Polkadot Network is an answer to the scalability and the interoperability problems of blockchain. Bitcoin is the world’s first blockchain that came into existence in 2008. Created by still mysterious Satoshi Nakamoto, it only supported monetary transactions. The birth of Ethereum blockchain showed blockchain can do much more than this by the introduction of smart contracts.
But the activity grew on Ethereum, issues like low scalability started to appear. Furthermore, these early generation blockchains could not communicate with other blockchains, such as Ethereum blockchain, unable to talk with Bitcoin blockchain.
Third-generation blockchains are now trying to solve these problems. Polkadot is one of the most-talked blockchains that aims to solve the scalability and interoperability issues of Ethereum. In the next discussion, we will take a brief look at Polkadot Network.
What is Polkadot Network?
Polkadot lightpaper describes Polkadot blockchain as:
“Polkadot is a next-generation blockchain protocol that unites an entire network of purpose-built blockchains, allowing them to operate seamlessly together at scale.”
The project is co-founded by Gavin Wood, also a co-founder of Ethereum, Robert Habermeier, and Peter Czaban, the Technology Director of the Web3 Foundation. According to the Polkadot website, Polkadot is the flagship project by Web3 Foundation, a Swiss Foundation founded to facilitate a fully functional and user-friendly decentralized web. Web3 Foundation provided grants for the development. Parity Technologies is main the developer of Polkadot.
The project is a brainchild of Ethereum co-founder Gavin Wood and former head of security in the Ethereum Foundation Jutta Steiner. Polkadot mainnet went live in May of 2020. The protocol uses a novel hybrid consensus algorithm called GRANDPA/BABE which is a flavor of Proof-of-Stake (PoS), specially tailored for Polkadot. The protocol uses a sharded structure: parallel blockchain called parachains on Polkadot.
Polkadot is a network protocol that allows any arbitrary data, not just tokens, to be transferred across blockchains.
Let’s take a look at a brief look at Polkadot.
What is Inside Polkadot Blockchain?
There are three main components of Polkadot architecture: Relay Chain, Parachains, and Parathreads.
The Relay Chain is the central chain of Polkadot. It is the core of Polkadot blockchain that itself does not provide any significant functionality other than a small number of transaction types that include ways to interact with the governance mechanism, parachain auctions, and participating in NPoS. The main responsibility is to coordinate the system as a whole, including parachains.
Parachains are purpose-built blockchains that are plugged into Relay Chain. Parachains connected to the Polkadot Relay Chain all share in the security of the Relay Chain. As we know, Relay Chain doesn’t provide any significant functionality, even the smart contracts.
Parachains are sovereign blockchains that can have their own tokens and optimize their functionality for specific use cases. Every Parachain provides chain-specific features to the Polkadot network and enjoys the shared security of the Relay Chain. For example, one parachain can provide smart contract functionality and another parachain will provide a stablecoin for payments between chains. To enable cross-chain communication, Polkadot has bridge parachains that offer two-way compatibility.
Think Relay Chain as the computer and parachains as software that can be installed on the computer to provide the required functionality. The Cross-Chain Messaging Protocol (XCMP) allows parachains to send messages of any type to each other.
But there is a limit to parachains that can be connected with Polkadot’s Relay Chain. Parachain candidates compete in the public auction to obtain their slot on the Relay Chain.
They are similar to parachains but have a short life span on Relay Chain than parachains. While parachain candidates compete in a public auction to win a slot on Relay Chain, parathreads candidates get a slot instantly but for a very short time. Parathreads allow projects to have a taste of the Polkadot network before purchasing an expansive parachain slot.
Who Manages the Polkadot Network?
Like Bitcoin, where miners manage the network by verifying the transaction and adds blocks to the blockchain, Polkadot also requires three types of entities to manage the network: Validators, Collators, and Nominators.
