Polkadot is moving toward greater functionality by communicating two or more blockchains.
Polkadot is touted as the next generation of blockchain technology, capable of connecting different blockchain systems and networks into a single universal network.
Because of this functionality, its network is described as a “blockchain of blockchains,” offering advantages in scalability, upgradability, transparent governance, and cross-project compatibility.
One of the key concepts related to Polkadot is Web 3.0, the evolution of Internet technology, whose main goal is to create more intelligent and interconnected websites and applications capable of capturing, processing, and understanding information, data, and user behavior.
This is one of the reasons why investors and institutions have been betting a lot on the project.
Existing blockchains may be decentralized, fast and secure, but they are networks isolated from each other.
Polkadot aims to solve this problem by allowing information to be exchanged between projects.
Polkadot (DOT) currently stands as the 7th largest cryptocurrency in market capitalization ($55 billion).
Learn more about this scalable blockchain project, its advantages, disadvantages, price history, and find out if Polkadot (DOT) is worth investing in.
Table of Contents
What is Polkadot (DOT)
Polkadot is a protocol that allows communication between multiple blockchains in a unified network. In this way, values and data can be sent between networks that were previously incompatible.
It is also designed to be a fast and scalable ecosystem, allowing decentralized applications (DApps) to run and new products and cryptocurrencies to be created on its network.
Other blockchains that act in a similar way but without the compatibility advantage are Ethereum (ETH), Cosmos (ATOM), and EOSIO (EOS).
The DOT token is the cryptocurrency used in the project. In addition to its internal use, it can also be bought or sold on major cryptocurrency exchanges.
The Polkadot concept came from one of the leading figures in the crypto universe, Gavin Wood, co-founder of Ethereum.
After leaving the Ethereum community in January 2016, Wood started his own project in order to end the limitations and solve probles of other blockchains, in particular communication between different systems, the speed of transaction processing, and the amount of transactions per second.
The first version of the Polkadot whitepaper was released in October 2016.
In 2017, Wood joined forces with Robert Habermeier and Peter Czaban to create the Web3 Foundation (W3F), a non-profit that researches and develops the entire Polkadot blockchain.
The foundation also manages the project’s funding initiatives.
To raise more funds, it took the launch of an ICO, Initial Coin Offering, which raised about $147 million.
The official launch of the Polkadot cryptocurrency (DOT) took place in May 2020. At just over a year old, its performance has already impressed investors and experts in the crypto world.
How Polkadot (DOT) Works
Polkadot acts as a multichain (multiple chains) network that enables the processing of transfers in parallel between different individual chains.
The two main structural components are a main network, called Relay Chain, and individual blockchains, called Parachains.
The Polkadot team believes that this design will allow its users to conduct transactions more privately, efficiently, and quickly.
The main chain, Relay Chain, is responsible for security, consensus, and interoperability between the chains.
Parachains are blockchains that connect to the main chain and delegate their consensus and security calculations to it. In this way they become fast and congestion-free.
Each parachain can still have its own governance rules.
Finally, the network also has a connection layer, or “bridge,” that allows parachains to connect and communicate with external networks.
The validation mechanism used is called “Nominated Proof-of-Stake” (NPoS).
In it, the nominators can delegate part of their DOT to a validator they trust and help them to be recognized by the network and be allowed to mine the blocks.
In return, they receive a portion of the DOT earned by the chosen validators.
However, if the validators are not trusted, the losses are also shared with the nominators.
Collators track valid parachain transactions and submit them to the Relay Chain validators.
Fishermen, meanwhile, monitor the Polkadot network and help find and report misbehavior on the network.
Like most other blockchain projects, Polkadot has its own native token known as DOT,
The Polkadot token (DOT) serves different functions within the Polkadot network.
The primary one is as a governance token, which allows holders to have voting power and active participation in project decisions that include determining network rates, voting on general network updates, and deploying or removing parachains.
DOT is also designed to facilitate network consensus through staking, the way the network validates transactions.
A third option for using DOT is for bonding, a process required when new parachains are added to the Polkadot ecosystem.
During the bonding period, the bonded DOT is locked, and is released once the bonding duration ends and the parachain is removed from the system.
DOT can also be bought and sold on exchanges like Binance as part of your investment strategy.
The DOT cryptocurrency is not possible to mine.
The platform currently has 1 billion tokens in circulation on the market, a number reached after the network’s redenomination, which took place in August 2020 following a community vote.
The redenomination determined that the DOT token circulation would be inflated by 10 times, increasing DOTs token count from 10 million to 1 billion, raising its market capitalization considerably.
The process was also done in order to increase the liquidity of the cryptocurrency and make it more accessible.
How to Buy Polkadot (DOT)
The main way to invest in DOT, and also the safest and most reliable way, is through a cryptocurrency broker.
In this option, the exchange does the whole process of intermediating transactions between the parties involved.
Simply open an account with a trusted crypto broker, transfer the amount to your account, and send an order to buy.
The second way is by distributing the tokens through Polkadot’s internal staking processes, which may include validating transactions or data captured from other blockchains.
Key advantages of Polkadot (DOT)
Due to the limited nature of current blockchains, one of Polkadot’s main advantages is its ability to explore and communicate with different blockchains, such as that of Bitcoin and Ethereum, for example.
Its multichain network makes parallel transactions between different individual chains possible.
It is not yet clear what kind of products and services will be created using this feature, but experts say that this represents a major breakthrough for the crypto market and for blockchain technology.
It could create an entirely new financial ecosystem, building decentralized services and products that talk and share data with each other, and still being able to be customized.
Is Polkadot worth it?
There are many factors that make Polkadot attractive. Its ecosystem is able to cater to diverse audiences, from individual programmers, to small businesses, to large corporations.
All of this can be customized to meet specific needs.
Polkadot is still a very young ecosystem. It is a bet for the future, should it host its first major project.
According to PolkaProject, there are hundreds of projects in development.
The DOT token, while not developed for speculation, is appreciating in value as the network moves toward greater functionality.
A measure recently approved by the Polkadot board will allow developers to begin registering parachains starting November 5.
To bid on and create them, developers need the DOT.