What is Polkadot?
Polkadot is a technology designed to increase the interoperability of different blockchains, such as bitcoin and Ethereum, and merge them into a single multiblockchain. Let’s see how it works!
Who created Polkadot and when?
Polkadot was created by Dr. Gavin Wood, an iconic figure in the early history of Ethereum — he was the co-founder, first CTO and chief developer of Ethereum. Wood developed the code for the first implementation of the platform, wrote its formal specification, and created the Solidity programming language.
Wood left Ethereum on January 11, 2016, to pursue a project capable of meeting the expectations he felt Ethereum had failed to meet
According to Wood, he got the idea for Polkadot in the summer of 2016, while he was waiting to begin implementation on technical documentation on sharding in Ethereum 2.0. Wood began work on creating a “sharded” version of Ethereum as simple as possible in collaboration with developer Marek Kotewicz, and by October 2016 had completed the first draft version of the Polkadot white paper.
While still working on the Ethereum team, Wood and several colleagues founded EthCore, a commercial blockchain technology company. EthCore later changed its name to Parity Technologies. The company’s employees created the Parity Ethereum Client, the Substrate framework, the Polkadot network, and the Parity multisignature wallet.
In the summer of 2017, Wood and developer Peter Czaban founded the Web3 Foundation, a nonprofit organization dedicated to promoting the development of decentralized Internet software protocols.
One of Web3 Foundation’s first tasks was to control the funds raised during the Polkadot ICO, which took place from Oct. 15 to Oct. 27, 2017. The project raised approximately $145 million by selling 5 million native DOT tokens.
What problems does Polkadot technology solve?
Polkadot is intended to address the major issues preventing blockchain technology from becoming a fully functional practical application, such as:
- Scalability: In the presumably decentralized world of the future, so-called first-generation blockchains are incapable of processing large numbers of transactions. For the time being, network nodes process transactions one-to-one. This factor is impeding the growth of the network.
- Isolation: Blockchains remain discrete and independent, lacking two-way communication and interoperability.
How is Polkadot structured?
Polkadot is structured with the following components:
1. Relay Chain — This is the main Polkadot chain that connects all the individual blockchains (parachains) in the network.
2. Parachain is a standalone parallel blockchain that executes transactions and sends them to the source blockchain. Parachemes create collators, which collect user transactions and validate blocks using the Proof-of-Value algorithm. Collators are compensated for their efforts, with the amount varying depending on the parachain. Collators perform similar tasks to miners in blockchains using Proof-of-Work and Proof-of-Stake algorithms.
3. Bridge Chain — designed to connect blockchains that do not use Polkadot control protocols (e.g., bitcoin, Ethereum and Tezos blockchains).
The Relay Chain mechanism manages consensus enforcement, message delivery between participating chains, and transaction completion. Relay Chain is a blockchain with a pool of validators who are assigned the task of adding and validating blocks in various parachmes at random. Validators are required to make a deposit for each transaction. If the transaction satisfies the consensus rules, the deposit is returned and the validator is rewarded. If the rules are broken, the deposit is forfeited.
The relay chain achieves consensus through two mechanisms based on the principle of personal responsibility. One is in charge of block production, while the other is in charge of finalization. Separating block production and finalization addresses scalability issues in protocols with instant finalization (e.g., Tendermint) by allowing for faster block production and more validators to participate in consensus building.
The names of these two mechanisms are acronyms: BABE (Blind Assignment for Blockchain Extension) — responsible for producing new blocks, while GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement) is responsible for finalizing old blocks.
BABE is an algorithm for generating rechain blocks that consists of the headers of all valid and available parachain blocks produced by collators. The BABE algorithm is based on slots (time slots): the right to produce a block in a re-translator chain at a specific time slot is granted at random to a validator known as a slot leader.
The right to create the next block is granted through computation using a verifiable random function. The BABE model is similar to Ouroboros Praos, the block production component of the Cardano consensus protocol.
