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What Is Polkadot?

Leading developers and analysts have created a cross-chain system designed to ensure the interoperability of all blockchains – Polkadot. Thanks to it, you can quickly transfer assets and data between blockchains. Therefore, this project is of great importance for the entire crypto industry. Let’s take a look at the Polkadot network features and try to understand what awaits this ambitious project in the future. 

What is Polkadot?

Polkadot is a unique project that has already been named one of the significant successes in blockchain and DeFi. According to White Paper, Polkadot refers to a cross-chain framework for Web 3.0.

In other words, it is a kind of bridge that connects different blockchains. With its help, several distributed ledgers can be a single whole, maintain communication and transfer important data. Also, such actions will help to combine the advantages of all chained protocols.

Typically, blockchains operate on their own due to their unique design and other vital parameters. Therefore, their capabilities are small. DOT blockchain solves this problem and creates a secure ecosystem for chains to work in tandem.

The dApps developers have several reasons at once why it is worth paying attention to Polkadot. This network solves several problems at once: blockchain scaling, customization, and the ability to update chains using a unique programming language, as well as interaction and chain management. 

Who created Polkadot, and when?

Co-founder and former chief developer of Ethereum Gavin Wood are behind the creation of this network. He wrote the code for the first version of the site, created a mathematical description of the DOT (formal specification), and created a particular programming language for writing smart contracts – Solidity.

Before creating Polkadot, Wood left Ethereum in the winter of 2016. In his opinion, the project didn’t meet the expectations of the chief developer. Therefore, he decided to create a better and more promising solution.

The idea to launch a cross-chain platform appeared in the summer of 2016. Then Gavin Wood was waiting to release a document that explains the principles of sharding in Ethereum 2.0. He fired up the idea of ​​creating a simplified version of ETH. Therefore, Wood joined forces with developer Marek Kotevicz, and by the fall of 2016, they had prepared a draft White Paper for the future DOT.

By the way, even while working in Vitalik Buterin’s team, Gavin Wood created EthCore company. Somewhat later, it received its current name – Parity Technologies. Here, essential products were created – the DOT network itself, the Parity multi-sig wallet, the Substrate framework, and the Parity Ethereum client.

Also, the founder of Polkadot is hugely interested in the development of protocols for the decentralized Internet network – Web 3.0. To this end, Gavin Wood and Peter Chaban founded the Web3 Foundation. It’s intended to stimulate the creation of unique solutions for the third web.

Also, the Web3 Foundation played the role of a controller during the ICO in October 2017. Then Polkadot raised a record $145 million.

What problems does Polkadot technology solve?

The new network, according to the developers, can solve the most critical problems of the blockchain:

  • Scalability: 1st generation blockchains are not capable of handling hundreds or even thousands of transactions per second. What can we say about the much larger volumes that may be in the decentralized future? These blockchains also operate on the principle of “one node – one transaction.” Therefore, such a network will not be able to grow further;
  • Isolation from the outside world: blockchains operate separately, so it’s impossible to ensure two different networks’ compatibility.

How does Polkadot work?

The Polkadot blockchain consists of three main components:

  • Relay Chain: The main DOT chain that links the individual blockchains in the network. It’s a pool of validators responsible for adding and verifying blocks. 
  • Parachains: They are individual blockchains. They carry out operations and transfer data about them to the original chain. Collators are responsible for creating these network elements.
  • Bridge Chain: An element that unites blockchains that don’t use the DOT protocol (Bitcoin, Ethereum, Litecoin, Tether, and others).

Also, network users are divided into four types according to their duties:

  1. Validators accept new blocks and attach them to the blockchain. A certain deposit must be paid for each transaction, which is returned if the transaction meets the consensus rules. Besides, they receive a reward for confirming blocks.
  2. Nominators provide the validators with the correct rate to add blocks. For this, they can act on behalf of the validators. Therefore, here we can talk about a certain level of trust.
  3. Collators are individual network participants who collect transactions and confirm new blocks through the PoV (Proof-of-Validity) algorithm. For this, collators receive a reward, the amount of which depends on the parachain. Thus, the work of these participants is similar to what miners do in PoW or PoS networks.
  4. Fishermen are a kind of “keepers” of the network. They will receive a reward for catching fraudulent users. To get such a role, you also need to place a bet.

