Strengths and Weaknesses
- No forks: every improvement to Polkadot core is automatic
- Shared security: all parachains share the same network security as the Relay chain
- Substrate: provides developers with freedom in programming
- Speed: the entire ecosystem is very fast thanks to parachains. In practice, this translates into up to 100 000 transactions per second, but theoretically, using multiple parachains could enable more than 1 million t/s
- Parachain auctions: only a limited number of parachains become available at auctions, and also these auctions are very expensive. In this way, small projects are discouraged from participating in auctions.
- Attacks: A number of attacks have been conducted against Polkadot over the past few years, some of which have been successful, resulting in the theft of millions of dollars
- Weak marketing: The Polkadot does not make itself known enough to be used by a wider audience
The Polkadot blockchain operates on Nominated-Proof-of-Stake (NPoS) consensus.
Polkadot is considered to be the next generation of blockchain. It breaks down barriers between different blockchain ecosystems and facilitates communication between them. The Polkadot network can be viewed as a network of networks, enabling the interconnection of completely different blockchain solutions. It uses a large number of parallel blockchains (parachains) that "offload" the majority of transaction processing requirements onto a main blockchain. Due to this design, Polkadot is both fast and scalable.
It is possible to customize parachains for any purpose and connect them to the primary and secure blockchain (Relay chain).
Upgrade to premium
Functioning of the Chain
A Polkadot blockchain consists of four main components:
Relay chain: as the core of the entire blockchain, it facilitates the mapping of addresses, account information, communication, and maintains the security of the ecosystem. All validators deposit $DOT coins into the staking pool and create new blocks directly on the Relay chain.
Parachain: is used for processing and collecting transactions. Afterwards, transactions are finalized on the relay chain. In order to increase bandwidth, transactions are processed on multiple parallel chains at the same time. Hence, they do not need to be queued and processed sequentially.
Parathreads: Parachains that do not require communication with the relay chain in each block. A certain number of parachain slots are allocated for Parathreads. These are used by parachains to communicate with the Relay chain block by block for a fee.
Bridge: allows interconnection with other blockchains, allowing for the exchange of crypto assets without the need for a centralized exchange (CEX).
Polkadot's Nominated-Proof-of-Stake (NPoS) blockchain consensus relies on the following two mechanisms:
- BABE: Blind Assignment for Blockchain Extension (BABE) is an algorithm that generates slots. It divides time into epochs and each epoch is divided into slots. In the Polkadot blockchain, each slot lasts six seconds, which is the amount of time needed to create a new block. The BABE selects an author (or a number of authors) for each slot to create a block.
- GRANDPA: The GHOST-based Recursive Ancestor Deriving Prefix Agreement (GRANDPA) is a mechanism for finalizing operations for the Relay chains. The mechanism provides agreement between chains, which can accelerate the finalization process. In practice, this means that after more than two-thirds of the validators have validated a chain containing a specific block, all blocks that lead to that block are finalized.
Assuring reliability and security of the entire Relay chain is the responsibility of the NPoS, which consists of the following components:
- Validator: randomly selected validators receive suggestions from Collators for new blocks. They validate the information in the block and transmit block suggestions to the Relay Chain. Validators transfer data from the parachain input queue to the parachain output queue when they validate a block.
- Collator: A collator creates new blocks on a parachain. In some ways, it is similar to validators, but may not provide the security guarantees that the Polkadot chain provides. It maintains the state of the Relay chain and its parachain, as well as managing transactions made between the Relay chain and a parachain.
- Nominator: deposits his $DOT coins in the validators' staking pool. The validator rewards him proportionally for his share of staked coins.
- Fisherman: A network watchdog that makes sure validators validate blocks fairly.
Polkadot's ecosystem is based on the modular Substrate structure, which makes it easy to create smart contracts and dApps.
It enables users to optimize specific parachain usages, including DeFi, NFT, gaming, etc. Universal blockchains, such as EVM, do not offer this level of flexibility and optimization. Substrate can be customized to meet a user's needs by selecting custom transaction fees (even zero), data storage, speed, complexity, and palettes (the building blocks for a blockchain). Furthermore, Polkadot can be upgraded without requiring a hard fork.
The communication between parachains is maintained by XCM (Cross-Consensus Message).
- Dr. Gavin Wood published a whitepaper.
- Web3 Foundation is established to support Polkadot’s research and development.
