Why is POLKADOT changing the world

Learn about the unique Polkadot ecosystem, its vision and possibilities it currently offers, as well as DOT functions.

What is Polkadot?

Simply put, Polkadot is an open source, blockchain-based platform, (or a project), aiming to solve the problem of interoperability between all individual blockchains (meaning new, well established, permissioned, permissionless, private or public ones), decentralized applications (Dapps) and even oracles by offering a “Layer 0” solution. This translates to Polkadot’s main goal: building a secure web, freeing internet users from central authorities and enabling them to take back ownership of their digital data by creating said ecosystem of interconnected blockchains, services, Dapps etc. In this ecosystem, Polkadot functions as sort of a “blockchain of blockchains” (= Layer 0).

Polkadot states its mission clearly:

We envision a Web where our identity and our data is our own — safely secured from any central authority.

There exist many different blockchains with their respective crypto projects which are often time addressing similar problems, all functioning in isolation. Polkadot proposes that through interconnecting individual blockchains, crypto in general will become easier to use (e.g. cross-chain transactions, computation or registries) and its users more independent on any central authorities, third parties or institutions. The fact that Polkadot is able to transfer arbitrary data, not only tokens, across blockchains, makes it a true multi-chain application environment enabling all above-mentioned functions and operations.

To make things easier, Polkadot’s platform makes it very easy to create and especially deploy your own blockchains, Dapps or services. Kusama is Polkadot’s “Canary” network for early stage deployments and radical innovations. It is not a test-net in traditional sense, it is already a host to some economic value and conditions (which is not typical for most test-nets). It’s tagline “Expect chaos. No promises.” says it all. It’s good to see a company that recognizes the importance of experimentation in order to progress and improve, while embracing its risks.

Behind the project

Polkadot is the flagship project of Swiss foundation Web3 Foundation. Dr. Gavin Wood, Ethereum co-founder and Parity Technologies co-founder, along with Robert Habermeier and Peter Czaban (which are both also widely known names in the crypto community) started working on this project in 2016, releasing first draft of whitepaper in October.

Polkadot’s first initial coin offering (ICO) was held in October 2017, but it wasn’t until 2019 the first version of what would become the Polkadot codebase was released. This first version was the already mentioned Kusama network, which has served as a canary network since its launch.

When Polkadot’s genesis block launched in May 2020, the project functioned on proof-of-authority consensus mechanism. However, it quickly evolved into proof-of-stake network and today, it uses nominated proof-of-stake protocol to select validators and nominators to maximize blockchain’s security.

How does Polkadot work?

We have already established the goal of the project and the role it wants to play in achieving it. But how does this Layer 0 solution, blockchain of blockchains, work in reality?

The core of Polkadot’s ecosystem, which is responsible for cross-chain interoperability, security and consensus, is called Relay chain. Relay chain is the foundation upon which other blockchains are deployed and built.

When a blockchain decides to become a part of Polkadot’s ecosystem and connect to the Relay chain, it will, in the context of the network, become a Parachain. Parachain is any sovereign blockchain connected to the Relay chain continuously. If a project (blockchain) doesn’t need to be connected to the Relay chain all the time, it can be more economical for it to become a Parathread. Parathread is very similar to parachain, only it works on pay-as-you-go model.

To connect to external networks like Bitcoin or Ethereum, Polkadot uses a specialised blockchains called Bridges. For the purpose of the simplicity of this article, it’s sufficient to perceive Bridges as special connections allowing interoperability with external networks.

Polkadot’s unique consensus protocol has four roles:

  • Validators, who secure the Relay chain by validating proofs from Collators, staking DOTs and participating in consensus with other Validators.
  • Collators, who maintain specific shards (shard = Parachain or Parathread) by collecting shard’s transactions and producing proofs for Validators.
  • Nominators, who nominate Validators and vouch for them. By nominating trustworthy Validators, they help secure the Relay chain and, additionally they also stake DOTs.
  • Fishermen, who monitor the network and report bad behavior to the Validators. Any Collator or parachain’s full node can perform this role.

Hopefully this explanation gives you a basic idea how the inner mechanics of Polkadot’s system work. For the sake of the article, most information was simplified. If you want to learn more, I highly recommend reading Polkadot’s whitepaper and/or lightpaper.

DOT token

Last but not least, let’s tackle the topic of Polkadto’s token: DOT. Unlike Bitcoin for example, there is no set maximum supply of DOT, it is an inflationary token. The inflation rate is designed to be around 10% annually, manifested from Validators’ and Nominators’ staking amounts.

The initial DOT allocation was 10 million tokens, but following network’s redenomination, it was increased to 1 billion tokens. The sole purpose of the redenomination was to make calculations easier by avoiding the use of small decimals.

DOT currently serves three key and distinct functions in the ecosystem:

  • Staking, which was already mentioned several times. DOT can be staked for operation and security of the network. The underlying mechanism, making the network more secure, is incentivized by game theory, argues Polkadot.
  • Governance. All DOT holders have the option to vote on network’s decisions or propose them themselves (even network upgrades and similar). This ensures that the whole project is truly community governed.
  • DOT can be Bonded. New parachains are added by bonding certain amount of DOT tokens in order to create the connection with the Relay chain.

Key takeaways:

Polkadot aims to unite whole network of individual blockchains, allowing them to work together seamlessly at scale.

The project was founded by Ethereum co-founder Dr. Gavin Wood, Robert Habermeier and Peter Czaban.

The system functions using Relay chain as its heart and parachain or parathreads as its individual shards.

Polkadot’s consensus mechanism has four roles: Validators, Collators, Nominators and Fishermen.

DOT, Polkadot’s token serves three purposes: Staking, Governance and Bonding.

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Bringing you news, updates, predictions and analysis from CryptoHunters in compact, easy-to-digest format. We run on transparency and passion: cryptohunters.tech

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Marek Holovský

Marek Holovský

Undergrad student, crypto and blockchain enthusiast working for Crypto Hunters. I write stories.

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