In the current era of over 4000 cryptocurrencies, a large number of prominent blockchain networks operate independently like Bitcoin, Binance, and Ethereum. Scalability and interoperability issues in networks like Bitcoin have led to the invention of a more flexible network- -: Ethereum. Etheruem gave life to an ecosystem where value is transferred through smart contracts over a decentralized chain. However, network congestion and high gas fees in Ethereum have made people look out for another suitable option, and this is where rivals like “Polkadot” jumped in.
Polkadot was created in May 2020 by Gavin Wood and within a year it was declared as “next-generation blockchain” by the Web3 Foundation (the Swiss organization that operates the network).
Polkadot is a multi-chain network that allows different blockchains to connect and transfer value using one unified secured network. As its name shows, Polkadots aims to join dots with all other networks. With the focus on establishing a multichain technology, Polkadot has put its attention on emerging as a heterogeneous and fully scalable network.
Polkadot was launched as a proof of authority (PoA) protocol, the governance of which was controlled by a superuser account.
Polkadot moved from PoA to the well-tested Proof-of-Stake (PoS) protocol on June 18, 2020.
The superuser account was jettisoned in July 2020 and validators (DOT token holders) came in to handle the governance of the network.
Objective and Importance
The aim behind creating Polkadot was to deal with the hectic and expensive mining process (transaction validation/security conventions). Furthermore, a lot of time, talent, and resources have been invested to engineer decentralized networks from the ground. Polkadot provides a standard way for developers to implement value on top of all blockchains, rather than a single one.
Breakdown of Polkadot’s Architecture
There are three types of chains present in Polkadot to connect with external networks through bridges.
Relaychain can be regarded as the heart of Polkadot. The relay chain handles the “security”, “consensus” and “cross-chain interoperability” of the Polkadot network. Transactions blocks are completed in this chain to finalize the transactions. Relay chains boost the speed of the network by preventing the addition of new transactions by validating those transactions. Through this distinctive method, Polkadot has achieved a TPS of 1000 according to a recent report in 2020.
Parachains are blockchains that are hosted on Polkadot to work in parallel. Parachains leverage computing assets of Polkadot to confirm the accuracy of transactions on the network. Parachains possess the freedom to create their independent governance system while utilizing the shared security feature of Polkadot. A proper slot on the Relay Chain needs to be taken on lease through a slot auction to run a parachain on Polkadot.
Parathreads are similar to parachains but work on a policy of “pay as you go” because they establish a link with Relay Chains only when needed.
Polkadot’s goal of interoperability with external networks such as Bitcoin and Ethereum, is achieved through bridges. This ecosystem will be expanded, as Polkadot is currently working to build bridges with other blockchains like Cosmos, EOS, etc., which would enable people to swap a token without any central authority.
Nominated Proof of Stake (NPoS)
NPoS is a variation on the proof-of-stake consensus mechanism used by Polkadot. It permits all native token holders to participate to maximize shared security by staking their token (DOT). An unlimited number of nominators can back the validators in this system. The following necessary roles are being heeded:
Validators: Validators are those who participate in a consensus process to vote on proposed changes in the network. Validators are also responsible for validating data in blocks of parachains.
Nominators: They are responsible to nominate those validators whom they think are trustworthy and will best serve the network. Nominators allocate their votes to validators and delegate the DOT tokens (explained in the next section) to them; in return, nominators are rewarded with a quantity of staking rewards from that validator. If nominators vote for a bad actor then they will lose their stake consequently. Nominators mostly seek a validator with a good reputation
Collators: Collators are full nodes that collect history for each parachain. Collators are accountable for producing state transition proofs for the validators on Relay Chains. Collators use XCMP (Cross chain message passing to send and receive messages from other parachains.
Fishermen: They are in charge of monitoring any bad behavior in the network and reporting it to the validators.
Governance of the Polkadot Network
Different kinds of Polkadot users can influence the operations of the network. DOT holders can submit a proposal for bringing a change into the system, for which votes are accepted later. This on-chain governance includes the following roles:
People who have purchased DOT tokens can submit a proposal for any change they want to impose in the network and can vote on proposals submitted by others.
Council members are elected by DOT holders. Council members have two main responsibilities; they can propose referendums for the network and can dismiss any referendum that they think is dangerous for the system. The proposal submitted by any council member requires fewer votes for approval than those by ordinary DOT holders. Any DOT members can register themselves to be considered for the council. Any council team only lasts for a period of seven days.
Technical committee members are voted by council members, and the committee consists of those people who are actively participating in building Polkadot. The technical team has the power to make special upgrades in case of emergency.
Native Token (DOT)
Polkadot’s native token is DOT, which is the eighth-largest cryptocurrency. This token legalizes functions such as staking, governance and bonding parachains to relay chains of the network.
DOT holders can monitor changes in network fees and the addition/removal of parachains. Whenever a new parachain is added, DOTs are bonded and are only released when the parachain leaves the network. This process is called bonding, during which DOTs are unavailable for use. DOTs can be purchased and traded on popular cryptocurrency exchanges.
Of all the popular blockchains, Polkadot is seen mostly comparison with Ethereum because of the similarities between the two. However, Polkadot is leading the game by presenting the most viable solutions. Developers can leverage Polkadot’s interconnected blockchain ecosystem to create and deploy projects quickly. Below is a table of a brief comparison of Polkadot against other popular chains.
Polkadot is facing the challenge of maintaining the surge it received after its launch and is striving to fend off its competitors. Polkadot is not the only network that is in the race to improving scalability and interoperability, but other competitors are also in the line. For example, Dfinity claims to provide answers to scalability and Wanchain is working on interoperability improvements. Cosmos is known as one of Polkadot's biggest competitors, as it has been finding solutions to blockchain interoperability since 2014.
Polkastarter is a decentralized exchange platform of Polkadot, launched in late 2020 to facilitate cross-chain token pools and auctions. Polkastarter exchange supports new projects to uplift their capital and provide investors with an intuitive user interface for purchasing tokens.
The market cap of Polkadot surged since its launch. Its mission is to be recognized as a decentralized platform that performs value transfer and data verification in a trustful manner. DOT is one of the cryptocurrencies available on the Capital.com platform for trading through contracts for difference (CFDs). CFDs allow you to speculate on DOT prices without actually purchasing the token. If you expect a price increase, then you can make a large investment, otherwise, you can go short when the price falls but still it would be a win-win case for you!
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