Those who closely follow the cryptocurrency market probably know about Polkadot and its native token, DOT. Now ranking #10 in terms of market cap, Polkadot is an ambitious project that intends to lay the foundation for a multi-chain Web3 future. And to carry out this mission, the latter aligns a serious team with a solid roadmap. Let’s deep dive into everything you need to know about Polkadot in 2021 as well as moving into 2022.
Polkadot: What is it really?
The Polkadot crypto project was dreamed up and developed by Parity Technologies whose leaders are Gavin Wood and Jutta Steiner. This company was born in 2015 and was in charge of a node software for Ethereum at the beginning. Then, Parity Technologies decided to withdraw to create Polkadot and Substrate. It should be noted that the Web3 Foundation also supports this Polkadot project.
The foundation’s mission is to promote applications and technologies in the sector of decentralized protocols, especially those based on modern cryptographic techniques in order to stabilize the Web 3.0 ecosystem. The Polkadot project really started in November 2017 when the first code was published on Github. Then, in mid-2018, two proof-of-concept algorithms were released. And in July 2018, the company developed the first parachute.
The role of Polkadot is to aggregate a network of interconnected blockchains. Its primary goal is to put an end to the problems of current blockchains that can’t really communicate. To do this, the project aims to design an internet where blockchains will be able to easily and freely exchange and share information, and do so securely. In other words, Polkadot offers the ability to transmit arbitrary data through blockchains.
How does Polkadot work?
The Polkadot platform allows the creation of communities of which the different cryptocurrencies that join the project will be part. In other words, these can have specific alliances and work together, but by different groups or teams. It is interesting to note that each of these communities will have the ability to decide what its own governance system will be. They can also be changed to adapt them to the preferences of the community.
Another main feature offered by Polkadot is that, with respect to this creation of communities, forks can be made without having to completely split the network. Parallel projects have arisen several times with Bitcoin hardforks, in which the need to implement changes and the disagreement on the measures to be taken led to a real war of opinions in the crypto community. There are even some people who think that some of the forks are the real Bitcoin because their changes in the protocol are closer to the original idea of the creator, Satoshi Nakamoto.
Polkadot’s Native Token (DOT)
The native token of the Polkadot network, DOT, has several functions. DOT can be used for governance, to participate in the validation of transactions, and to connect a parachain to the Polkadot Relay chain.
As a governance token, the DOT allows holders to influence the future and development of the protocol. Such governance-related actions can involve fees, adding or removing parachains, or technical concerns, like enhancements or improvements. DOT owners can also submit proposals for the general membership to vote on.
Polkadot works through a variant of the proof of stake called Nominated Proof of Stake. The NPoS consensus sets a number of validators who will participate in the production of blocks, while token holders can stake their DOTs to nominate a validator.
Finally, DOTs can also be used to participate in the auction of parachain slots. When a slot is auctioned, projects wishing to acquire it must bid on it. If they do not have enough cash to win the auction, then they can take out a form of an equity loan from the community. Currently, a little more than 1.1 billion DOTs have been issued and 63% of them are staked on the network in order to participate in the validation and collect the rewards.
Key Strengths of Polkadot
Let’s find out in simple and clear terms what the main features of this innovative cryptocurrency are:
1. Interoperability
This term means the ability to interact with a wide variety of blockchains, all within the Polkadot system. Many blockchains are “closed” systems, not allowing communication with other systems. The DOT token serves precisely to overcome this limitation, as in the Polygon Matic, by providing the ability for everyone to interact without limits.
2. Scalability
One of the main limitations of Ethereum but in Polkadot, it is possible to distribute transactions (digital payments in the first place) on a large number of parallel Blockchains. The experience of its manager Gavin Wood allowed us to solve this critical problem that characterizes the old cryptocurrencies and brilliantly overcome it with innovative and secure solutions. At the moment, Polkadot can handle 1,000 transactions per second (TPS) and when it is fully operational, it is expected to handle over 1,000,000 TPS as compared to Ethereum’s 15-45 TPS.
3. Security
As far as security is concerned, those who want to invest in Polkadot can count on a highly secure system because it is based on “centrally” regulated validations. Thus, although they operate on different blockchains, the transactions are validated in a fast and secure way.
4. No Hard Fork
Another big advantage for Polkadot is the ability to improve the network and resolve errors without having to create expensive hard forks. Everything can be done without risk, as long as valid and potentially interesting updates are available for token development.
Polkadot vs Cosmos
The Cosmos Project (ATOM) defines itself as an ecosystem of independent blockchains that aims to be the foundation for the next generation of the Internet.
The development of the Cosmos project is primarily led by Tendermint Inc, a private for-profit entity, while the funding for the development comes from the Interchain Foundation, a non-profit organization based in Switzerland.
Instead of fostering division between the various existing crypto-assets, Cosmos wants to bring them together. To do this, the project wants to ensure that interoperability between the different blockchains is promoted and the “Internet of Blockchains” is created. The ATOM token is the native cryptocurrency that powers the Cosmos ecosystem.
Which Project Has The Biggest Growth Potential?
Cosmos and Polkadot are sometimes put in comparison when we talk about interoperability. While both projects are aiming to provide a more scalable and efficient future for crypto, their uses differ. Polkadot is more security-focused while Cosmos is more focused on adoption. In terms of market cap, Cosmos does have a larger room to grow since it is much smaller in size with a market cap of ~$8B while Polkadot has a market cap of ~$37B.
Final Thoughts
The Polkadot protocol is an innovative project. It is an evolving network thanks to all the developers who will use and develop its services and tools. It is interoperable and facilitates connections and exchanges between all the blockchains that make up the world of cryptocurrencies today. It secures its core chain by integrating the new generation of proof of authority via Byzantine breakdowns, and via its trusted governance.
This network offers the possibility for an entire ecosystem to gravitate together around it. Led by Dr. Gavin James Wood, one of the most well-known personalities in the blockchain world. We are sure that this ecosystem has not finished developing. The way of working and thinking around this project is not the creation of new technology, but this project tries to bring an improvement solution to what already exists.
However, the next big step is to compete against rivals (such as Cosmos) by constructing the most seamless and transparent offering in this growing decentralized financial eco-system.