What is Polkadot? All about the DOT Cryptocurrency

When you research Polkadot, you come across terms such as interoperability, parachain or sharding. In the following, we will explain everything you need to know about the DOT cryptocurrency and how the terms are related to the Polkadot network.

What is Polkadot?

Polkadot was launched by Ethereum co-founder Gavin Wood, who also wrote the protocol for it. The goal is to solve the problem of interoperability. It is therefore about the secure and trustworthy exchange between different blockchains.

Definition

In short, Polkadot is a blockchain network to which developers can attach their own blockchain. The DOT blockchain forms the heart of the network and is called the Relay Chain.

Attached blockchains are called parachains. They benefit from the ability to communicate with other parachains via the Polkadot network. In addition, the Relay Chain offers a secure network that they can also use. This is called Shared Security.

The individual coins of the cryptocurrency of Polkadot are called DOT. These are needed to connect new parachains to the Relay Chain, i.e. for so-called bonding. They are also needed as a governance coin and for the consensus mechanism of the network.

Basic Functionality of Polkadot

Central to this system is the main blockchain (Relay Chain), to which the parachains are connected.

Currently, there is only a limited number of parachains. The individual slots on the Polkadot blockchain are rented out by means of an auction process. The cryptocurrency of Polkadot (DOT) is required for this. The coins used are fixed for the duration of the contract. Unlike staking, however, these do not accrue interest.

Through Nested Relay Chains, the developers want to offer even more slots for parachains in the future. These are nested relay chains that make it possible to run an almost unlimited number of blockchains based on the relay chain.

Blockchains that have rented a slot receive the possibility to write their status (state) into the Relay Chain. Parachains with a permanent slot can write into every block of the Polkadot blockchain during the term of the contract.

In addition to the parachain slots, there is also the possibility to write data into the Relay Chain with so-called parathreads. This is less expensive than operating a parachain, but does not offer a continuous connection to the network. Transaction costs are paid in DOT.

The consensus mechanism used is called Nominated Proof of Stake (NPoS). For this purpose, different tasks for verification in the consensus finding are taken over by the users of the network.

Consensus finding and state communication are clearly separated in the network. This is in contrast to the Bitcoin or Ethereum network, where the separation is not given in each case.

Blockchain Interoperability

In addition to scalability, a lack of interoperability is one of the biggest problems of blockchain-based solutions. This means that different blockchains cannot be linked and interact with each other. The individual blockchains thus form isolated solutions.

Blockchains that are linked to the Relay Chain Polkadot share the same consensus mechanism and can interact via the so-called bridges. This ensures that the blockchains can communicate with each other. Oracles like with the competitor Ethereum are therefore not necessary.

The Technology behind Polkadot

Polkadot has the goal to be a heterogeneous multichain, in which it forms the heart. For this it is also structured somewhat differently than other known blockchains. In the following, we will explain the basic technology behind Polkadot.

Introduction to Polkadot Technology

The Relay Chain is at the center and allows the various parachains to communicate with each other, among other things.

For this, Polkadot needs so-called bridges. These are a special form of parachains and form bridges to other crypto networks such as Bitcoin or Ethereum. This allows you to have a Bitcoin unit in tokenized form, for example, working for you in the Ethereum DeFi space.

Polkadot Protocol

The Polkadot protocol is the technical implementation of the innovative blockchain platform. It includes a set of specific rules, protocols, and mechanisms that are critical to the smooth functioning of Polkadot.

This includes securing the consensus rules. This ensures that the network remains trustworthy and secure. The protocol also enables cross-chain connectivity, allowing different blockchains to interact seamlessly with each other.

It also offers advanced governance models that give DOT token holders a say and influence over decisions within the network. Through these specific rules and mechanisms, the Polkadot protocol enables efficient and reliable operation of the entire platform.

Polkadot Consensus Mechanism

Polkadot uses the Nominated Proof of Stake (NPoS) consensus mechanism. In this, there are four actors who secure the network. The validators, the collators, the fishers and the nominators.

Validators use the DOT coin as a validation node and verify the Relay Chain, as well as the parachains. Together with other validators, they check transactions and reject invalid ones. They also add new blocks to the Relay Chain. Collators take care of the node history of the Relay Chain and the node for their parachain. Fishers (also called Fishermen) are also nodes of the parachain. They monitor the collator process for invalid transactions and report them to the validators. Nominators do not take on an active task in the network. However, the DOT owners still help by choosing good validators. For this they receive a reward in the form of DOT.

Advantages of Parachains and Parathreads

Parachains and parathreads increase the scalability and speed of the blockchain. Through so-called sharding, tasks within the network are divided among them and can be executed simultaneously.

