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Polkadot: Everything You Need To Know

The Polkadot coin remained in the shadows for a long time and didn’t draw attention. But at the end of May 2020, the Web3 Foundation released the final version of the mainnet. Hence, the summer began more than fine for Polkadot (DOT) – the cryptocurrency rose to the top 10 at Coinmarketcap. The phrase “Ethereum killer” is often used to describe the new coin. While the developers claim that Polkadot doesn’t compete with Ethereum, experts come to a different conclusion. They believe DOT has the potential to transform the crypto world. Let’s take a closer look at this asset. 

What is Polkadot?

Polkadot is a unique multi-platform that aims to unite all existing distributed ledgers into a single ecosystem. This should solve the main problems of the blockchain sphere – scalability, governance, and interoperability. Independent blockchains and networks based on other architectures can become part of a single base (parachain).

The Polkadot project is run by the Swiss company Web3 Foundation. The best experts in the field of cryptocurrencies were involved in the work. So, the team is led by Dr. Gavin Wood, who also stands at the origins of Ethereum. Scientists from Inria Paris and ETH Zurich, developers from Parity Technologies, and large crypto funds (for example, Polychain Capital) report to him.

Polkadot is based on the internal DOT token. It’ll be discussed in the following sections. For now, let’s talk about the technical side of the project.

Technical features of Polkadot

The Polkadot blockchain consists of a whole set of independent networks – parachains. Besides, they all have a single security system and well-functioning cross-chain communication. By the way, Bitcoin doesn’t meet the basic standards. After all, to connect to a relay chain, you need to have:

  • a mechanism by which quick and small-sized proofs of the completion of new blocks are generated, as well as notifications about a change in the state of the chain (like UTXO in Bitcoin or logs in Ethereum);
  • available verification of transaction execution for independent auditors. Signature verification can play its role according to the Schnorr scheme or a smart contract for structuring logical chains with multi-sig.

The first problem is solved by launching a full node in the Bitcoin blockchain by the Polkadot network validators. But to add a mechanism for independent control over the on-net circulation of BTC tokens, a soft fork is needed. And to use the Schnorr scheme, you need a hard fork at all. Therefore, there’s a minimal chance that developers and netizens will take such a step. 

The Polkadot network has three main components:

  • relay chain: a special logistics system that provides communication and also guarantees consensus building and protection from hackers;
  • parachains: parallel chains of blocks for performing transactions and transferring them to the base system;
  • bridges: a connecting link between parallel blockchains with their own coordination mechanism.

A special protocol is used for protecting the Polkadot network – Nominated Proof of Stake (NPoS). It’s based on the participation of 4 user groups that have various levels of access:

  • Validators. They’re responsible for forming the relay chain and connecting to shards (parachains) to validate blocks and conduct cross-chain transactions. To become a validator, you need to put a certain amount of DOT, which is “frozen,” in the user’s account. Validators are rewarded for their work, but if there were violations, the deposit is not returned.
  • Nominators. This group of users ensures the security of the network. It selects and monitors validators, accepting deposits and receiving a reward for this. At the same time, the nominator’s award directly depends on the activity and honesty of the validators under his control.
  • Collators. They own the full nodes of any parallel blockchain. Such network participants form blocks in their chains and submit them to validators for confirmation, along with proof of transactions. In extreme cases, collators can add blocks to the parachain themselves.
  • Fishermen. They carry out a kind of “people’s audits.” Their main task is to catch dishonest validators, nominators, or collators. To become a fisherman, you must also stake a certain amount of DOT. It’ll be much smaller than for “officials,” but the reward for catching a dishonest user is much higher. But its size still depends on the security deposit.

In this case, a large number of validators are allowed. Therefore, nominators have an incentive to assign users with a clean reputation to this role.

The system uses the BABE block generation protocol and the GRANDPA finalization protocol to create and republish data on the relay chain. Due to this, the creation of a new block at the desired time interval is achieved. In turn, the secure and resilient GRANDPA consensus algorithm ensures the stable operation of the entire ecosystem.

The Polkadot network has a high bandwidth, so random forks are not possible here. Also, the Nominated Proof of Stake protocol doesn’t allow users with a large DOT token balance to control the validator nodes. Thus, the network remains independent.

At the moment, Polkadot fits with blockchains that support smart contracts or Schnorr scheme. First, it’s worth mentioning here Ethereum, which in 2017 launched Metropolis and began the transition to the PoS algorithm.