GRANDPA is a finality mechanism in which each validator votes for the highest block it considers valid (actually voting for all block ancestors).
All blocks that receive more than two-thirds of the validators’ stake votes are finalized. Because multiple blocks can be finalized instantly, validators may take longer to reach agreement on finalization than it takes to create a single block. GRANDPA can thus support a broader range of validators than traditional BFT algorithms, which must finalize each block separately.
Validators are found and approved by the so-called nominators [nominators]. They pay a deposit for the validators, which is forfeited if the behavior of their chosen validators violates the consensus rules. The option to pay nominators distinguishes Polkadot’s Nominated Proof-of-Stake (NPoS) algorithm from traditional Delegated Proof-of-Stake (DPoS) algorithms.
Nominators are not involved in the creation or validation of transactions. Watchdog nodes, known as fishermen, monitor validator violations by identifying (“fishing”) cases of bad behavior, creating evidence containing data about conflicting validator votes, and receiving a share of the violators’ confiscated bets.
GRANDPA can provide asynchronous supervised security using such a scheme: the finalization of any two conflicting blocks will result in responsible validators losing their deposits (at least two-thirds of the total deposit). The finalized chain grows as long as the block production mechanism meets certain criteria.
Polkadot employs GRANDPA’s finalization mechanism for all parachains. Each parachain receives the option of interoperability with other parachains in exchange for the finalization mechanism. Polkadot is able to provide a simple communication mechanism that allows parachain collators to communicate directly through incoming and outgoing message queues as a result of this tradeoff.
Although parachains use the same finalization mechanism, they can each implement different block production mechanisms, each with different features and parameters that are optimized for a specific class of applications.
Parachain Development Kits (PDKs) are tools that make it much easier to create specialized parachains. The Substrate framework, which comes with the Framework for Runtime Aggregation of Modularized Entities, is one of these PDKs (FRAME).
Built-in implementations of block production algorithms such as BABE, Aura, and others are included in Substrate. Cumulus, another PDK, contains the linking code required to connect a Substrate-based circuit to the Polkadot network. Substrate and Cumulus work together to make it easier to create and connect parachains to the Polkadot network.
The transactional throughput of each network can vary depending on the blockchain production algorithm and parameters, so the total transactional throughput of the Polkadot network can only be estimated roughly.
Polkadot’s first version has 100 parachains. Assuming that each parachain can support at least 10 transactions per second, the lower throughput limit is around 1,000 transactions per second.
In future versions of Polkadot, the parachain will be able to function as a Layer 2 rechain, with additional parachains attached to it to form a tree-like structure with theoretically infinite throughput.
The main relay-chain becomes an element limiting system efficiency at some point, but only to validate the input queue processing, as the parachains communicate directly with each other. According to some estimates, Polkadot will be able to scale up to 10,000x the capability of a single PoS chain with the tree structure device.
What functions does the DOT token perform?
A native DOT token performs three main functions:
- Governance: token holders have complete control over the protocol, including privileges reserved for miners on other platforms, such as determining the structure of transaction fees, making protocol changes, and adding or removing parachains.
- Transactions: the basic Polkadot consensus mechanism is enabled by DOT tokens. Token holders must be active network members and engage in token stacking to mitigate consensus rule violations.
- Reward: Tokens are distributed to active participants in the network.
How is the Polkadot project funded?
Despite raising $145 million in its first token sale in 2017, the project did not have enough funds for development. The Web3 Foundation held an additional sale of 500,000 DOTs in June 2019. Following that, the project’s projected capitalization increased to $1.2 billion.
Web3 Foundation held another private token sale in late July 2020, raising $43.6 million.
How is the Polkadot project evolving?
In November 2018, the Substrate blockchain startup platform, a tool designed to accelerate Polkadot’s development and enable corporate users to quickly launch distributed registries, was released.
In August 2019, the Polkadot development team launched an experimental version of the blockchain interaction protocol called Kusama. It was positioned as a testing ground “that would allow teams and individual developers to build and deploy parachains and test Polkadot’s management and distribution functionality in a real-world environment.”
