In a blockchain ecosystem dominated by Bitcoin and Ethereum, Polkadot — which launched only a year ago last May — is already establishing itself as a next-generation blockchain.
Bitcoin’s capability for facilitating value transfer without a central authority faced limitations in scaling and interoperability. This led to the rise of Ethereum and its more flexible network.
Ethereum didn’t only bring about a decentralized system where numerous applications could be built and run without intermediaries; it also created an ecosystem where value could be transferred more flexibly via smart contracts. However, a growing number of projects are being squeezed out by the Ethereum network’s congestion and high gas fees. This is where new rivals like Polkadot come in.
In the current universe of over 4,000 cryptocurrencies, Polkadot’s rise has been stratospheric. DOT, its native token, became a top 10 cryptocurrency within only a few months of Polkadot’s launch. With Polkadot’s creator Gavin Wood announcing the launch of parachains in a blog post today, the final phase in Polkadot’s rollout is now underway.
Table of Contents
- What is Polkadot?
- How Polkadot formed
- Polkadot’s native token — the DOT
- Polkadot’s architecture and features
- Relay chain
- Parachains
- Parathreads
- Bridges
- Nominated proof-of-stake (NPoS)
- What is a substrate framework?
- Why do some investors believe Polkadot can rival Ethereum?
- Polkadot’s vision for the future
1. What is Polkadot?
Polkadot, created by Wood — a British computer scientist who also co-founded Ethereum — is a platform that allows different blockchains to transfer value in a trustless fashion and share their unique features while using one secure channel. Wood sees the Polkadot network as the answer to Ethereum’s 2.0 network upgrade currently under development.
Polkadot has concentrated its attention on becoming a fully scalable, heterogeneous network focused on creating a multi-chain technology. Web3 Foundation — the Swiss organization that runs the network — has described Polkadot as a “next-generation blockchain.”
2. How Polkadot formed
Polkadot began with a white paper that Wood published in 2016. Wood, a former CTO of Ethereum, is reputed to have written Ethereum’s Solidity programming language during his stint with the Ethereum Foundation.
Working closely with Ethereum’s co-founder Vitalik Buterin in 2015, Wood reportedly became dismayed when the proposed start for Ethereum 2.0 development was delayed.
Wood left Ethereum in 2016 to build a sharded 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, former head of security at Ethereum, also co-founded Parity Technologies, which was tasked with continuing Polkadot’s development.
Polkadot was birthed from precursor project Kusama in 2019 as an unaudited canary network. The canary feature (think “canary in the coal mine”) helps the development team uncover any major concerns before they’re launched on the mainnet. The Kusama network is already running the upgraded logic for parachain-hosting, Gavin Wood announced today — meaning, the rollout of parachains on Polkadot is very close to launch.
The Kusama project, which has faster governance parameters and lower entry barriers, is also a standalone, independent network. The company considers Kusama’s unabridged system a tool for experimentation and early-stage deployment.
Polkadot was first launched in May 2020 as a proof-of-authority (PoA) protocol. Its governance was controlled by a single Sudo (super-user) account. After launch, validators joined the network to participate in its consensus protocol.
The network quickly jettisoned the proof-of-authority consensus algorithm and adopted the well-tested proof-of-stake (PoS) protocol on June 18, 2020.
With its blockchain network secured by a decentralized community of validators, its super-user account was abandoned in July 2020, with the network moving governance into the hands of its DOT token holders. This paradigm shift saw Polkadot achieve its goal of becoming a decentralized platform.
3. Polkadot’s native token (DOT)
Polkadot’s DOT token is currently the eighth largest cryptocurrency by market cap at the time of publication. The utility token provides governance, bonding and staking functions in the network.
The governance function allows DOT holders to exercise control over the Polkadot network. DOT holders can determine the network’s operating fees, auction dynamics and schedule for adding new parachains. They can also decide when it may be necessary to execute upgrades and fixes on the platform.
Further, DOT plays an active role in securing the network. As a proof-of-stake protocol, DOT holders are tasked with the duty of validating transactions across parachains. To participate, DOT holders have to stake their DOT tokens.
