Plethori Explains Why Polkadot
The most robust platform for security, scalability and innovation.
Abstract
Polkadot is a next-generation blockchain protocol connecting multiple specialized blockchains into one unified network. Designed as part of a broad vision for a web that returns control to individuals over internet monopolies, Polkadot builds on previous blockchain networks’ revolutionary promise while offering several fundamental advantages.
The Polkadot base layer builds on a scalable proof-of-stake protocol, focused on interoperability, open-communities and upgradability.
In this article, we dive deep into the Polkadot protocol and discuss its purpose, goals and mission, as well as Polkadot’s features, architecture and tokenomics.
Additionally, we’ll discuss how Plethori will benefit from utilizing Polkadot and why the team has picked the Polkadot as the protocol of excellence to deliver the most exciting decentralized cryptocurrency ETF platform to date.
However, before we dive deep into Polkadot, let’s first explain why consensus protocols matter and why choosing the most suitable algorithm and architecture is critical for long-term success.
A Summary of Consensus Protocols
In simple terms, the Proof-of-Work consensus mechanism converts energy into hashing power. The more hashing power a network has, the more secure it is. Besides, the more miners (network validators) running the PoW algorithm, the more decentralized and secure the network is.
In contrast, Proof-of-Stake only requires nodes to purchase or receive the coin and commit it (stake the coin) to validate transactions. The key advantages of PoS over PoW are:
- PoS is better for decentralization. It does not require stakers to purchase hardware.
- PoS staking mechanism blocks attackers. If an attacker tries to revert a transaction, they lose their stake.
- PoS does not require an asset outside the system (electricity) to maintain security.
Essentially, while PoW is a fantastic system for long-term immutability, it requires a constant burn of energy that adds an extra cost to maintaining the protocol. Therefore, due to Polkadot’s goals and mission, it makes sense that the project adopted PoS since it promotes decentralization and scalability.
Why Is Polkadot Beneficial?
All blockchains make different tradeoffs to support specific features and use cases, and as chain specialization increases, the need to transact between them will only increase over time.
Polkadot is a sharded blockchain, meaning it connects several chains in a
a single network, allowing them to process transactions in parallel and exchange data between chains with security guarantees.
Thanks to Polkadot’s unique heterogeneous sharding model, each chain in the network can be optimized for a specific use case rather than being forced to adapt to a one-size-fits-all model.
Therefore, we argue more chains and more specialization equal more possibilities for innovation.
Polkadot: Parachain Everything!
Polkadot is a scalable heterogeneous multi-chain. Essentially, it serves as a base layer for all blockchain to interoperate and “talk” to each other.
This means that, unlike previous blockchain implementations, which have focused on providing a single chain of varying degrees of generality over potential applications, Polkadot itself is designed to provide no inherent application functionality at all. Instead, Polkadot provides the bedrock “relay-chain” upon which a large number of validatable, globally coherent dynamic data structures may be hosted side-by-side.
We call these data structures “parallelised” chains or parachains, though there is no specific need for them to be blockchain in nature.
Why Polkadot
One blockchain isn’t enough to support a bustling future of decentralized applications.
The limited throughput and lack of runtime specialization in early blockchains made them impractical for scaling in many real-world use cases. Polkadot allows various transactions to be processed in parallel by bridging multiple specialized chains together into one sharded network. This system removes the bottlenecks that occurred on earlier networks that processed transactions one-by-one.
Polkadot will scale even further in the future with a planned feature known as nested relay chains, which will increase the number of shards that can be added to the network.
Polkadot’s Features
Polkadot was conceived to be easily upgradeable and flexible, providing on-chain and cross-chain composability to give its users the power of all blockchains in a single ecosystem.
Updates to the protocol happen fork-free via transparent on-chain voting, so protocol development never stalls due to the lack of a straightforward process. DOT tokens are used to participate in governance decisions, including tabling proposals, voting, and bonding.
Parachains are free to design their governance mechanisms, allowing for maximum freedom without affecting other parachains.
Upgradeability
Early computer games were shipped on printed circuit boards known as cartridges. These cartridges were expensive and time-consuming to make as the code was etched onto the chips, leaving no room for error.
These days we’re used to our apps, games and browsers frequently updating, even automatically. Developers fix bugs before they can cause problems, and new features are added as better solutions become available.
Like all software, blockchains need upgrades to stay relevant. However, it’s far more challenging to upgrade a blockchain than an app, game, or browser. Upgrading conventional blockchains requires forking the network, often taking months of work, and particularly contentious hard forks can break apart a community.
Polkadot revolutionizes this process, enabling blockchains to upgrade themselves without
the need to fork the chain. These forkless upgrades are enacted through Polkadot’s transparent on-chain governance system. With this feature, Polkadot enables projects to stay agile, adapting and evolving with technology’s pace. It also significantly reduces the risk associated with contentious hard forks — a severe barrier to many organisations’ entry.
Cross-Chain Composability
Early blockchains were like walled gardens closed off to other networks. But as the number of chains for specific use cases continues to rise, so does the need for cross-chain communication and interoperability.
