All about Polkadot

By yavhehe | Polkadoti | 7 Feb 2021

  Although Polkadot has seemingly been under the radar since development on the project began over 3 years ago, it has shaken the cryptocurrency space with the official release of its ‘finalized’ main net earlier this month. In less than 2 weeks, Polkadot’s native DOT token has silently leapfrogged its way into the top 10 cryptocurrencies by market capitalization.All manner of words and phrases have been used to describe Polkadot including the exhausted label of an “Ethereum killer” cryptocurrency. While its founder insists that Polkadot is not a competitor to Ethereum, a close-up look at Polkadot suggests that it is not only a serious competitor to Ethereum but a cryptocurrency which may just transform the cryptocurrency world forever.

  Origins of PolkadotThe history of Polkadot begins with Ethereum, specifically one of Ethereum’s co-founders, Dr. Gavin Wood (PhD in Software Engineering). Dr. Wood has over 20 years of experience working as a software developer both inside and outside of the crypto space.Polkadot and Ethereum co-founder, Dr. Gavin Wood. Image via ParityHe coded the first functional version of Ethereum and even authored Ethereum’s Yellow Paper. What Dr. Wood is perhaps most famous for however is creating Solidity, the coding language used to build smart contracts on Ethereum.In January of 2016, Dr. Wood left his position as Ethereum’s CTO and core developer. The exact reasons for his departure vary (even from Dr. Wood himself) but can be summed up as being due to his frustration about the slow development to Ethereum 2.0.Later in 2016, Dr. Wood began developing a new cryptocurrency which would “deliver on the promises which Ethereum could not”. The first draft of the Polkadot whitepaper was finished by the end of 2016.

  The DOT Cryptocurrency ICOThe initial coin offering of Polkadot’s DOT cryptocurrency is something which is still vividly in the memory of many veterans in the cryptocurrency space and certainly for the Polkadot team. The DOT ICO took place in October 2017 and raised over 145 million USD in Ethereum.A snapshot from the Polkadot ICO. Image via TrustnodesHalf of DOT’s initial total supply of 10 million was sold in two rounds to public and private investors (2.25 million and 2.75 million, respectively). The price per DOT token for these funding rounds was 28.80$USD.Less than 2 weeks later, over 90 million USD of the funds raised during the ICO were permanently frozen due an exploit of a vulnerability in Polkadot’s multisig wallet code. One week after the attack, the Polkadot team confirmed that they still had enough funding to develop Polkadot and pressed onwards despite the lost funds. Although there have been efforts to retrieve the funds, over 500 000 ETH are still locked.The post-ICO debacle marked the second time the team’s wallets had been hacked because of a code vulnerability. The first hack took place earlier in July of 2017 and saw over 33 million USD of Ethereum drained before the attack was stopped by a benevolent group of hackers known as the White Hat Group. In both cases, the Polkadot team released follow up documentation detailing the hacks and how to prevent them from happening again.In January 2019, another private funding round was held by Polkadot in an attempt to make up for the lost (frozen) funds from the DOT ICO.

  500 000 DOT were sold for a marked-up price of 120$USD per DOT, raising over 60 million USD.In July of this year, a third private funding round was held, selling just under 350 000 DOT tokens at a price of 125$USD each. This raised another 43 million USD. Added together, the total funding for Polkadot’s DOT cryptocurrency was over 250 million USD (with 90 million still frozen).What is Polkadot?Polkadot is a cryptocurrency project which seeks to power the decentralized future of the internet (Web 3.0). It is interoperable with other blockchains inside and outside of cryptocurrency, it allows for the creation of smart contracts and new blockchains (and tokens), it makes it possible for blockchains to exchange information, it is upgradeable (no hard forks!), and the protocol is governed by those who hold DOT, Polkadot’s native cryptocurrency.Polkadot is a project by the Web3 Foundation, a Swiss non-profit based in Switzerland’s Crypto Valley (Zug). The Web3 Foundation commissions UK-based Parity Technologies to develop and maintain the Polkadot network.Dr. Gavin Wood is the co-founder of both the Web3 Foundation and Parity Technologies and is consequently the main developer of the Polkadot network. Polkadot is built using Substrate, a blockchain building tool developed by Parity Technologies.How does Polkadot work?Polkadot is easily one of the most complicated cryptocurrencies in existence. While we would normally say that we have a way of explaining it to you in layman’s terms, but there is really no way to explain Polkadot without eventually falling into a fissure of technical language. Some components of the Polkadot network quite literally have a series of articles dedicated to explaining them. In an ironic twist, the entire Polkadot network is accessed a simple browser plug-in called Polkadot.js.

