We already know that the cryptocurrency market is constantly innovating and providing new solutions for investors. One of the best examples is related to new networks being released on a regular basis. So What is Polkadot (DOT)? Polkadot is one of these networks that want to offer a reliable cross-blockchain transfer solution for any type of data or asset.
Thus, Polkadot is now expanding as a blockchain network that lets participants transfer value, messages and information in a trustless environment. However, if we want to know what is Polkadot, we should also take into consideration that it is a scalable and multi-chain technology that can be applied to many different projects.
In this guide about “What is Polkadot?”, we will go through the main characteristics of this project, how it has been evolving over time and how it is now one of the best projects in the market in terms of market capitalization.
What is Polkadot Crypto?
“What is Polkadot Coin?”, this is the question that we see many people ask as they see new digital currencies reach the top 10 largest coins by market valuation. DOT is one of these virtual currencies. So, what is Polkadot all about?
According to the official site, Polkadot “is a platform that allows diverse blockchains to transfer messages, including value, in a trust-free environment.” But let’s try having some details about how this blockchain network behaves.
Polkadot is usually considered another blockchain network similar to Ethereum (ETH), Binance Smart Chain (BSC), Solana (SOL) and others. But there are some differences that make it unique and better in many cases than other blockchain networks. We are talking about pooled security and trust-free interchain transactability.
To answer the question “what is Polkadot” we cannot avoid talking about parallel chains or parachains. These chains are closely related to Polkadot’s uniqueness and are one of the core pieces of its networks structure.
While we know that blockchain implementations rely on single chains that have different degrees of working solutions, Polkadot works differently. Polkadot works with a Relay Chain that can store large data structures.
This allows for the creation of parallel chains called Parachains. In this way, Polkadot provides a consensus layer that lets developers focus on unique features such as verification and also anonymity, among other things.
Hence, we see that Polkadot works with different parachains that have different characteristics and data. Thanks to these parachains, the network would easily avoid congestion and transactions would be processed faster than on other blockchain networks. Moreover, other blockchain networks can also get connected to Polkadot using special bridges. Other networks that can be benefited from Polkadot’s implementations include Bitcoin (BTC) and Ethereum (ETH), among others.
Due to all these reasons, Polkadot is now one of the fastest-growing cryptocurrencies in the world. It is possible for developers to experiment with different solutions and create new innovative solutions that would then be applied to other blockchain networks.
Polkadot in the Cryptocurrency Market
Polkadot has given many surprises over the last years in the cryptocurrency market. It is not only a new blockchain network with unique functionalities but it is also the 8th largest virtual currency in the world when taking into consideration its market valuation.
Polkadot has surpassed blockchain networks such as Dogecoin (DOGE), Chainlink (LINK), Uniswap (UNI) or Litecoin (LTC) among others. Now, it is a clear leader in the crypto space, and there are just a few virtual currencies that are above DOT when it comes to market valuation.
But let’s get into the details of how Polkadot expanded in the cryptocurrency market. Between August 2020 and the beginning of 2021, DOT was traded in a tight range between $3.75 and $6 per coin. But things changed in early 2021 as Bitcoin was reaching new highs.
Despite the fact that the entire market was moving higher, DOT was able to register even faster growth rates than other virtual currencies. It grew when compared to the US dollar, but it also registered gains against Bitcoin and Ethereum. This allowed DOT to reach an all-time high of over $45 per coin in April 2021.
As Bitcoin and the whole crypto market entered a correction phase between April and July, DOT lost part of its value and it corrected to $12 per coin. This was a strong correction that affected not only DOT but also many other virtual currencies. For example, Bitcoin was traded close to $30,000 after having reached a high of over $63,000.
Now that BItcoin and other virtual currencies are moving higher once again, DOT is close to its all-time highs, but it still didn’t reach it. When compared to BTC, it is at the same level as in April 2021, which is very positive for DOT and it shows that it continues to expand and grow in the market.
With a larger adoption of this virtual currency around the world, it would be possible for DOT to reach even higher prices. However, this should not be considered investment advice, as digital assets are highly speculative and volatile.
Polkadot vs Ethereum
There are some differences between Polkadot and Ethereum that we should take into consideration. If we want to answer the question of “what is Polkadot?” then we should understand which are the main differences between these two blockchain networks.
People use to confuse them and link them in different ways, however, these are two different projects that focus on different solutions. While Ethereum focuses on smart contracts, Polkadot wants to make sure that blockchain networks become interoperable and more efficient in a decentralized way.
Although these networks are different, they also have some similar things. They offer an infrastructure layer for projects to release new and unique solutions that would have a large impact on many industries.
One of the main differences that there is between Ethereum and Polkadot is related to the way in which upgrades are processed. We all know that Bitcoin and Ethereum require soft or hard forks to upgrade the network. These hard forks take a long time (as they have to be discussed) and nodes should also upgrade to the latest version of the blockchain network available.
