Polkadot

What Is Polkadot?

Polkadot is an open-source sharded blockchain protocol built to connect permissioned and permissionless chains, oracles, and future Web3 technologies. It aims to create an interoperable climate that allows these blockchain protocols to send and receive any form of data.

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At its core, Polkadot protocol is a translation architecture that allows users to combine, decentralize, and scale blockchains as needed. Since networks comprised of a single blockchain are limited in the number of transactions they can process in a set period of time, they were impossible to implement into real-world applications without the use of Polkadot.

Polkadot works by connecting multiple blockchains into a single network called a Relay Chain, forming a web of single-unit chains that can be used to run specific tasks without running out of computational power.

As a meta protocol, Polkadot creates an ecosystem where blockchains can function in a larger and more complex climate, eliminating all the bottlenecks associated with distributed ledger systems.

This transforms it into an internet of blockchains – an interoperable and independent ecosystem of blockchain protocols that grants direct access to the decentralized economy.

Key Facts About Polkadot

  • Polkadot is a layer-0 meta blockchain protocol that layer-1 networks can build on. These protocols are called parachains (parallel chains) that depend on Polkadot’s Relay Chain to facilitate continuous operation.
  • Polkadot works as a translation system that enables these parachains to connect, decentralize, and scale effortlessly.
  • By design, blockchain protocols are singular and siloed in their operations, making it difficult for them to handle multiple transactions and transfer real-time data. Polkadot resolves this by integrating these multiple blockchains into single-unit chains, allowing them to process multiple transactions in a parallel manner without running out of computing resources.

In addition, Polkadot can anonymously update its code base without requiring a fork. A fork is a blockchain protocol event where a blockchain is split into two separate units.

The 2016 Ethereum hack, which led to the network split into Ethereum Classic and Ethereum (ETC), is a classic example of a blockchain fork.

Polkadot can upgrade its codebase and make bug fixes without forking, as these events are triggered by on-chain governance by its online token holder community.

At the core of this protocol is the Relay Chain, serving as the bedrock of security and consensus.

On the surface, Polkadot’s Relay Chain seems like a centralized operation, but this is not the case. Polkadot is a fully decentralized and transparent blockchain framework.

All connected blockchains can vote on protocol upgrades, features, and fixes to the codebase using the DOT token, which underlies the Polkadot network.

What Makes Polkadot Unique?

Polkadot brings to life the once elusive Sharded technology, which the Ethereum blockchain has grappled with for years. Sharding involves breaking transactions into smaller fragments and distributing them across the network.

This separation of processing power while making it a contained operation has seen it scale its operations effortlessly.

Often regarded as an Ethereum competitor, Polkadot operates on four crucial components. These are;

  • Relay Chain
  • Parachain
  • Parathreads and,
  • Bridges

Polkadot’s Relay Chain is at the ‘heart’ of the multichain network. It is responsible for ensuring consensus or agreement between the ecosystem of blockchains. It also enables interoperability (cross-transfer of data amongst protocols) and provides shared security across the Polkadot universe of blockchains.

Parachains are independent layer-1 blockchain protocols. They have full control over their development process and community without intervention from the Polkadot network. Parachains operate on a fixed connectivity system which expires after two years.

Parachains have their custom tokens, which are duly optimized for specific use cases. Since they are independent, parachains can support several features like smart contracts, zero-knowledge (ZK-snarks), and UTXO transactions, should developers choose to implement them. The allocation of parachains slots is usually a competitive process that occurs every two years.

Parathreads are also independent next-generation layer-1 protocols, but they operate on a flexible connectivity system. They are largely temporary networks that rely on Polkadot’s pay-as-you-go economic model to thrive.

Lastly, Bridges are crucial in information transfer between Polkadot and other ecosystems. This feature allows parachains and parathreads to share data between Polkadot and other metaprotocols like Ethereum.

Polkadot relies on a variant of the next-generation consensus mechanism proof-of-stake (PoS) called Nominated PoS (or NPoS). This is designed to be both scalable and highly energy-efficient in its operation.

According to Crypto Carbon Rating Institute (CCRI) report, Polkadot has one of the lowest carbon emissions among PoS protocols.

This figure stands at an impressive 33.36 tCO per annum. This is way lower than the 934.77 tCO that the Solana blockchain emits at the same time.

Who’s Behind the Polkadot Project?

Polkadot’s V1 began operation in May 2020, but the deployment of its Genesis block on the Relay Chain for parachains took place in December of the following year. Genesis block is the first transaction recorded on a blockchain protocol.

The Polkadot project is a by-product of the Web3 Foundation, a Swiss-based blockchain development hotbed created and led by Dr. Gavin Wood.

Wood, a renowned English computer scientist, boasts blockchain-related experience following his time as a co-founder of the Ethereum blockchain.

Undoubtedly, Solidity stands out as one of his greatest accomplishments, as it is the main programming language for developing Ethereum smart contracts.

Wood was also keen on transitioning Ethereum to a PoS system due to the limited throughput the inherent Ethereum network offered.

He believed that Sharding technology coupled with the PoS system would significantly enhance Ethereum’s scalability.

However, fellow co-founder Vitalik Buterin was of a different opinion. This ideological difference led him to create the Web3 Foundation and later develop the Polkadot network.

Besides Wood, Polkadot boasts another duo of blockchain tech experts,   Robert Habermeler and Peter Czaban. Habermeler is a Thiel Fellow with a research and developer background in distributed systems and cryptography.

On the other hand, Czaban comes from an engineering background with a Master’s degree in that field. He is currently the Technology Director of Web3 Foundation, where he focuses on new-generation distributed systems.

