There are countless crypto currencies on the open market. Anyone can start one, that’s the beauty of it. But what does it take to become a top 10 project? A great concept, flawless execution, and a marketing team from the heavens…ok maybe not :P.
What is Polkadot?
Polkadot is a 3rd Generation blockchain, that aims to solve issues related to scalability, speed, and interoperability. The platform supports ‘parachains’ which enable developers to create their own blockchains all linked into the polkadot network, but importantly, all these parachains can interoperate with one another, creating an incredibly powerful network.
Co-founded by Gavin Wood (co-founder of the Ethereum project and the inventor of solidity smart contract language), the idea of Polkadot came to Gavin whilst he was working with his team on the Ethereum 2.0 project in which they were developing technology to introduce sharding. Dr.Wood discussed his idea about developing a heterogeneous multi-chain setup to enable the multi-channel transfer of data, assets, and tokens. They worked for almost 4 months and came up with the idea of this new heterogeneous network called Polkadot.
The Web3 foundation launched a Polkadot public fundraising in 2017 and they successfully raised almost $145 million in ETH. It was a huge success. But only a couple of weeks later, the parity wallet in which the funds were being held was permanently frozen after a developer discovered a bug and accidentally deleted some code. As a result, they lost almost 66% of their funds. Polkadot was among 151 wallet addresses effected by this mistake.
Regardless of this big loss, Polkadot and the Web3 foundation actually had sufficient assets to meet their achievements and they ploughed on. Quite incredibly, they managed to deliver on their plans despite this set back.
In 2019, Polkadot sold of some more of their DOT in a private deal to raise more funds, then again in July 2020, the Web 3 Foundation had one more chomp of the cherry when they chose to run a third private deal where they raised a sum of 3,980 Bitcoin which is almost $100 million if we calculate it today. In the face of adversity, Polkadot seems to have thrived.
How does Polkadot work?
Polkadot is a multichain blockchain. Each chain on Polkadot is called a “parachain.” Developers can create their own parachain with Substrate, which is a framework for building those blockchains. It’s also possible to run blockchains developed with Substrate without being part of the Polkadot network, if thats what you wish to do.
These Parachains can support features found in many other blockchains, including smart contracts (Ethereum), ZK-snarks (Zcash), and UTXO transactions (Bitcoin). Interestingly, developers can call functions that exist on other parachains if required, making Polkadot extremely versatile.
There are many different use cases for Polkadot parachains, including transaction chains, oracle chains, identity chains, file storage chains, data curation chains, IoT chains, finance chains, and privacy chains.
and gold chains
[do the thug life graphic (gold chain and sunglasses) over a freeze frame with snoop dogg music]
All of these parachains, are linked back to the Polkadot Relay Chain, which serves as a kind of master chain, one chain to rule them all..
Since the remaining DOT tokens were released and allowed to be traded between investors, DOT has been listed on over 40 exchanges, and high trading volumes have caused the coin’s market cap to skyrocket and become a top-six coin.
The DOT token was also “redenominated” by a factor of 100x at the time that trading began. This obviously did not change the market cap of the cryptocurrency, merely made the coins appear more ‘accessible’ to smaller investors, similar to a stock split like Tesla & Apple did very recently.
How Do I Use DOT?
There are three main uses for the DOT token apart from basic financial transactions: governance, staking, and bonding.
Polkadot token holders have complete control over the protocol. All privilese, which on other platforms are exclusive to miners, will be given to the Relay Chain participants (DOT Holders), including managing exceptional events such as protocol upgrades and fixes.
Game theory incentivizes token holders to behave in honest ways. Good actors are rewarded by this mechanism whilst bad actors will lose their stake in the network. This ensure the network stays secure.
New parachains are added by bonding tokens. Outdated o non-useful parachains are removed by removing bonded tokens. This is a form of proof of stake.
This is where it gets a little more complex. The network practices a completely-hybrid consensus method. This consensus on the Relay Chain is a type of Proof of Stake (PoS) called GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement). The Parachains linked to the Relay Chain use a version of Proof of Work called BABE (Blind Assignment for Blockchain Extension). This hybrid consensus implicates 4 key players: Validators, Collators, Nominators, and Fishermen.
The key role of Validators on the Polkadot network is to check all the transactions of Parachains and add them into the Relay Chain. Becoming a validator isn’t directly easy. A person must stake DOT to be suitable for nomination as a Validator on the network and this is why Polkadot’s PoS consensus is also referred to as the Nominated Proof of Stake.
Validators are casually assigned to Parachains to check their transactions. After this, these Parachains are registered on the Relay Chain generated by validators. There are currently approximately 240 validators right now and each parachain is assigned 5 validators.
As the parachains increase in number, more validators must be added. Polkadot is doing this all just to maintain the transaction speed of the network. According to my research, there is a new block every 6 seconds on Polkadot, and in the future, they hope to reduce this time to under 2 seconds.
The key role of Nominators is to select validators for platform. They do this by delegating their DOT tokens to Validators. Any Nominator can propose up to 16 Validators and as a result, receives a portion of the block rewards obtained by these Validators.
Collators on the other hand create the blocks on the Parachains. The Validators will then select the block which is most likely to be a precise representation of the current state of a Parachain.
Fishermen watch over the network, looking for malicious behaviour, or bad actors. As with collators, nominators and validators, they must also stake DOT.
Staking is a fantastic way to earn interest on your crypto, and contribute to securing the network. Furthermore you remain in control of your crypto, its not like loaning your Bitcoin out to platforms like Nexo or BlockFi. You can unstake at anytime.
As we have discussed, you can stake your DOT in a multitude of ways, but I’ve found the easiest way is to use Kraken.com The exchange is extremely reputable and currently is offering 12% APR on your DOT by staking it though their platform. I’ve put a referral link down below which you can use to get some introductory offers when staking your DOT.
Future of Polkadot
Polkadot is without doubt an exciting project. It faces competition from COSMOS and of course ETH2.0, which both work with multi chain or sharding blockchains. But ETH2.0 is not yet launched and since they are effectively trying to upgrade a ‘moving car’ Polkadots 2nd mover advantage gives them the opportunity to possibly supplant ETH as the leading project in this space.
Ethereum gives it’s developers a method to program, implement, and check dApps via Smart Contracts. While Polkadot gives dApp developers the capability to produce their own blockchain that can interconnect with other ledgers. In this scenario, a developer decides about transaction charges and speed. And due to this feature, Polkadot has been named as an Ethereum killer by many analysts, as it opens the doors to much higher flexibility for new developing projects looking for a home. Being listed as the 6th top-ranked cryptocurrency, at the time of writing, and with a market cap of almost $35 billion, the current price of Polkadot is $39 and is expected to reach $100 by the end of 2022.