Polkadot’s cross-chain composability and message passing allow shards to communicate, exchange value, and share functionality, opening the door to a new wave of innovation.
Polkadot’s ability to bridge blockchains and Polkadot shards will also interact with popular decentralized finance protocols and crypto-assets on external networks like Ethereum.
Governance
Early blockchains had no formal governance procedures. Individual stakeholders were powerless to propose or veto protocol changes unless they knew the right people.
Polkadot is different. It’s governed by anyone who owns DOTs, Polkadot’s native currency, fairly and transparently.
All DOT holders can propose a change to the protocol or vote on existing proposals. They can also help elect council members who represent passive stakeholders within Polkadot’s governance system.
Polkadot’s Architecture
Polkadot unites a network of heterogeneous blockchain shards called parachains. These chains connect to and are secured by the Polkadot Relay Chain. They can also connect with external networks via bridges.
Relay Chain
The Relay Chain is responsible for the network’s security, consensus and cross-chain interoperability. The Relay Chain works as the main Polkadot blockchain.
Parachains & Parathreads
Sovereign blockchains that can have their tokens and optimize their functionality for specific use cases. To connect to the Relay Chain, parachains can pay as they go or lease a slot for continuous connectivity. Similar to parachains, parathreads work alike only as a pay-as-you-go model. Parathreads are more economical for blockchains that don’t need constant connectivity to the network.
Bridges
Unique blockchains that allow Polkadot shards to connect to and communicate with external networks like Ethereum and Bitcoin.
Substrate
Substrate is a framework, making it easy to create a custom blockchain optimized for each individual case.
Substrate is fully modular and flexible: mix and match ready-made components and build core business logic while leaving the rest to the framework. Plug-and-play modules like consensus, networking and finality give developers the freedom to focus on your specific area of expertise, saving you substantial time and effort in the development process.
Thanks to Substrate’s forkless upgrades and transparent governance tools, developers can add new features over time without fear of splitting the network. Risk-free upgrading means a blockchain can grow and evolve with the pace of innovation and ever-changing market needs.
Substrate also comes with native support for connecting to Polkadot right out of the box.
Polkadot’s Consensus and Governance
Validators
Secure the Relay Chain by staking DOTs, validating proofs from collators and participating in consensus with other validators.
Nominators
Secure the Relay Chain by selecting trustworthy validators and staking DOTs.
Collectors
Maintain shards by collecting shard transactions from users and producing proofs for validators.
Fisherman
Monitor the network and report bad behavior to validators. Collectors and validators can play this role.
Council Members
Elected to represent passive stakeholders in two primary governance roles: proposing an agenda and to veto dangerous or malicious actors. Council Members secure the Relay Chain by staking DOTs, validating proofs from collators and participating in consensus with other validators.
Technical Committee
Composed of teams actively building Polkadot. Can propose emergency referenda, together with the council, for fast-tracked voting and implementation.
Tokenomics
Staking
Game theory incentivizes token holders to behave in honest ways. This mechanism rewards good actors whilst bad actors will lose their stake in the network. This ensures the network stays secure.
Bonding
Bonding tokens add new parachains. Outdated or non-useful parachains are removed by removing bonded tokens. This is also a form of proof of stake that awards validators a reward for providing bonding services.
Governance
Polkadot token holders have complete control over the protocol. All privileges, which are exclusive to miners on other platforms, will be given to the Relay Chain participants (DOT holders), including managing exceptional events such as protocol upgrades and fixes.
Team
Polkadot is a project developed by Parity Technologies, and the Web3 Foundation commissioned it.
Founded by Ethereum co-founder Dr Gavin Wood and former Ethereum Foundation Head of Security Dr Jutta Steiner, Parity is a global team of top distributed systems engineers, cryptographers, solutions architects and researchers.
Parity has fundamentally shaped the blockchain industry, from building the highly-adopted Parity Ethereum client and implementations of Bitcoin and Zcash to developing the next generation of blockchain technology Substrate and Polkadot.
Summary & Conclusion
Polkadot will enable a completely decentralized web where users are in control.
Polkadot is built to connect private and consortium chains, public and permissionless networks, oracles, and future technologies that are yet to be created. Polkadot facilitates an internet where independent blockchains can exchange information and transactions in a trustless way via the Polkadot relay chain.
Polkadot makes it easier than ever to create and connect decentralized applications, services, and institutions. Hence, Plethori will benefit from low transaction fees, composability and integration with other chains, which is extremely important for ETF constituents’ rebalancing, as well as the chance to adopt a novel blockchain protocol that solves a significant number of issues of its contenders.
About Plethori
Plethori is a Cryptocurrency ETF Investment Platform that allows open trading and creation of trustless ETFs by utilizing blockchain technology and layer 2 solutions. The platform offers decentralized cross-chain investment for exchange-traded funds built on the Ethereum and Polkadot blockchains. This service will allow investors to deposit capital and invest in a wide range of ETFs enabling investment into entire cryptocurrency industries such as insurance, oracles, NFTs, Derivatives, Polkadot ecosystem projects and many more.
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