Consensus in the relay chain is achieved through two mechanisms: the production of new blocks (BABE) and the finalization of old ones (GRANDPA). This separation solves the problem of expanding protocols that provide for instant finalization. Thanks to this, new blocks are created faster, and more and more validators can take into account in reaching consensus.

Let’s analyze each algorithm in more detail. In the BABE algorithm, a separate validator (slot leader) gets the right to create a new block in the relay chain within a certain period. Blocks consist of the headers of all accepted and valid blocks in the parachain. And a particular random function selects validators for their release. In this regard, the algorithm resembles a similar mechanism in the Cardano network – Ouroboros Praos.

The GRANDPA finalization mechanism involves voting for the highest block considered valid. In this case, we need to vote for all the predecessors of a particular bloc. If he got more than ⅔ of the validator votes, he is finalized. However, the GRANDPA algorithm allows multiple blocks to be finalized together, supporting a much larger set of validators than other mechanisms.

The GRANDPA mechanism is now used for all individual blockchains on the Polkadot network. For providing the finalization algorithm, the parachain gets interoperability with other chains. Through this trade-off, DOT creates an easy way of communication where a single chain’s collators can act together via message queues.

Despite the identical finalization algorithms for all parachains, they can use different block generation methods. So, algorithms differ in a set of parameters that are optimized for specific applications on the blockchain.

In this regard, it’s worth mentioning the Parachain Development Kits. These are special tools that simplify the development of specialized custom blockchains. One such solution is the Substrate framework; it includes built-in practical implementations of block generation algorithms. And to connect the chain on Substrate with the DOT network, another solution is used – Cumulus. All PDKs greatly simplify the creation of parachains and their connection to the Polkadot blockchain.

Also, the bandwidth of the parachains depends on the block creation algorithm. The number of transactions processed may vary, so the Polkadot network’s overall figures can only be approximated.

Let’s do this using the example of the first version of DOT. It is designed for 100 parachains. If each of the processes at least 10 operations per second, then the entire blockchain processes at least 1,000 transactions per second.

The Polkadot versions to be launched in the future will allow the individual chain to act as an L2 relay circuit with additional chains connected. All of these will form a tree structure that, in theory, provides unlimited bandwidth.

At the same time, on a specific network, the main Relay Chain will become the “limiter” of blockchain efficiency. However, this will be done to validate the input message queue’s processing because the parachains communicate with each other directly. Some analysts believe that the new structure will expand the DOT network to 10,000x a single Proof-of-Stake blockchain.

What functions does the DOT token perform?

The internal network token is DOT. It has four main functions:

  1. Managerial: Asset holders have control over the protocol. They have the rights that miners also have in PoS and PoW networks. For example, voting for new ideas and changes in the network, adding and removing individual blockchains, and determining the commission structure.
  2. Operational: The consensus algorithm works thanks to tokens precisely. After all, DOT holders bet a certain amount to participate in the work and fulfill a specific role.
  3. Reward: active Polkadot members receive it in the form of tokens.
  4. Creation of parachains: for this, DOT tokens are bonded – a temporary transfer of assets to the public network. Suppose the parachain is no longer helpful or is no longer supported. In that case, it is removed from the distributed ledger, and the associated tokens are returned to the parallel chain creator.

How is the Polkadot project funded?

As we already said, during the ICO in 2017, the developers raised $145 million. It was the largest token sale in history. However, the money received was not enough to create the essential capacities. Therefore, in the summer of 2019, the Web3 Foundation sold an additional 500,000 DOT tokens openly. The estimated market cap of the blockchain has since grown to $1.2 billion.

At the end of July 2020, developers got another $43.6 million through a private token sale. 

How is the Polkadot project developing?

The history of DOT began in November 2018. Then the Substrate platform was launched. It was intended to stimulate the blockchain’s development and allow corporate users to launch their own distributed ledgers quickly.