Instead, Polkadot focuses on a different type of network upgrade. Thanks to the way in which the network was built, Polkadot relies on on-chain governance that makes upgrades faster and smoother. Basically, every single time that an upgrade is approved it automatically upgrades the network without having to go through usually problematic hard forks.
But there are other differences between these two blockchain networks. For example, Polkadot is currently working with a proof-of-stake (PoS) consensus mechanism that is different from the current proof-of-work (PoW) from Ethereum. However, Ethereum is planning to move to a proof-of-stake consensus mechanism in the future.
Due to these reasons and the way the blockchains are structured, we can say that these blockchain networks would work in totally different ways. Despite that, they try offering similar solutions to companies and developers that want to offer new and innovative solutions in the crypto space.
As we have previously mentioned, Polkadot works with parachains. This lets the platform reach a high throughput of transactions and increase its functionalities and interoperability. But how? These parachains behave as blockchains that are integrated into the Polkadot ecosystem.
Rather than working with an already created blockchain network and specific rules (for example Ethereum or Bitcoin), Polkadot uses parachains that can be easily customized according to the needs of each of the projects that are working with this network.
Parachains are application-specific data structures that are also validated by those users called “validators” on the Relay Chain. These networks run in parallel to the Relay Chain, allowing for new use cases and interoperability projects. Indeed, there are no specific requirements for them to become independent blockchains.
These parachains require maintenance. This is why there is a special role called collator. The collator is a type of node that aims at maintaining a full node of the parachain. This is very important as they would have all the important data and information to keep the parachain running. There are different ways to incentivize collators to offer better services to the community. One of the ways to incentivize collators is by creating local tokens on each parachain that would be then paid to the collators on that specific parachain.
Furthermore, parachains can create different hubs. Basically, these hubs would let other projects use some functionalities from a specific parachain and deploy them to create new applications.
Polkadot Solutions and Features
Polkadot has different features and solutions that are currently offered to participants in the market. These features include interoperability, transactional scalability, blockchain innovation, forkless governance, enhanced security and more.
We have already explained how Polkadot is making it possible for blockchain networks to become more interoperable. This is one of the main features offered by Polkadot and perhaps one of the most valuable for the crypto market.
By using advanced technology, Polkadot makes it possible for projects and participants to share different types of data and assets throughout its network. In this way, blockchain platforms can be connected.
We should also take into consideration that it is one of the main characteristics of Polkadot to offer scalability to projects. To the question “what is Polkadot?” We need to answer with different services offered by this blockchain network and scalability is among the most important ones.
Blockchain networks have been many times congested due to a large number of transactions being processed. This has created a situation in which it becomes highly inconvenient to handle payments and solutions in just a single blockchain network.
This is why Polkadot has addressed this issue by providing scalability to its blockchain network thanks to its blockchain validators. Basically, Polkadot is a highly-scalable blockchain network that spreads transactions across different parallel blockchains.
Another thing we should consider is related to the fact that developers can easily create custom blockchain networks in just minutes by working with the Substrate framework. This is one of the easiest ways for developers to start working and engaging with the Polkadot blockchain network.
Users would be able to connect their chains to Polkadot and easily start enjoying interoperability and security from the moment in which the network is deployed. This is one of the most useful solutions offered by the Polkadot blockchain network.
Talking once again about the forkless future, Polkadot does not require a hard fork in order to process network improvements. This is very important as Pokadot can easily upgrade its network without the need of conducting a hard fork.
Bugs could be fixed by governance votes and it would make it possible for Polkadot to become a much more reliable blockchain network in the long term. Indeed, if new technologies become available, hard forks would not be necessary to implement them on top of Polkadot.
The Polkadot network has also a unique governance structure that we do not see in other blockchain networks. Polkadot works with a new and sophisticated governance system in which all stakeholders have active participation and a voice.
As we previously mentioned, network upgrades take place on-chain and are processed thanks to a new governance structure that ensures that Polkadot’s future and improvements are processed almost in real-time.
It is difficult to work with blockchain networks that do not upgrade their systems for long periods of time. Moreover, if there are some sensitive topics, it might create a chain split, which could create a weaker ecosystem. Thanks to Polkadot’s governance approach, the majority stake will be responsible for handling this blockchain network.
The voting system takes place by creating a referenda that would include a proposal and the vote of the community. These proposals would then be publicly submitted and they should be approved by the community. There are many ways in which participants can start a referenda, which means that it is very easy and simple to promote changes across the blockchain network.
Finally, votes are processed by locking tokens (DOT) for at least the enactment delay period beyond the end of the referendum. This is something that discourages vote selling and preserves price stability. Users should vote by locking all of their coins. Those users that lock their coins for a longer period of time will have the possibility to have a larger influence on the network than those users that just purchased DOT and locked the coins for a short period of time.