Created by Ethereum co-founder Gavin Wood in 2016, Polkadot is a next-generation blockchain that aims to connect various specialized blockchains into a unified network. Its design primarily addresses the issue of scalability that has crippled blockchain networks, leading to slow transaction processing time and higher fees.
To delve deeper into the design of Polkadot and how it serves as the framework for all blockchains, read more about it below!
What is Polkadot cryptocurrency?
Unlike Bitcoin that can operate on its own, Polkadot can unify networks together which is why it is popularly referred to as a multi-chain network. It is a blockchain that lays the groundwork or environment where other blockchains—also known as parachains—can interact with each other safely.
Think of it as the programming language HTML of all blockchains where websites, servers and browsers can work alongside each other.
In this way, developers can operate their projects across multiple blockchain platforms, allowing them to reach more users. They will also be in full control since Polkadot gives developers the freedom to customize features they deem important for their project.
What makes Polkadot revolutionary from other cryptocurrencies is that it seeks to reduce the complexity and cost of mining processes including security protocols and transaction validations. It lets developers focus solely on developing blockchain-based applications for better transparency and privacy.
How does Polkadot work?
To better understand how the entirety of Polkadot works, you first need to understand its structure, governance and consensus mechanism.
Within the Polkadot platform, the creation of three types of blockchain takes place, including:
- The Relay Chain
The relay chain is the main Polkadot blockchain that provides security for sharded blockchains and transaction validations using a system of validators.
To obtain faster speed, the relay chain sets apart the addition of new transactions from the process of validating them. Consequently, the network is able to complete approximately 1,000 transactions per second.
Parachains are known to be the heart of the Polkadot network. They are customized, project-specific blockchains that allow developers to run them with their own set of regulations. Meaning to say, parachains can have various features and functions with their own token and governance which can be used in DeFi platforms or privacy gaming.
Moreover, they use the relay chain’s computing resources to verify that transactions are processed accurately.
This is the part of Polkadot that enables the network to connect with other blockchains, such as Ethereum and Bitcoin. These bridges will allow users to exchange assets without using central exchange platforms.
Polkadot is known to have a structure of governance where every user influences how the software should be run. Before a change in the system is implemented, a user should first submit a proposal which will be subject to a votation.
Here are the three types of Polkadot users:
- DOT holders
DOT is the native cryptocurrency token of the Polkadot network which serves three purposes such as bonding, staking and governance over the system. Any user that buys DOT can take advantage of their tokens to submit proposals and reject or approve changes filed by other DOT holders.
The council members are elected by DOT holders. They are mainly responsible for representing DOT holders, proposing referendums and rejecting proposals that are deemed harmful to the network.
Moreover, for as long as you are a DOT holder, you can register to be an official part of the council. Once the candidates are established, the members will be elected using an algorithm from the pool of nominations. Typically, a council term will only last for a week.
- Technical committee
The technical committee comprises members that have significant and active contributions to the creation of Polkadot. They are elected by the council members and have the power to speed up changes and upgrades during an emergency.
NPoS (Nominated Proof-of-Stake)
Polkadot uses a nominated proof-of-stake system as its consensus mechanism. To enhance chain security, it comes with the following roles:
Validators are responsible for securing the network by executing full verification of the relay chain and validating parachain blocks. In addition, they engage in consensus and election on the submitted proposals and changes for the network.
Fishermen act as the police force of the Polkadot network. They keep an eye on the system and report invalid transactions to validators. A fisherman will be rewarded if the report turns out to be correct. However, if they are mistaken, they might end up losing their role within the relay chain.
Known as the full nodes of the relay chain, collators store a comprehensive history for every parachain. Because of this, they are capable of relaying information from one parachain to another.
Benefits of Polkadot cryptocurrency
Because of how the Polkadot network is designed, it serves plenty of purposes that go beyond the sending and receiving of funds. It can be used across industries to help them facilitate various blockchain projects, connect with other blockchain platforms and fast-track the processing time.
Here are the top benefits of Polkadot that you should know:
Like what was previously mentioned, Polkadot was created out of the need for scalability. For instance, a single blockchain can only handle a certain amount of traffic. However, since Polkadot has a sharded multi-chain structure, it can process numerous transactions on parachains which provides greater speed within the system.
Another problem that Polkadot aims to address is the issue of governance. The system has an on-chain governance functionality that allows the Polkadot community to run the network according to their needs.
As a result, the users of the DOT holders can assess new ideas to enhance the overall state of the network.
Without the need for centralized providers, networks and applications that run on Polkadot can now exchange and share information. Because of this, developers can make way for novel services that can let users exchange information and data without much trouble.
Moreover, this attribute has helped financial institutions to communicate real-world data including the stock market.
The future of Polkadot: What happens next?
There is no doubt that Polkadot was a success when it was first released in the crypto market. In just a short time, it ranks as the top 10 cryptocurrency with a market cap of US$26,791,834,167 as of writing.
However, it still has to face tight competition among other next-gen blockchains that also focus on scalability and governance.
Today, developers are finding ways to improve the overall system. According to the Polkadot launch roadmap, Web3 Foundation will launch Polkadot in Proof of Authority mode. This will allow most users to claim tokens from their Ethereum contract, as well as stake tokens. Moreover, Polkadot intends to release several parachains in 2021, giving the cryptocurrency a competitive advantage within the crypto sphere.