  At a glance, Polkadot is an ecosystem of blockchains. The core Polkadot blockchain is called the Relay Chain. Blockchains that are connected to the Relay Chain are known as Parachains. These Parachains can have their own tokens, consensus mechanisms, and even their own governance structures.As mentioned previously, the Relay Chain is built using Substrate. Any Parachains which are built using Substrate can easily connect to the Relay Chain. Any “external” blockchains such as Bitcoin or Ethereum require a bridge to connect to the Relay Chain.Polkadot ConsensusThe Polkadot network uses a hybrid consensus mechanism. The consensus on the Relay Chain is a version of Proof of Stake (PoS) called GHOST-based Recursive Ancestor Deriving Prefix Agreement (or GRANDPA for short).Parachains attached to the Relay Chain use a version of Proof of Work called Blind Assignment for Blockchain Extension (or BABE for short). Polkadot’s hybrid consensus involves 4 key players: Validators, Collators, Nominators, and Fishermen.Polkadot ValidatorsValidators on the Polkadot network are tasked with checking transactions of Parachains and adding them to the Relay Chain blockchain. Validators must stake DOT to be eligible for nomination as a Validator on the network. This is why Polkadot’s PoS consensus is also referred to as Nominated Proof of Stake.

  The amount of DOT required to be considered as a Validator depends on network participation and can be estimated by looking at the amounts currently being staked by existing validators on chain. This is roughly 2.7 million DOT at the time of writing. The list of validators changes every era (24 hours).Validators are randomly assigned to attached Parachains to check their transactions. These transactions are then registered on a block on the Relay Chain blockchain which Validators generate. A minimum of 5 Validators is required per Parachain chain and there are currently around 200 Validators.1000 Validators is the target of the Polkadot network. This is important to note because it means that the Polkadot network can support around 200 Parachains before seeing a slow down in network speed and efficiency.When a new block containing Parachain transactions is generated by Validators on the Relay Chain, 20% of block rewards are distributed among Validators in accordance with the amount of “era points” they have accumulated.To keep things simple, let us just say the more Parachain transactions a Validator has verified, the more era points they get. The remaining 80% of block rewards are sent to the Polkadot Treasury (more on this later).A new block is generated on the Polkadot Relay Chain every 6 seconds (though this may go as low as 2 seconds in the future). Misbehaving Validators can see their stake slashed by as much as 30%. The amount slashed changes depending on how much the Validator has staked and all slashed funds go to the Treasury. Any Nominators who have delegated their DOT tokens to a misbehaving Validator also see a portion of their tokens slashed.Polkadot NominatorsNominators on the Polkadot blockchain are tasked with selecting Validators. They do this by “delegating” (voting) their DOT tokens to Validators. Nominators can nominate up to 16 Validators and receive a portion of the block rewards received by these Validators.Recall that each individual Validator receives block rewards which are (again for the sake of simplicity) proportional to how many transactions they have verified from Parachains. This gives incentive to Nominators to stake their DOT on Validators which do the most work on the Polkadot network.Polkadot CollatorsCollators on the Polkadot network create blocks on Parachains attached to the Relay Chain. These blocks contain the most up to date transactions which have occurred on the Parachain in question. Validators will jointly select the block which is most likely to be an accurate representation of the current state of a Parachain.The transactions of the ‘winning’ Parachain block are then added to a block on the Relay Chain.

