What Is Polkadot (DOT)?
Polkadot is a next-generation protocol that aims to connect blockchains into a single unified network. Designed as part of a broader vision for a decentralized internet that returns control to individuals and users, its goal is to enable specialized blockchains to communicate with each other by attaching themselves to the Polkadot network.
Polkadot was envisioned by Ethereum’s co-founder Gavin Wood. He published the white paper in 2016, not long after Ethereum’ successful launch in 2015. In 2017, the Polkadot team followed Ethereum’s footsteps and set up the Web3 Foundation foundation in Zug, Switzerland, which is responsible for developing Polkadot’s code base and advancing its vision.
Polkadot’s initial coin offering (ICO), in which close to half a million ether were collected (≈150million USD at time of the ICO), took place a few months later in October 2017. Shockingly, due to a bug in an Ethereum wallet software, two-thirds (≈93 million USD) of these ether coins got stuck and are still inaccessible to this day.
Nevertheless, the Polkadot team continued development. 30 month later, on May 26th 2020, Gavin Wood reported the creation of Polkadot’s Genesis block, thus the Polkadot network was born.
Watch the video: Polkadot is a vote against maximalism
What does Polkadot solve?
Currently, most blockchains operate separately as independent entities. As a consequence, it is difficult for blockchains to communicate and share data with one another. Polkadot’s network is solving this problem and several of the related structural issues.
Scalability: Blockchains in isolation can only process a limited amount of transactions. Through connecting blockchains, the Polkadot network enables the execution of many transactions on multiple chains in parallel, thereby eliminating the bottlenecks occuring on chains that process transactions one-by-one. This significantly improves scalability.
Specialize: Most blockchains are built for a specific purpose. Naturally, developers have to make tradeoffs (blockchain trilema), and are facing the difficult decision which features to include and which to omit. No blockchain can include all features due to limited resources and the exponentially growing probability of erroneous code and technical issues with each feature added.
Enabling blockchains to communicate with each other allows developers to build highly specialized chains focusing on a specific use case while outsourcing additional features to other chains within the blockchain ecosystem.
Also, Polkadot allows for blockchains built with Substrate (building kit for blockchains) to run on its network. By building with this development framework, teams can make use of ready-to-use code blocks and thereby develop and customize their blockchain efficiently and faster than ever before.
Interoperability: Blockchains attached to the Polkadot network can exchange information and features without relying on centralized service providers. Polkadot provides interoperability and cross-chain connectivity, unlike previous blockchains that mostly operated as standalone systems. This allows participants to transfer data between chains and opens the door to inventive new services. A simple example is a DeFi service which obtains real-world data from an oracle chain such as commodity or stock prices.
Self-govern: The Polkadot Network allows DOT token holders and the Polkadot council to submit proposals to active token holders, which then will be voted on. No matter whether the proposal was submitted by DOT holders or the council, it finally has to go through a referendum. All DOT holders, weighted by stake, then make a decision by vote. Agreed upon code changes get implemented automatically in the network.
All of these factors are vital building blocks for a decentralized internet, generally referred to as Web 3.0. Web 3.0 is turning centralized applications into decentralized, trust-free protocols and enables a future where users and machines can interact with data, value and counterparties peer-to-peer without the need for third parties.
Polkadot’s ultimate vision is to advance the development of web 3.0 by acting as a framework for all blockchains that join the network, comparable to HTML which allows servers, websites and browsers to communicate. Their idea is to take care of the messy and costly cryptocurrency mining processes (including validation of transactions and security protocols) and enable developers to focus on creating dapp and smart contract functionality.
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How does Polkadot work?
The Polkadot network runs on a sharded model similar to ETH 2.0. The shards (the individual blockchains connected to the Polkadot network) are called parachains. These parachains run simultaneously and allow for transactions to be processed in parallel instead of sequentially.
Parachains are sovereign blockchains. Each parachain in the network runs its own ledger, has its unique state, adds transactions in blocks to their own blockchain and has its own governance mechanisms and users. As long as a parachain can compile the WebAssembly programming language and adheres to the Relay Chain, Polkadot’s own blockchain, then it can connect to the Polkadot network.
Polkadot’s Relay Chain acts as the main chain in the network. It links all the states of all parachains into one state – the ‘state of states’. Each parachain has Relay Chain validators to accept and validate its parachain blocks. Parachains assemble and propose blocks to validators on the Relay Chain, where blocks undergo rigorous availability and validity checks. Once approved, blocks get added to the respective parachain and the validators are randomly swapped for the next block.
As the Relay Chain provides the security guarantees, collators – full nodes of these parachains – don’t have any security responsibilities. This allows them to interact without trust bounds. They share state and validation logic with the Polkadot network.
For blockchains relying on their own consensus mechanism (e.g. Bitcoin), the Polkadot network built bridge parachains that offer two-way compatibility. These bridges allow for transactions to be made between the Polkadot Network and independent blockchains, providing true interoperability. In the case of Bitcoin, such a bridge allows holders of bitcoin to “teleport” their coins to the Polkadot network as PokaBTC, and vice versa to burn PolkaBTC for real bitcoin.
Does Polkadot have a currency?
Yes, it does. What BTC is to Bitcoin and ETH is to Ethereum, DOT is to the Polkadot Network. 10 million DOT tokens were generated with Polkadot’s genesis block. 5 million were auctioned off at Polkadot’s ICO, 2 million DOT were distributed for pre-launch contributions and the remaining 3 million were reserved for the Polkadot Web3 Foundation. The 10 million initial supply is not a hard cap. Like Ether, DOT is an inflationary token, and new tokens are created to incentivize validators to participate in the proof-of-stake (PoS) consensus mechanism.
In August 2020, a majority of DOT holders voted for a redenomination of the DOT, splitting the token 1:100. The initially created 10 million tokens increased to 1 billion. Like a stock split though, the redenomination did not affect any of the economics of the plattform and was for accounting purposes only. The main benefit of this change is to achieve an easier calculation system by avoiding small decimals when dealing with DOT. On some exchanges, the post-split tokens are referred to as DOT (new), as opposed to the pre-split DOT (old) tokens.
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