The Kusama network ran on the Proof-of-Authority (PoA) consensus mechanism, with Web3 foundation responsible for the validator node functions. The functionality of the network remained limited.
At the end of February 2020, the Chainlink project completed its initial integration with the blockchain based on the Substrate platform. Polkadot developers called it a milestone in the implementation of Chainlink’s decentralized oracle network into the protocol ecosystem.
Oracles are required for the execution of smart contracts and the operation of dapps that use data from sources other than their own blockchain. Providing reliable third-party data feeds allows for network interoperability and the expansion of the scope of smart contracts and dapps.
Polkadot ecosystem blockchains will be the first to use Chainlink oracles outside of the Ethereum system, according to the developers. Until Polkadot’s core network is fully operational, Chainlink’s information channels will support the experimental Kusama protocol. For the time being, the parachain between Kusama and Chainlink is still in the works
On March 5, 2020, the Web3 Foundation awarded a grant to develop a “bridge” between the bitcoin and Polkadot blockchains. Interlay is in charge of this project. PolkaBTC tokens will be issued using the XCLAIM framework, which is at the heart of the bridge BTC parachain. These tokens will be transferable to other parachains. Users will be able to receive bitcoins at a 1:1 ratio or the equivalent amount in DOT tokens after burning PolkaBTC in a BTC parachute. The BTC parachain’s source code and specifications are available on Github.
On May 26, 2020, after more than three years of development, the Web3 Foundation launched the first phase of the Polkadot blockchain core network, which then used the Proof-of-Authority (Proof-of-Authority) mechanism.
Web3 Foundation ensured node operation and block validation, and could intervene in blockchain operation in the event of a critical situation. These safeguards were necessary to mitigate the potential harm caused by bugs and security breaches. Account access for DOT token holders was granted, as well as the ability to request the deployment of a node or propose a validator.
Transfers of DOT tokens were still not possible. Technically, the core network’s first phase is more akin to a test phase.
On June 18, 2020, following audits and finalization of final aspects, the Polkadot blockchain entered the Nominated Proof-of-Stake (NPoS) phase. Furthermore, Interlay revealed a “bridge” between the bitcoin and Polkadot blockchains, which is currently in the Proof-of-Concept stage.
In early July 2020, the developers of Polkadot, Cosmos and Terra promised to introduce the Anchor DeFi-protocol by the end of the third quarter of 2020, which will allow investors to earn interest income on deposits in Terra stabelcoins.
On July 20, 2020, following a vote by community members, the Web3 Foundation resigned as administrator of the Polkadot network. The total number of validators had reached 197 at that point. This allowed the validation process to be decentralized and involve the community. The Proof-of-Stake algorithm was used by the developers, and more than half of the issued DOT tokens were blocked.
The token-based governance system was tested to approve a proposal to limit Web3 Foundation’s authority. The resulting vote to remove the Sudo control module was called “poetic” by Polkadot founder and Parity Technologies director Gavin Wood.
After the vote, the Polkadot network lost the “CC1” or “Candidate Circuit 1” designation. This marked the transition to the main network and the start of the third and fourth phase of the launch.
On July 27, 2020, the project tallied the results of the second validator vote on July 27, 2020. The vote established that one DOT token should contain 10 billion Planck — the smallest share unit. One old DOT is worth 100 new ones. The vote was boycotted by the Web3 Foundation and Parity Technologies.
On August 4, 2020, Polkadot developers launched the Rococo test network to implement parachain sharding. Rococo is designed to test the Polkadot protocols that will enable shared communication. In Rococo, three distinct parachains are available: “tick,” “trick,” and “track,” with developers able to add their own parallel chains.
The Proof-of-Authority (Proof-of-Authority) consensus mechanism is used in the test network, which supports horizontal messaging. The developers warned that the system was still unstable and promised to add new code in preparation for the main network’s full launch.
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