Validators: Parachains construct and propose blocks to validators on the Relay Chain, where the blocks undergo rigorous availability and validity checks before being added to the finalized chain. This means validators verify the blocks like Bitcoin miners before adding them to the chain.
Validators are required to stake Pokkadot native token DOT to validate blocks for the Relay Chain.
Collators: Parachains are managed by collators. They are full nodes on both a parachain and the Relay Chain. They collect parachain transactions and produce state transition proofs for the validators on the Relay Chain.
Nominators: Nominators secure the Relay Chain by selecting trustworthy validators and staking dots. As the name suggests, they nominate validators to verify transactions. According to the documentation:
“Nominators bond their stake to particular validators in order to help them get into the active validator set and thus produce blocks for the chain. In return, nominators are generally rewarded with the portion of the staking rewards from that validator.”
Polkadot (DOT) Token
DOT is the native token of the Polkadot network in a similar way that BTC is the native token of Bitcoin. Like any other Proof-of-Stake (PoS) blockchain, DOT is used for the governance of the network.
DOT holders can govern the network by voting on proposals to make changes in the network parameters. Some functions that are included under the governance mechanism include determining the fees of the network, the addition or removal of parachains, and exceptional events such as upgrades and fixes to the Polkadot platform.
DOT token is also used in staking to validate transactions. Anyone who wants to become a validator on Polkadot will put his DOT at risk via staking to perform these functions.
Furthermore, DOT can also be used to win a parachain slot. DOT will have the ability to be locked for a duration to secure a parachain slot in the network. The DOT will be reserved during the slot lease and will be released back to the account that reserved them after the duration of the lease has elapsed and the parachain is removed.
The DOT coin has seen a huge growth in its price as it once was the fourth largest crypto asset by market cap. According to CoinMarketCap, DOT is now changing hands at $20.28 per coin.
Substrate: Polkadot SDK
Polkadot provides a simple software development kit (SDK) called Substrate to create a custom blockchain in minutes. Substrate allows anyone to create this natively compatible with Polkadot. Almost all Polkadot parachain are being developed on Substrate.
In a PoS blockchain network, people stake their tokens to become a network validator for that network. In Polkadot, Stakers have two rules: nominators and validators. Polkadot uses NPoS (Nominated Proof-of-Stake) as its mechanism for selecting the validator set. The system encourages DOT holders to participate as nominators.
According to the Polkadot documentation:
“Any potential validators can indicate their intention to be a validator candidate. Their candidacies are made public to all nominators, and a nominator, in turn, submits a list of any number of candidates that it supports. In the next epoch (lasting 4 hours on Polkadot, 1 hour on Kusama), a certain number of validators having the most DOT backing get elected and become active.”
Kusama is a canary network of Polkadot built on Substrate SDK and with nearly the same codebase. It provides an experimental development environment for teams who want to move fast and innovate on Kusama, or prepare for deployment on Polkadot.
Polkadot mainnet is live but the parachain functionality is not available yet. Currently, the parachain slot auction for the first batch of parachain on Kusama Network is underway. Once all is OK on Kusama Network, parachain will be brought live to the main Polkadot Network.
Polkadot is a next-generation blockchain that unites a network of heterogeneous blockchains called parachains and parathreads. These chains connect to and are secured by the Polkadot Relay Chain. Due to its innovative architecture, it can process many transactions on several chains in parallel, unlike legacy blockchain networks that process transactions one by one. Furthermore, it is designed with interoperability in mind.
The project has seen great traction as many teams are building or migrating their infrastructure from Ethereum to Polkadot. As Ethereum is also in transition from PoW to PoS, it will be interesting to see how they compete in the future.
Polkadot Website: https://polkadot.network/
Kusama Wesbite: https://kusama.network/
Polkadot Documentation: https://wiki.polkadot.network/docs/en/getting-started
Polkadot Lightpaper: https://polkadot.network/Polkadot-lightpaper.pdf
Polkadot Whitepaper: https://polkadot.network/PolkaDotPaper.pdf