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In recent years, many blockchain projects have focused less on specialised applications and more on general infrastructure-related improvements. Among these is Polkadot (DOT), one of the most successful efforts to develop the underlying technology that drives decentralised applications (dApps). Here’s a learning guide to Polkadot, how it works, and why it is crucial to crypto advancements.

What is Polkadot (DOT)?

Polkadot is a blockchain technology developed by Switzerland’s Web3 Foundation, which is dedicated to the development of an open-source, fully-functional, and user-friendly decentralised web. The Polkadot network is the idea of Gavin Wood, a founder member of Ethereum. Frequently, Polkadot is referred to as the ‘Ethereum Killer.’

Polkadot’s most significant feature is its interoperability, which connects a vast network of purpose-built blockchains and enables them to function smoothly with one another via ‘parachains’. It is also meant to be quick and scalable through the use of many parallel blockchains or “parachains” that alleviate a significant portion of the processing needs on the main blockchain. The network also enables blockchains to be upgraded without the need to fork the chain, a process that previously took months and sometimes divided the community.

DOT is a native token of the Polkadot network that serves two primary functions: a governance token that gives holders a voice in the protocol’s future, and it’s used for staking, which is how the Polkadot network verifies transactions and issues new DOT. As part of an investing plan, DOT can be bought and traded on exchanges like CoinSpot, Binance and Coinbase.

How is Polkadot structured?

The structure of the Polkadot network. Image: Polkadot

The relay chain, parachains, parathreads, and bridges are the most critical components of the polkadot network.

Relay chain: It is the central communication hub across parachains and is responsible for the network’s shared security, consensus, and interoperability between chains.

Parachains: These are independent blockchains that will operate atop the Relay chain. Each parachain can have its tokens and be optimised for a particular purpose.

Parathreads: This is a more economical variant of the parachain, which is identical to the parachain but is leased out for brief periods of time to blockchains that do not require constant network access.

Bridges: Work is in the progress of constructing bridges across blockchains like EOS, Cosmos, Ethereum, and Bitcoin, allowing tokens to be traded without a central exchange.

Unlike other blockchains, Polkadot is not attempting to create a niche that will rival or compete with other cryptocurrency networks; instead, it is trying to create a secure, trusted, easily deployable, and upgradable environment in which different blockchains can cooperate and benefit from one another.

How does Polkadot work?

President of the Web3 Foundation and co-founder of Ethereum and Parity Technologies, Gavin Wood, first conceived of Polkadot and launched it in 2020.

As stated on their website, Polkadot “unites [an] entire network of diverse blockchains into a single ecosystem.” The network’s mission is to make it easier for software developers, entrepreneurs, and businesses to use blockchain technology in a way that is beneficial to their products and services.

Polkadot is a “multi-chain” network, which means it combines many chains into one. The network of Polkadot standardised data across its relay chain so that it can be comprehensible to all systems.

Individual blockchains that link to Polkadot and operate in parallel with it are known as “parachains.” Parachains have access to the network’s Proof-of-Stake (PoS) validation.

What are the benefits of Polkadot?

There are several reasons why developers want to investigate the Polkadot ecosystem. Due to the limitations of existing blockchains, it is evident that there are several fundamental concerns that must be resolved: scalability, customisation, interoperability, governance, and upgradability.

Polkadot performs admirably in terms of scalability. It functions as a multi-chain network, enabling the concurrent processing of transactions over several separate chains. This eliminates one of the greatest obstacles now facing blockchain technology. Parallel processing is a substantial enhancement that can pave the path for further blockchain adoption on a global scale.

Polkadot offers a variety of additional customisation options. Polkadot enables any individual chain to have its design optimised for its specific usefulness since each has its unique demands and requirements. Using Substrate, developers can effectively adjust their separate chains to the project’s needs.

On the subject of interoperability, the smooth sharing of data between projects and apps is a significant feature. There are various prospective use cases, but it remains to be seen what kind of products and services this will provide. It can establish a new financial ecosystem, with each unique parachain handling a specific component.

Any community linked with a particular parachain can regulate their network according to its preferences. Moreover, all communities are essential to Polkadot’s future administration. Collecting community feedback can give significant insights that evolve initiatives over time.

Additionally, Polkadot makes it very simple to modify specific parachains. There is no need for hard forks since they might cause communities to divide. Alternatively, the original chain can be improved without friction.

How does staking work on Polkadot?

How does staking work on Polkadot? Image: Polkadot wiki

In contrast to Bitcoin’s proof-of-work approach, Polkadot employs a proof-of-stake consensus technique to protect the network, verify transactions, and issue and distribute additional DOT. There are numerous methods for DOT holders to interact with the staking system, depending on the amount of time, money, and technical expertise they are willing to invest.

The validation process is time-consuming and needs technical expertise. To become a validator, you must operate a node with little downtime and stake a significant quantity of your DOT. In return, you can validate legal transactions, add new “blocks” of transactions to the relay chain, and possibly receive freshly minted DOT, a portion of transaction fees, and tips. On the other hand, you may risk losing part or all of your staked DOT if you have malicious behaviour, make an error, or experience technological issues.

