The decentralized finance industry has risen to global prominence and power in the crypto market in 2022. While DeFi was hogging the limelight, sharded multi-chain networks were quietly gaining traction in the background. Polkadot is one among the front runners, and many consider it to be a worthy challenger to Ethereum.
Polkadot has only been around for six years, yet it has already made significant headway on its ambitious plan. This ambitious open-source project even has its own cryptocurrency, which is currently one of the top ten digital assets in terms of market value.
If you’re looking for a vacation from the DeFi craziness, this Polkadot review might be just what you’re looking for.
What is Polkadot?
Polkadot is a sharded open-source protocol aimed at providing a decentralized platform for a variety of trustless, permissionless processes. It was created to make the applications that the current state of blockchain technology allows easier to implement. Its fundamental purpose, moreover, is to power the next stage of internet evolution, Web 3.0, once it is implemented.
Polkadot offers “full interoperability” between blockchains, as well as a forkless platform that allows users to construct smart contracts, tokens, and even new blockchains.
The Polkadot network also aspires to connect private and public blockchains, as well as oracles and other decentralized applications. Its goal is to create a user-friendly hub where individuals and organizations can freely communicate while using transparent and secure services.
The DOT cryptocurrency is Polkadot’s native coin, and it serves three purposes. It gives holders governance rights and can be used for staking and bonding purposes.
The Web3 Foundation, a Swiss non-profit based in Zug’s “Crypto Valley,” is the driving force behind the Polkadot initiative. Polkadot will be developed by Parity Technologies of the United Kingdom, which will also be responsible for its long-term maintenance.
Dr. Gavin Wood, who is best known as the co-founder of Ethereum and the creator of Solidity, is a co-founder of both the Web3 Foundation and Parity Technologies.
How does Polkadot works?
Polkadot is a highly complicated network with in-depth mathematical linkages that can easily elude the untrained eye. Understanding the underlying mechanisms behind the Polkadot network necessitates a thorough understanding of blockchain technology. We won’t go into great detail about the subject, but we will try to explain Polkadot in a simple manner.
Polkadot is a blockchain network based on two fundamental components:
- The Relay Chain – The Core Polkadot blockchain
- Substrate – A blockchain-building tool and framework developed by Parity Technologies.
Parachains are the blockchains that connect to Polkadot. There are two ways for these chains to gain access to the Polkadot ecosystem.
For starters, a blockchain developed with Substrate can link directly to the Relay Chain.
Second, a blockchain like Bitcoin or Ethereum, which were created long before the Substrate existed, can use a bridge to connect to the Relay Chain.
Parachains have complete autonomy over how they deviate from the Relay Chain. They are free to create their own tokens, consensus processes, and governance systems.
Two key aspects are also used in the Polkadot consensus mechanism:
GRANDPA stands for “GHOST-based Recursive Ancestor Deriving Prefix Agreement,” a type of Proof of Stake (PoS) consensus technique also known as Nominated Proof of Stake.
BABE is an acronym for “Blind Assignment for Blockchain Extension,” a type of Proof of Work consensus mechanism.
The two systems work in parallel and are linked by the network users’ actions, which are split into four categories:
Let’s take a look at each one and see what role they play on the platform.
By staking DOT tokens, users on the Polkadot network can become validators. They are randomly allocated to examine the transactions on the parachains before adding them to the Relay Chain after being nominated through PoS.
At least five validators are required for each parachain, and the Polkadot network can support up to 200 parachains and their simultaneous activities at optimal speed. For each transaction that it confirms, each validator receives a certain number of “era points.” The highest number of era points belongs to the most active validators.
The validators receive 20% of the block rewards based on their era points when a new block is added to the Relay Chain. The Polkadot Treasury receives the remaining 80% of block rewards.
The Polkadot Treasury is a “stockpile” that collects monies from transactions in order to use them as incentives in network proposals in the future. Validators who violate the network’s regulations risk losing up to 30% of their shares.
On the Polkadot blockchain, Validators are chosen by Nominators. They accomplish this by “delegating” (voting) DOT tokens to Validators. Nominators can nominate up to 16 Validators and get a share of the block rewards that these Validators receive.
Remember that each Validator receives block rewards that are proportional to the number of transactions they have verified from parachains (for the sake of simplicity). This encourages Nominators to stake their DOT on Validators who contribute the most to the Polkadot network.
The Polkadot network’s collators construct blocks on the Relay Chain’s parachains. These blocks contain the most recent transactions that have taken place on the particular parachain. Validators will choose the block that is most likely to be an accurate depiction of a parachain’s current state.
The ‘winning’ parachain block’s transactions are subsequently added to a Relay Chain block. To join their blockchain to the Relay Chain and become a parachain, collators must stake DOT.
The Polkadot network’s “police force” is the Fishermen. They stake a tiny amount of their DOT tokens to keep an eye on the platform’s validators and collators.
A fisherman can earn a lot of money in DOT if he or she finds and reports a user who has broken the network rules.
What makes Polkadot unique?
Polkadot can move data between public, open, permissionless blockchains and private, closed, and permissioned blockchains. Developers can now create applications that pull permissioned data from a private blockchain and use it on a public blockchain.
Polkadot is a game-changing technology for building interoperable blockchains. It has a high level of decentralisation, scalability, and security. Furthermore, its Substrate platform effectively democratises the building of new blockchains, which benefit directly from its solid design. Not to mention its built-in auction system, which is a huge plus for both investors and creators. It acts as a parachain crowdfunding platform, rewarding investors for putting their faith in their favourite project.
Polkadot has a bright future ahead of it. It has the potential to succeed where others have failed, by laying a solid Web3 foundation for the decentralised internet’s future.