aptly named native token of the Polkadot network, is a governance token that allows users to propose changes and vote on the direction of protocol.
The DOT council—a group democratically elected by DOT holders—decide the voting agenda, taking both council members and DOT holders proposals into consideration to form a network upgrade decision. Being a PoS network, votes are weighted by stake. More specifically, those holding the greatest amount of DOT have greater influence when it comes to voting.
Polkadot’s first token sale closed on October 27, 2017, raising a total of 485,331 ETH, worth $144 million at the time.
At the time of writing, DOT’s market cap stands at $15.7 billion, an impressive 200%+ advance from the start of trading back in mid-August 2020. As a result, DOT currently occupies a coveted spot as the 4th largest cryptocurrency by market cap—a mean feat for any newcomer to the crypto market.
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