Nominators enable normal investors to stake their tokens indirectly. It’s possible to delegate a portion of your DOT to a validator you believe will adhere to the rules. In exchange, you receive an amount of the DOT earned by the validators you select. If your validator violates the rules, you may lose a part of your stake.

Additionally, two specialised roles often demand less effort than being a full validator, but more technical expertise than is needed to be a nominator: Collators record valid parachain transactions and forward them to relay chain validators. Fishermen assist in identifying and reporting network-wide improper conduct.

You may be eligible for DOT prizes if you stake and participate in the network in any of these roles. DOT holders can also vote on planned software improvements and have a role in the network’s administration.

What is Polkadot crypto worth?

Polkadot price history. Source: CoinMarketCap

Over the past two years, DOT’s team has increased its capabilities, collaborated with new projects, and devoted significant resources to promote the network. Like Bitcoin and several other currencies and tokens, DOT reached its most recent ATH in November of 2021.

Following its high in November 2021, the token fell to $26.72 by the end of the year. In 2022, a series of crashes – most notably, the collapse of the FTX crypto exchange in November – caused DOT to fall to a 52-week low of roughly $5, before falling further in December to end the year at $4.31, representing a yearly loss of more than 80%.

In 2023, there was a resurgence, with the price surpassing $5 on January 9 and stabilising around $4.90 on January 11. According to CaptainAltcoin, the price of DOT might fall to $3.45 by March 2023 before rising to $7.01 in January 2024. Polkadot is predicted to trade for $37.81 in 2025, but the price may fall to $10.73 within five years.

In circulation at that time were more than 1.15 billion DOT out of a total amount of 1.270.814.926. This gave the coin a market valuation of around $5.66 billion, making it the fourteenth biggest cryptocurrency by that metric. 

What is Polkadot’s future?

Many consider Polkadot one of the most promising networks of the future since it seeks to provide a foundation for various uses. Though the project is still in its infancy, several events suggest that its outlined route might become the norm for value exchange.

Polkadot may or may not become the platform of choice for creating blockchain-based apps, given that Ethereum has released enhancements that solve many of the same problems. Nonetheless, what is especially advantageous is the combination of Polkadot’s Substrate development tool and the underlying fundamental technical benefits, which might attract a great deal of development on the network.

Polkadot can process around one thousand transactions per second. Polkadot’s transaction throughput has a possible top limit of 1 million transactions per second.

Polkadot asserts that the parachain concept is more trustless and decentralised than layer-2 scaling methods alone. Numerous teams have already developed parachains. Thus, this ecosystem’s future seems bright. On parachains, millions of transactions have been conducted as of 2022.

FAQs about Polkadot

Where is Polkadot available?

The DOT cryptocurrency itself is unavailable on both centralised and decentralised crypto exchanges. The tokens shown on these exchanges are DOT-backed tokens issued on a separate blockchain. On exchanges such as CoinSpot, Binance, Kraken, Coinbase, and Gemini, you may buy pegged DOT. DOT is not generally available on decentralised exchanges such as SushiSwap and UniSwap. If you own DOT, you can store it in various crypto wallets such as Ledger, Polkawallet, Fearless and Polkadot-JS Plus.

How does Polkadot differ from Ethereum?

Ethereum, the second largest blockchain in the world, and Polkadot share certain similarities. However, the two blockchains differ in several other ways. Here are some shared features and differences between Polkadot and Ethereum:

How many chains can Polkadot connect?

Polkadot’s network is scalable by design, so there is no exact limit on the number of chains it can connect. The basic Polkadot design will support dozens, if not hundreds, of parachains. There are various avenues leading to upgraded models. There is no reason, for instance, why Polkadot cannot be created recursively so that some of the chains it links are “mini Polkadots.” If this were to be implemented, it would be impossible to envisage a cap on the number of chains it could join and, hence, the volume of transactions it could handle.

Is Polkadot crypto a good investment?

It’s difficult to say how much it will rely on the market’s future performance. In unpredictable cryptocurrency markets, conducting your research on a coin or token is essential to assess whether it is a suitable addition to your investment portfolio. Whether DOT is an appropriate investment depends on several criteria, including your risk tolerance and the amount you plan to invest. Remember that previous performance does not indicate future results; invest only what you can afford to lose.

Final thoughts

On paper, Polkadot has several qualities that make it appealing to developers. It is an ecosystem that serves individual programmers, small enterprises, and major organisations. The ability to install and modify blockchains tailored to individual requirements is a unique and helpful notion for the whole crypto industry.

However, Polkadot is still a relatively young ecosystem. There may be dozens of initiatives under development, but it will be some time before the first major projects launch. According to PolkaProject, hundreds of projects are now under development, including wallets, infrastructure initiatives, tools, DApps, and more.

Regarding DOT, the Polkadot developers have said that this is not a token created for speculation. Despite having a monetary value on exchanges, it is primarily meant for the previously mentioned objectives.