After posting a massive gain of 26% (in just 24 hours) Polkadot’s DOT token surpassed Ripple’s XRP. As DOT rose from roughly $11 to an all-time high of $14.80, Polkadot became the fourth largest cryptocurrency project by market cap.
Ok, but what is Polkadot?
Polkadot can be thought of as an ecosystem of interoperable blockchains (called parachains). Parachains operate in parallel and transact with each other within a highly scalable framework. In other words, Polkadot is an internet of blockchains.
TLDR
- Polkadot facilitates interoperability, security, and scalability between different types of blockchains
- Interoperability is pivotal for the blockchain industry as a whole
- Polkadot has been nicknamed the ‘Ethereum killer’ (by some)
- DOT trading began in August 2020
What are parachains?
Parachains are individual blockchains. Here are some categories:
- smart contract chains – execute on-chain and cross-chain actions
- layer-1 chains – host decentralized finance (DeFi) DApps
- oracle chains – bridge real-world data to on-chain functions
- identity chains – link personal identity information across chains
- internet of things (IoT) chains – support IoT interoperability
- data chains – data curation across chains
What problems is this addressing?
Currently hundreds of blockchains exist in isolated silos, with little ability to communicate with each other. Polkadot addresses this by providing transparent a framework for interoperability. It is designed to make it easy for older, current, and future distributed ledger technologies (DLTs), to communicate.
“A future of multiple blockchain networks is increasingly likely. Not one chain to rule them all, but a world of diversity where individual chains serve specific use cases and specifications.” Paul Kohlhaas
How does it do it?
I recommend digging into the Polkadot whitepaper to begin understanding this project before investing.
Here are some quick takeaways:
- Polkadot supports multiple blockchains (through parachains) and allows transactions to be processed in parallel #scalability
- Parachains can share information #interoperability
- Parachains can be tailored to a specific use cases #specialization
- Polkadot can be upgraded and new features can be added without overhauling the network entirely #nimbleness
Parachains and staking
As mentioned, Polkadot encourages decentralized interoperability via “parachains”. Parachains can be public blockchains, private blockchains, or other sources of data. The data in the parachain is accessed via specialized nodes and sent to Polkadot. Parachains are then activated by staking DOT tokens, and removed from Polkadot by unstaking these same tokens.
The main chain of Polkadot supports smart contracts. It is secured by a type of DPoS (Delegated Proof of Stake), which Polkadot calls NPoS (Nominated Proof of Stake). The system is made up of nominators and validators: Nominators use their tokens to elect the validators, who in turn validate (mine) the new blocks. If a validator acts maliciously, he is punished along with the nominators who voted for him.
Some initial considerations to keep in mind
- More established incumbents already exist which could limit the extent of the Polkadot’s adoption
- Since it is still in such an early stage, real world adoption and tangible apps have yet to be realized
While I am personally excited about Polkadot’s mission, it remains to be seen whether or not it will live up to the hype.
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