With a new all-time high price for bitcoin, regulatory talks that might have a big impact on the industry, and increased institutional support from big businesses, bitcoin is now more popular than ever.
Meanwhile, thanks to everyone from veteran investors like Elon Musk to that high school student on Facebook, interest in cryptocurrencies has increased this year, making it a hot issue among investors and popular culture. Let’s discuss Polkadot, one such cryptocurrency. We’ll discover more about Polkadot’s operation, its importance to the cryptocurrency market, and the projects that use it in this piece.
What is Polkadot?
A network called Polkadot uses dots to link all other networks together. It is regarded as a multi-chain network because it may link networks together, unlike Bitcoin, which operates independently.
Its ultimate objective is to act as a foundation for any blockchains that decide to take part, much as how HTML enables the communication between webpages, browsers, and servers.
To free up developers’ time to focus on creating dapp and smart contract features, bitcoin mining processes that are time-consuming and expensive are taken care of (such as transaction validation and security protocols). One of the most recent is Polkadot, which made its debut in 2020 and has several distinctive technical components to support it in achieving its challenging goal.
The Polkadot team asserts that transactions may be kept secure and precise by using this strategy while only using the CPU power required to maintain the main chain. The advantage of being able to design a vast number of parachains for various purposes belongs to users, on the other hand. The Polkadot team claims that this architecture will enable users to carry out transactions more effectively and covertly, leading to blockchains that can handle more transactions or not divulge user data to the public network.
History of Polkadot
The Web3 Foundation, led by Gavin Wood, an Ethereum co-founder, developed Polkadot. This project was inspired by the need for a platform that could run several chains in a decentralised, parallel fashion while also advancing to new network technologies. This led to the development of this open-source project. It makes it possible for blockchain networks to talk to one another.
Polkadot Coin Structure
- Relay Chain: The base Polkadot chain is the relay chain that connects each of these distinct Polkadot chains. They might thereby naturally address interoperability issues along these connection routes.
- Parachain: This is the term for the parallelized chains that traverses the Polkadot network. These assistance systems scales by performing tasks in parallel.
- Bridge Chain: Blockchains that do not use Polkadot’s governance methods are connected through the bridge chain.
How does Polkadot work?
The relay chain used by the Polkadot platform uses a proof-of-stake consensus algorithm. The DOT coin grants validators voting power, enabling them to participate in the development and decision-making of projects. Furthermore, when validators have a financial interest in the legitimacy of the verification process, the DOT token can be utilised to link them and encourage them to act honourably in the network.
This makes it possible for anyone placing a wager on DOT to prevent the token from being used in a contract to carry out one or more of the necessary functions:
- Validating roles: They verify the accuracy of the data in the para chain blocks. Additionally, they participate in the network’s consensus-building process and cast votes for suggested changes.
- Nominating roles: They protect the relay chain by appointing reliable validators and entrusting them with their staked DOT tokens. They used this method to cast their votes.
- Collecting roles: Nodes maintaining thorough records for each para chain and append information about the parachains’ transactions to blocks to add them to the relay chain are called collecting nodes.
- Fishing roles: They keep an eye on the Polkadot network and alert the validators to improper behaviour.
The official network token for Polkadot is DOT, just as ETH and BTC are for Ethereum and Bitcoin.
The token’s goals include the following:
- Governance: Token holders have complete authority over the protocol. The holders can handle tasks including choosing fee schedules, making protocol changes, and adding or removing para chains. The participation feature of the protocol will be hard coded.
- Operations: Without proper maintenance of the consensus process, the Polkadot coin system will not function as intended. Holders of DOT tokens are required to participate actively to avoid being penalised for subpar performance.
- Bonding: To be eligible for rewards for active involvement, validators must bond (stake) DOT tokens to the new para chains.
Advantages of Polkadot
- Polkadot can talk to other networks – Ethereum (ETH) currently has the largest programmable blockchain in the cryptocurrency sector. According to the State of the Dapps, more than 80% of decentralised applications (Dapps) are developed on its network. Unfortunately, despite the cryptocurrency’s quick growth, the Ethereum network hasn’t been able to keep up. Until Ethereum 2.0 is implemented, the system will be slow, crowded, and expensive (Eth2). Additionally, it cannot work with other networks.
- Polkadot’s para chains reduce congestion – Before this, we discussed traffic and speed. With para chains, Polkadot addresses these problems. Each app has its mini blockchain (or para chain) that connects to the main chain rather than having them all on the same network. This means that the performance of other Polkadot blockchain apps won’t be affected if demand for one application increases.
- It had gained almost 800% since its launch – When DOT was initially traded in August 2020; each coin cost $2.76. According to the source, CoinMarketCap valued it at $33.58 at the time of writing, an increase of 800% in less than a year. Before falling by more than half in the most recent cryptocurrency price decline, it hit an all-time high of $49.69 on May 15. If you’re considering purchasing Polkadot, consider whether you believe the currency will be valuable over time.
As we come to a close on this topic, I must state that Polkadot is gathering momentum as a project that aims to decentralise the web by connecting blockchains and enabling them to communicate, allowing new applications like (DeFi) services to develop.