  Collators must stake DOT to connect their blockchain to the Relay Chain and become a Parachain.Polkadot FishermenFishermen on the Polkadot network monitor the behavior of Validators and Collators on the Polkadot network. An unspecified “small amount” of DOT is required to become a Fisherman.If misbehavior by a Collator or Validator is identified, the Fisherman which identified the behavior receives an unspecified “large reward” in DOT. The amount of DOT given as reward increases if the misbehavior is consistently detected from a single Collator or Validator.Polkadot GovernancePolkadot’s governance structure involves 3 key players: the Council, the Technical Committee, and regular DOT token holders. The Council consists of 13 elected members of the Polkadot network which must stake DOT to be eligible for nomination.Like Validators, Council members change every era (24 hours). Council members are tasked with deciding how Treasury funds are spent and are the only participants on the network with access to the Treasury. They can also veto dangerous decisions by the network once per month.The Technical Committee consists of 3 entities which must have experience with the Polkadot network and be actively involved in its development. The Web3 Foundation holds one of these three seats. The Technical Committee can be changed at any time by Council vote. The Technical Committee’s primary function is to fast track proposed changes to the Polkadot network in cases of emergency.Only the Council and regular DOT holders can table proposals (referred to as Referenda by Polkadot). These can range from implementing updates to the network to sponsoring real-life events. If a proposal requires the use of Treasury funds, the user tabling the proposal must also stake 5% of the total value of the funds required to make their proposal a reality. If their proposal is voted down, they lose their stake.The number of votes required to pass a proposal depends on voter turnout. If less than 25% DOT users on the network vote for a proposal, then 66% must respond aye for the proposal to pass. This drops to the standard 50% with 100% voter turnout, and otherwise falls somewhere in between.The value of a vote depends on how long a user stakes their DOT for the proposal in question. If you do not stake your DOT when voting for a proposal, it is worth 10% of one vote. If you stake your DOT for 32 weeks, it is worth 6 votes. This allows users on the Polkadot network to “vote with conviction”.Once a proposal is passed, there is an “enactment period” of 30 days before the change is implemented. As mentioned previously, a proposal can be fast-tracked by the Technical Committee if the request to do so is approved by both the Council and by community vote.The Treasury is designed to incentivize the use of accumulated funds in network proposals. This is done by implementing a “budget period” wherein a percentage of Treasury funds are burned if not spent on proposals within a 24-day period.Polkadot’s

 DOT is a cryptocurrency on the Polkadot network. It is used for governance, staking, and bonding on the Polkadot network. Anyone who holds DOT can vote for proposed changes to Polkadot.As noted in the section on how Polkadot works, DOT is used for staking by Validators, Nominators, and Fishermen on the network. DOT is also used for bonding Parachains to the Relay Chain via Collators. DOT was not tradeable between users until the launch of the main net earlier this month.Although DOT initially had a max supply of 10 million, this was changed to allow for a somewhat alarming degree of inflation. Similarly to Band Protocol, the Polkadot network uses inflation to incentivize network participation.The target participation rate for Polkadot is 75% which corresponds to an inflation rate of 10% per year. The inflation rate can be as high as 100% per year if there is not enough network participation.Old DOT vs. New DOTIf you are new to Polkadot, you may have noticed a mention of “New” DOT and “Old” DOT. The first proposal of the Polkadot network when the main net launched was to multiply the existing 10 million DOT tokens by 100x.This was primarily to make the value of DOT transactions easier to count (since it is “easier” to instruct a transfer of 10 DOT than 0.01 DOT). All existing DOT holders saw their “Old” DOT multiplied by 100, leading to a new total supply of 1 billion “New” DOT. This change was enacted on August 21st.DOT cryptocurrency price analysisUnfortunately, it seems that the price data for “Old” DOT has been scrubbed by both CoinMarketCap and Coingecko (probably to avoid confusion). Prior to removal, the “Old” DOT token was trading at a price of around 400$USD per coin, roughly the same as Ethereum.The current price of “New” DOT is just under 6$USD, which makes sense when you consider that it should be roughly 100x less than the price of “Old” DOT (in this case plus a little extra due to the price increase).That being said, there is not all that much to say about the price history of DOT. Ever since the conversion on August 21st, the price of DOT has been climbing quite quickly, even as the cryptocurrency market stagnates. Although CoinMarketCap has not yet registered the data for the “New” DOT token, once it does it will rank 5th by market cap.Polkadot TradingDOT is available on a myriad of reputable exchanges including Binance, Kraken, Huobi, and OKEx. Almost every single exchange DOT is currently listed on has unbelievable liquidity, especially Binance.Register at Binance and Buy DOT TokensThe 24-hour trading volume for DOT is also incredibly high. With a Coinbase listing potentially around the corner, this liquidity and trading volume will only increase.Polkadot cryptocurrency walletsIf you are looking to store your DOT tokens, you are going to have a bit of a hard time. Since DOT is on its own native blockchain and is a brand-new cryptocurrency, you are effectively limited to two options: the Polkadot.js browser plug-in or the Polkawallet mobile app.It is worth noting that the latter is developed by a third party. Many existing wallets are currently integrating support for DOT, including the Ledger hardware wallet and even the popular Metamask browser wallet.Polkadot RoadmapIf Polkadot’s roadmap could be described in one word that word would be ‘cautious’. The Web3 Foundation has spent a lot of time making sure they get everything exactly right.The most important milestones for Polkadot were arguably the launch of Kusama in August of last year, the first phase of the Polkadot main net roll out in May of this year, and the “final” phase of the main net earlier this month (August 18th to be exact).For those unfamiliar, Kusama is an entirely separate cryptocurrency project. It was launched to test the various elements of Polkadot in a real-world environment. Like Polkadot, Kusama is built using Substrate and features its own native KSM token. Kusama is basically an unaudited version of Polkadot and will continue to exist indefinitely as a testbed for developers who may want to test their Dapps or blockchains before launching them on Polkadot.When Polkadot’s main net was initially rolled out, it was effectively the same as it is now with two major differences: DOT tokens could only be issued and staked (not traded), and the Web3 foundation was the only entity which was able to function on the network (it produced all the blocks and verified all transactions).The recent August “launch” involved removing the Sudo protocol which can be conceptualized as a dam that, once removed, gave full control of the network to DOT holders. DOT tokens were made tradeable and the first proposal was passed to divide the valuation of DOT by 100.Since that time, Polkadot is technically a decentralized autonomous organization (DAO) – a protocol which is entirely governed by the community which will fundamentally determine its future development milestones.Why Polkadot is a Juggernaut.