As for other ecosystems, they can benefit a lot from Polkadot too. Due to the high security of the network, the parachains remain reliably protected. Therefore, developers will be able to focus on innovating.. 

DOT token and its purpose

Now, it’s time to talk about the DOT token and its role in the Polkadot network. The coin has three functions:

  1. Management: the token allows its holder to vote on improvements to the blockchain program code. Without the approval of most DOT holders, developers cannot make major changes to the distributed ledger.
  2. Help reach consensus: for the platform’s correct and stable functioning, activity from the coin holders is needed. It’s about blocking a certain amount of DOT – staking. The amount depends on what role the user will play. Also, tokens are needed to pay rewards to management nodes.
  3. Connection: coins are needed to pay for adding new parallel blockchains or liquidating inactive chains.

A DOT token owner can play one of four roles – validator, nominator, collator, or “fisherman.” We talked about their duties in the section above. The holder can also participate in making decisions that relate to the update of the blockchain protocol.

There are over 914 mln DOT coins in circulation, and the total supply has exceeded 1 bln tokens. Additional assets can also be issued.

Mining

The Polkadot network doesn’t support mining. It’s all about the NPoS consensus algorithm, which provides rewards only from blocked tokens. Hence, the only way to get more coins is to participate in supporting the blockchain’s operation. 

Buying and trading DOT

It is effortless to buy DOT with crypto or fiat as supported by most major crypto exchanges. Some of them did this even before the end of the denomination process. That’s why the head of the Web3 Foundation, Gavin Wood, was accused of wreaking havoc in the crypto community. Besides, he stated that these actions could negatively affect the value of the Polkadot coin.

At the same time, such activity speaks of high interest among traders and investors. Therefore, there’s a hish probability the DOT token may appear on the Binaryx exchange. 

Available storage wallets

Polkadot’s own cryptocurrency wallet with a GUI is not yet ready. Parity developer offers the only way to store tokens. This includes the Parity Signing mobile app for Android and iOS, desktop and web versions, and an extension for Google Chrome and Mozilla Firefox browsers.

Attention! Parity Signer doesn’t currently allow you to see the transaction to sign. Hence, the user risks losing data if he connects to the version of Polkadot-JS created by scammers. Check updates on GitHub

Pros and cons of Polkadot (DOT)

StrengthsWeak sides
An innovative project with great potentialThe network is still under development. 
Easy app integrationThe project doesn’t yet have a significant user base, which is necessary for full-fledged work. 
Highly liquid and functional DOT tokensHigh competition
A development team with years of experience in the crypto industry
High level of security and availability of infrastructure for possible network expansion
Open source code

Prospects of Polkadot

At one time, the Polkadot project held one of the most high-profile ICOs in the crypto industry history. During the initial coin offering, the team raised nearly $145 million. It should be borne in mind that attachments were accepted only from those who could verify their identity.

However, this story also has a negative point: at least 70% of the collected funds in ETH equivalent were frozen on Parity wallets, and it’s not yet clear whether it is possible to restore access to these funds. That’s why the attractiveness of the project for investors is in question. After all, no one knows whether the Polkadot team will have enough funds to create and launch all the network’s technical elements.

Generally speaking, the project’s money situation is rather complicated: investors will receive their tokens only after the blockchain’s full launch. But now, the invested funds don’t exist (at least the aforementioned 70%). It means that the mass of digital currency won’t be backed by real money, and the cost of DOT will drop sharply. And with a general decline in the crypto market, worthless tokens will enter the market.

But if the team manages to complete the project idea with the remaining money, then the drop in the cost of coins will be a unique chance to buy a promising asset below the primary price. But you need to be very cautious with investments, taking into account all the above factors. 

Conclusion

Let’s sum up and try to predict the future of the Polkadot project. The developers have set themselves high goals. Even if it’s impossible to complete all the features, they can be picked up by another project team. Although, Polkadot is now under threat by Cosmos, Wanchain, and even an updated version of Ethereum.

Despite the higher throughput of the Polkadot blockchain than its competitors, it’s too early to talk about a bright future. After all, the declared technical data must be confirmed by real deeds; otherwise, there will be only young and dubious projects among the parachains. Now a few words about investments. DOT coin can bring profit in the short and medium-term prospects. Long-term deposits are quite risky due to doubts about the future of the project. But in any case, you can try and add the asset to your investment portfolio.

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