Polkadot is not without its admirers.

The layer-0 blockchain protocol has attracted investments from prominent venture capital (VC) firms like PolyChain Capital, Nirvana Capital, Krenex Capital, Distributed Global, Andreas Schwartz, and others. The interoperable blockchain raised over $140 million from investors in 2017 during its initial coin offering (ICO) stage.

Besides Polkadot, popular Ethereum infrastructure developer Parity Technologies is also a by-product of the Web3 Foundation.

What Does Polkadot Aim to Solve?

Following the launch of Ethereum in 2015, its eight founders quickly discovered that the proof of work (PoW) consensus mechanism was slow and more expensive to operate. Gavin Wood’s Polkadot is a direct response to these issues identified with the Ethereum blockchain.

Polkadot has the following features:

Operates Using Sharded Technology

Sharding is a technique where a blockchain company partitions a database to increase its scalability and throughput. The general idea is to break transactions into smaller units (shards) across the network. Each shard comes with distinctive data that separates it from the others in the network. With the task spread across many units, it cuts down on blockchain wait times and unburdens the main system from overloads.

Polkadot harnesses this sharding technology to significantly boost its scalability objectives. Within its universe of blockchains, this technology is instrumental in elevating throughput while maintaining a strong emphasis on security.

Multichain Protocol

As a layer-0 meta protocol, Polkadot provides an infrastructure where multiple blockchains can connect and work together seamlessly in a complex environment. This multichain system makes it easy for information to pass from one blockchain to another without any communication backlog. Moreso, interoperability is absent in most blockchain protocols, and Polkadot’s multichain network system makes this possible.

Independent Yet Secure

Polkadot provides a secure and closed database infrastructure for its internet of blockchains to thrive. However, it does not overburden them with any restrictions. Instead, its parachains and parathreads can build their community and networks as they want. Parachains have endless possibilities, creating custom tokens and evolving their use cases as often as needed.

Substrate Framework

Building custom blockchains is not an easy-to-complete task on other blockchain protocols. But this is not the case with Polkadot. With its Substrate framework and systems, blockchain developers can create decentralized applications (dApps) in minutes. These projects can then plug into Polkadot’s Relay Chain seamlessly.

How Does Polkadot Work?

Polkadot creates a connected ecosystem for blockchain protocols to operate. This allows them to access its high throughput, security, and decentralized systems to send and receive value in a trustless environment.

To ensure that transactions are correctly verified, nominators, validators, and collators work together.

  • Nominators: are responsible for securing the Relay Chain from external attacks.
  • Validators: ensure that consensus is attained.
  • Collators: keep records of valid transactions on the parachains and transfer them to the Relay Chain.

The multichain network is also big on its user-based governance system. Polkadot has since changed its voting protocol to align with its decentralization goals.

The current on-chain governance model has elements of centralization, as the Polkadot Council of Executives has unchecked veto powers, including how the protocol’s treasury is spent.

The new on-chain governance will work as a “referendum” where anyone can submit proposals and approve them if supported by most token holders. Moreso, there will be anonymity and decentralization of powers across the entire network.

The DOT Token

Polkadot is powered by the DOT token, which is currently one of the world’s top 50 most valuable cryptocurrencies.

DOT is available for trading on both spot and margin trades on most centralized crypto exchanges.

Besides being a speculative instrument for investors, DOT has several other key roles to play in the connected universe of the Polkadot network.

DOT Use Cases

  • DOT serves as a payment mechanism for users on the Polkadot network. With this digital asset, users can buy block space and settle transaction verifications which is a network fee on the Bitcoin network.
  • It is an asset that plays a crucial role in parachain allocation events. When a blockchain seeks a parachain slot, DOT tokens are deposited into the Polkadot network. The highest DOT raised by competing blockchains gets the spot at the end of the auction period.
  • DOT is a powerful governance mechanism for the Polkadot ecosystem. The digital asset holders get to make and vote on network proposals. This allows them to be part of the Polkadot community and have a say in the network development in the long term.
  • As a PoS system, DOT can also be staked to secure the network. Staking involves locking up assets to maintain network security and integrity to create more tokens. In return for staking, users are often rewarded with newly created DOT tokens.

The global crypto staking market is worth over $18 billion, according to Blockworks. DOT token accounts for $2.9 billion in locked funds, according to crypto staking website Staking Rewards. It has a staking ratio of 48.11%, at the time of writing, which makes it the sixth most staked PoS asset by market cap.

The Bottom Line

Polkadot is the first fully-sharded multichain network. It provides a scalable, secure, and decentralized ecosystem where layer-1 blockchain protocols can create and transfer value amongst themselves through its Relay Chain.

The multichain protocol is the ideal solution for decentralized applications of the future to work with. While it may not have reached its full potential yet, Polkadot is one to watch out for in the future.

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Jimmy Aki

A graduate of the University of Virginia and now based in the UK, Jimmy has been following the development of blockchain for several years, optimistic about its potential to democratize the financial system. Jimmy's previously published work can be found on BeInCrypto, Bitcoin Magazine, Decrypt, EconomyWatch, Forkast.news, Investing.com, Learnbonds.com, MoneyCheck.com, Buyshares.co.uk and a range of other leading media publications. Jimmy has been investing in Bitcoin himself since 2018 and more recently in non-fungible tokens (NFTs) since their boom in 2021, with expertise in trading, crypto mining and personal finance. Alongside writing for Techopedia, Jimmy is also a trained economist, accountant and blockchain…