At the end of summer 2019, the developers presented the Polkadot – Kusama “proving ground.” This site’s task is effortless: creating parachains with further testing of their functionality in actual conditions. Kusama used Proof-of-Authority to achieve this, and the Web3 Foundation was directly responsible for the set of capabilities for validator nodes. At the same time, there were few network functions.

In February 2020, the Chainlink project completed the first stage of integration with the DOT network. The Polkadot team called this an essential milestone as they planned to add Chainlink decentralized oracles to the ecosystem. They are needed to enforce smart contracts and keep dApps running correctly.

DOT parachains were the first places outside the Ethereum ecosystem to use Chainlink oracles. However, before the mainnet launched, they were served by the Kusama network.

In early spring 2020, the Web3 Foundation decided to provide a grant to develop a bridge solution for connecting the BTC and DOT blockchains. It was won by Interlay, which will develop the XCLAIM framework. It was based on the BTC bridge parachain. The framework will allow the issuance of a stablecoin backed by bitcoin – PolkaBTC. Thanks to the interoperability of the DOT network, these assets can be sent to other individual blockchains. After “burning” tokens in the BTC parachain, users will receive the same amount of Bitcoin or DOT currency equivalent.

May 26, 2020, was a turning point in the history of the network. The developers have launched the first phase of the Polkadot mainnet. After that, the blockchain began to support the Proof-of-Authority algorithm fully. And the owners of DOT tokens were able to create a node or propose a validator.

After the launch of the mainnet, the Web3 Foundation guaranteed the stability of the validator nodes and the proper confirmation of new blocks. The company also had the right to tamper with the distributed ledger when a critical need arose. These measures were designed to minimize potential network security breaches.

At the same time, the ability to transfer DOT tokens was never implemented. Therefore, analysts call the first phase of the mainnet a beta version of Polkadot. 

Post-Mainnet Launch Events

In parallel, the developers conducted audits and finalized the final aspects of the leading network. As a result, in mid-June 2020, the DOT network switched to the Nominated Proof-of-Stake algorithm. Also, a connecting bridge between the BTC and Polkadot blockchains was presented at this time.

A few weeks later, the DOT developers released a joint statement with Cosmos and Terra. They announced a future release of the Anchor DeFi protocol. With its help, users will receive interest on deposits issued in Terra tokens.

On July 20, 2020, the Web3 Foundation ceased administering the Polkadot blockchain. A majority vote took the decision. At that time, 197 validators were working on the network. Therefore, block validation switched to a decentralized model – Proof-of-Stake (PoS), and most of the issued Polkadot tokens were incorporated in the algorithm.

The new system was tested. After that, the decision to restrict the powers of the Web3 Foundation was approved. Moreover, the supervisory module Sudo was removed, and the DOT network moved to the third and fourth phases of development.

On July 27, 2020, the developers summed up the results of a new vote of validators. They determined that the Polkadot token should have 10 billion equal shares – Planck. At the same time, 1 old DOT token is equal to 100 new ones. It is worth noting the fact that the founders of the blockchain did not participate in the vote.

A sharding testing solution, Rococo, was also launched. It will test protocols for ensuring communication between shards. Individual blockchains “tick,” “trick,” and “track” are currently available on the network. At the same time, developers will be able to connect their parachains.

At the same time, the developers warned about the instability of Rococo and assured users that they would add new code before deploying the leading network. 


Let’s sum it up. Polkadot is deservedly called one of the crucial achievements in the field of blockchain. This network offers more decentralized solutions for building dApps that are compatible with other technologies.

Besides, the DOT token can significantly increase in price. Four factors facilitate it:

  • user activity;
  • solid and healthy hype around Polkadot;
  • an increase in the number of parachains in the network;
  • participation of significant developers.

But one moment makes all the crypto community wonder: will the developers carry out all their plans? Some investors believe that interest in Polkadot may be temporary until a more promising project appears. However, DOT has been working for a very long time and managed to gain a foothold in the top 10 cryptocurrencies in capitalization.

There is also an opinion that investments in projects based on the Polkadot protocol can bring much more income than the main network itself. But at the same time, you need to assess the risks of such investments correctly.

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