The third role DOT plays in the network is the ability to add new parachains by holding DOT — which is known as “bonding.” During this period, DOT tokens are unavailable for use and will only be released once the bonding period is over and the parachain is removed.
4. 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 link to the main Polkadot Relay Chain. The chains also connect to external networks through bridges in the platform.
Polkadot comprises three types of chains.
- Relay chain
The relay chain is the heart of the Polkadot protocol. It is responsible for the network’s shared security, consensus, and cross-chain interoperability. It’s the main blockchain in the network. This is where value transmission and transaction blocks are completed.
The Relay Chain runs very minimal operations at its interface with the mechanism, parachain auctions, and nominated proof-of-stake (NPoS). Its lighter functionality base affords the Relay Chain greater speed to process new transactions. This unique method has seen Polkadot process 1,000 transactions per second (TPS), according to a 2020 report.
- Parachains
Parachains are standalone, independent blockchains hosted on the Polkadot platform. These custom blockchains are built to achieve specific purposes and address specialized challenges. They leverage Polkadot’s computing resources to validate the accuracy of transactions done on the network. Parachains are granted 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 have to lease a slot on the Relay Chain through a slot auction.
- Parathreads
Parathreads share the same functionality as parachains, with a few differences. Parathreads are parachains built on a pay-as-you-go model, rather than by leasing a slot. Parathreads are primarily suitable for projects that don’t require continuous access to the network.
Polkadot’s other features include:
- Bridges
Bridges fulfill Polkadot’s interoperability goal. This important feature lets Polkadot connect and communicate with external networks like Bitcoin and Ethereum. Polkadot is currently working to extend bridges to other blockchains within the ecosystem so that tokens can be swapped without a central authority.
- Nominated proof of stake (NPoS)
Polkadot uses a more modern consensus protocol in the nominated proof-of-stake algorithm. This is designed to maximize the network’s shared security so that no one parachain is corruptible. Nominated proof of stake allows those staking DOT tokens to nominate validators they feel will best serve and secure the network. Unlike the similar delegated-proof-of-stake system, NPoS makes it possible for nominators to be subjected to a loss of stake if they nominate a bad actor.
- Substrate framework
Substrate is a software framework developed by Parity Technologies to create custom blockchains. Polkadot uses a substrate framework as part of its underlying technology. As developed by the Parity team, Substrate allows developers to create purpose-built blockchains without spending so much time or requiring experts in the blockchain field to do so.
Substrate is further a toolkit allowing access to a library of custom templates to increase the ease of blockchain development. Its “Wasm” (WebAssembly) protocol allows dev teams to build smart contract platforms out of the box.
5. Why do some investors believe Polkadot can rival Ethereum?
Polkadot’s founders cut their teeth on Ethereum. Ethereum’s influence can be seen in the development of Polkadot’s ecosystem. Many industry experts see similarities between the two networks.
Ethereum’s overwhelming popularity, however, has also led to network congestion, high gas fees and dissatisfied users seeking alternatives. The Ethereum 2.0 upgrade is expected to solve these issues when it launches, but Polkadot is thought by some to present a more viable and scalable solution. Its independent heterogeneous multi-chain network is said to make it easy for developers to create and deploy new projects quickly and affordably.
Polkadot’s idea of an interconnected blockchain ecosystem is a draw for developers who wish to leverage Polkadot’s established blockchain community to create awareness for their projects. Its drag-and-drop templates lets teams build blockchain networks in minutes instead of building them from the ground-up.
These functionality upgrades have seen developers and investors showing interest in Polkadot. Within four months of Polkadot’s launch, DOT had skyrocketed into becoming the 7th largest cryptocurrency, with a market cap of US3.7 billion. Polkadot has since surged to US$39.1 billion in market cap as of publication time.
Polkadot’s vision for the future
Polkadot appears poised to continue its mission of developing a blockchain network that operates in a trustless fashion for verifying data and value transfers in its quest for a decentralized internet.
Earlier this month, the network launched “bridges” to connect external networks to its ecosystem. Bridges seek to ensure a speedy and secure transfer of values and data through an interoperable rule.
To get things started, Web3 Foundation is sponsoring some programs-building solutions using bridges. These include Interlay’s bridge connecting Bitcoin and Snowfork’s Ethereum bridge.