  Polkadot is a cryptocurrency that checks every box regardless of the list you are using. Visionary super-star founder? Check. Solid development team? Check. Notable partnerships? Check. Reputable exchange listings? Double check. Lost of retail investment? Check. Large market cap? Check. Scalable? Check. Upgradeable without forking? Check. Transaction speeds? As high as 1 million.Now, we would be remiss if we did not take a moment to compare Polkadot to Ethereum. After all, Polkadot is essentially a fast-tracked version of Ethereum 2.0. This brings us to why there is not much we can say when it comes to comparing the two: Ethereum 2.0 has not yet launched. The few comparisons which can be made at present are quite technical and are detailed on the Polkadot wiki.One thing which may be useful for some of you who are still having trouble understanding Polkadot is to view the project through an Ethereum lens. Parachains attached to the Polkadot’s relay chain can be likened to ERC-20 token smart contracts on Ethereum. They can have their own consensus mechanisms, can have their own tokens, and tend to have have a specific purpose (think of Ethereum-based projects like Chainlink or RenVM).There are only a handful of issues we see with Polkadot. The first involves the learning curve, which is already very steep for cryptocurrency in general, much less the various applications and protocols within DeFi. The Polkadot team seems to be much less concerned about user experience than they should be given the complexity of the project. Never mind the long list of questions about everything that could go wrong with a community governed hybrid consensus network!The second issue involves money, specifically the allocation of Polkadot’s DOT tokens. For those of you who watch Boxmining, you may have picked up on a detail he noted about Polkadot and Cardano in a recent livestream. A substantial portion of investment into these cryptocurrency projects is apparently coming from China, specifically Chinese farmers (regular farmers, not yield farmers or crypto mining farms).The story goes that many farmers in China are being offered substantial amounts of money, sometimes millions of dollars, to sell their land to state-owned businesses. Chinese brand ambassadors from various cryptocurrency projects including Polkadot and Cardano are selling substantial amounts of DOT and ADA to these rich farmers.While this may not necessarily be a bad thing (even though Cardano slammed Boxmining for tweeting a video of it), it is worth wondering what this means for a cryptocurrency such as Polkadot which punishes inactive DOT holders with insanely high inflation.The final issue Polkadot faces involves interoperability. While the project is marketed as being extremely interoperable, in the reality this is only true regarding other blockchains built using Substrate. Any “external” blockchains such as Bitcoin or Ethereum will require a bridge to connect to the Polkadot Relay Chain. Thankfully, bridge protocols for Polkadot such as ChainX are seeing a surprising amount of growth, and there are numerous mid-cap and even large-cap cryptocurrencies built on Substrate.Even with these concerns, it would take some Olympic level mental gymnastics to justify being bearish on Polkadot. The project is just too damn good, and it is only just getting started. The potential for growth of the network as well as the valuation of the DOT token are both angled to the moon and may just achieve enough adoption and investment to make it to Mars (perhaps even literally, someday!).

How do you rate this article?



All about Polkadot

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.