Both basically serve the same purpose. However, parathreads are especially interesting for blockchain projects that do not require a continuous connection to the network. For this, they are billed according to the pay-as-you-go system.

The Advantages of Polkadot

Polkadot offers solutions to problems that even the largest blockchains are still struggling with. In the following, we will go into a few aspects.

Advantages Compared to Traditional Blockchain Networks

The biggest advantage of Polkadot is that it can link blockchains together. For this, no oracles are needed, as for example with Ethereum.

Due to the high profile of Polkadot, small parachains benefit from using the security of the Relay Chain. In addition, it is relatively inexpensive and easy to start a new project with parathreads or a parachain.

The NPoS consensus mechanism offers high speed and ensures continuous DOT replenishment, which in turn leads to high liquidity. This is crucial for a project to be able to continuously provide its services.

With Proof of Stake coins, it is basically possible to stake your coins and receive a reward for it. By means of the Nominater function and the corresponding reward in the form of DOT tokens, an additional incentive is created to participate in the security of the network.

Scalability and Interoperability

With the Relay Chain method, Polkadot offers an interesting way to address the problem of interoperability. It also has an impact on scalability through sharding. Through the links between the blockchains, parallel executions of different tasks on different blockchains are theoretically possible. The speed could thus be increased significantly. The scripts on the respective parachains and parathreads must be executed simultaneously. The result can then be merged again via the Relay Chain.

Facilitating the Development of DApps

With its architecture, Polkadot creates a platform that enables developers to create interoperable DApps. They are supported by the integration of Substrate, a flexible framework for blockchain development. In addition, Polkadot offers an ecosystem of tools, libraries and templates to support developers in their work on their projects and integrate them into the Polkadot network.

Use Cases of Polkadot

Decisive for the success of a blockchain network is that the offered problem solution is also applicable in concrete cases.

Use Cases in Various Industries

Polkadot offers potential applications and benefits in various industries. In the financial industry, for example, Polkadot can serve as the basis for the development of interoperable DeFi platforms that enable the secure and efficient exchange of financial assets. In the logistics industry, Polkadot could increase efficiency and transparency in global supply chains by enabling the secure and trustworthy exchange of information between different parties.

Improving Efficiency and Security

Polkadot could improve efficiency and security in the aforementioned cases through its architecture and governance models. The structure enables high scalability, while the democratic governance system ensures transparent and secure further development of the network.

It thus offers a broad spectrum of decentralized applications that can drive innovation and efficiency in various industries.

Polkadot Price Forecast: how could the DOT Price Develop?

The price for Polkadot has experienced some turbulence in recent years. The highest value of 48.32 CHF was reached in November 2021. Since the end of the bull market, however, the price has fallen sharply. Meanwhile, the DOT price is at 4.60 CHF.

The Security Exchange Commison of the USA (SEC for short) is also suing the crypto broker Binance for selling unregistered securities. Even if Polkadot (DOT) is not itself accused, the cryptocurrency is mentioned together with some others on the indictment, with which the SEC wants to proceed against Binance. Until the case is clarified, this news brings uncertainty into the price development of the DOT coin and could influence its market position.

Should the network continue to grow and the scalability be further increased with the introduction of Nested-Relay-Chains, the project could regain more attention. This could have a positive effect on the Polkadot price. In general, however, the same applies to Polkadot as to other Smart Contract platforms such as Solana or Cardano. The primary goal is now to attract many users to the various decentralized applications.

Buy Polkadot: this is how You Can Invest in DOT

Polkadot (DOT) is one of the best-known cryptocurrencies in terms of market capitalization and can be purchased on numerous exchanges and crypto brokers.

It is important for you to find a trustworthy broker or exchange. You should always pay attention to whether it is regulated before you buy Polkadot or trade DOT. If you don’t want to search for long, CoinPro has created a comparison of the best crypto providers for Polkadot, where you can find the most important information for your decision.

After buying your DOT tokens, you can usually leave them directly in your wallet on the exchange or with the broker – but this should never happen with larger amounts. However, we recommend that you transfer them to a hardware wallet. Because only if you are in possession of your so-called private keys, you have full control over your coins.

Despite the hype and media presence, cryptocurrencies remain a very young technology. Whether and which projects will prevail in the long term cannot be predicted with certainty. Always make an investment with caution and prior research.

Conclusion

With its relay chain model and bridges, DOT creates an innovative solution to the interoperability problem. Through sharding, Polkadot can distribute tasks across different parachains and parathreads, resulting in faster processing. The network could grow with the introduction of Nested-Relay-Chains.

However, it remains to be seen how Polkadot will fare compared to other projects. Nevertheless, it is already clear that Polkadot is working on solutions for scalability and interoperability that could be in high demand.