- the first sale of $DOT coins took place in October, resulting in 145 million USD. Parity Technologies has been selected by the Web3 Foundation to develop the Polkadot ecosystem.
- in November, Parity's wallet was hacked. A hacker was able to freeze 90 million USD worth of $ETH coins in the wallet. Despite this hack, the Web3 Foundation has announced that it has sufficient funds to meet its development milestones.
- in May, Polkadot began testing its Relay chain privately.
- in January, the first testnet, called Alexander, was launched.
- in June, the Web3 Foundation has raised additional capital by selling 500 000 $DOT (worth 1,2 billion USD) for which it received 60 million USD from private investors.
- in August, Kusama was launched as a "testnet" for Polkadot. Everything that will be deployed on the Polkadot blockchain is first deployed on the Kusama ecosystem and tested in real-life operations. To support the operation of the Kusama ecosystem, Polkadot also donated 1 % of the initial $DOT coins.
- in May, Phase 1 of the project was launched. Polkadot's first version was built on a Proof-of-Authority (PoA) consensus, which was maintained by 6 validators of the Web3 Foundation.
- in June, the network switched to Nominated Proof-of-Stake (NPoS) consensus, thereby initiating Phase 2. It allowed owners of $DOT coins to stake their coins with validators and receive new $DOT coins in return.
- in July, Phases 3 and 4 were launched and new features were introduced. Using a voting system, they put the Polkadot protocol governance under the control of the community.
- in August, the community voted to change the ratio between $DOT and its smallest unit, Plancks, by a factor of 100. Consequently, the new supply of $DOT rose from 10 million coins to 1 billion coins.
- in November, the first parachain auction was held, which was won by Moonbeam, Acala, Parallel finance, Astar, and Clover finance.
Web3 Foundation was founded by Gavin Wood and Peter Czaban (Parity).
Parity Technologies was founded by Gavin Wood and Jutta Steiner. It is responsible for the development of the Substrate modular framework.
In 2013, Wood met Vitalik Buterin and together they began working on building the foundations of the Ethereum blockchain. Wood had worked in open-source programming for 15 years. During a conference in Miami in January 2014, he participated in the announcement of the Ethereum blockchain. He was involved in the development of the Solidity language's foundations.
In addition to this, he also worked on ways to extend the Ethereum blockchain. He wanted to implement fragmentation. During his research and testing, he encountered several obstacles and after a few months, he came up with a solution. It was Polkadot.
The main coin on the Polkadot blockchain is $DOT.
Its use is:
- Voting on the network's future
- Paying network fees
- Rewarding validators
- Used to auction new parachains
Revenue & Tokenomics
An ICO for the $DOT coin took place in 2017, and 145 million USD was raised.
It was divided into a public and a private sale. In the public sale, 65 million USD was raised and in the private sale, 80 million USD was raised.
At the beginning of the network, 10 million (old) $DOT coins were created. Following a community vote, the original supply was multiplied, a cosmetic change that caused the number of coins to increase by 100x.
Both $DOT (old) and $DOT (new) are allocated as follows:
- 3.4% allocated to investors in 2020
- 5% allocated to investors in 2019
- 11.6% retained by Web3 Foundation for fundraising
- 30% allocated to the Web3 Foundation for immediate use for the development of the Polkadot network and other undisclosed Foundation activities.
- 50% allocated to ICO investors
Total Supply is not fixed at 1 billion $DOT. The rewards provided to NPoS validators make $DOT an inflationary coin.
$DOT's inflation rate is 10% annually, with newly issued coins primarily intended to provide a reward for validators.
As of December 14, 2022, there are 1 262 759 858 $DOT coins in circulation.
The Uniqueness of the Chain
Polkadot was formally created in 2016 by Dr. Gavin Wood, and he described it in a whitepaper. The idea was to build a chain that would link independent functional blockchain networks together. Polkadot is an open-source platform that offers easy entry and supports the ecosystem via shared security infrastructure.
Polkadot aims to solve three basic problems:
- Interoperability: As the crypto world grows in popularity, hundreds of brand-new blockchains are being developed. There is no guarantee that they will all survive, but a few are likely to remain. Bitcoin and Ethereum, for example, are among the blockchains that have a long future. However, these do not connect the entire crypto world and do not empower it. Wood's solution is to create an entire Polkadot ecosystem that will allow smart contracts running on one blockchain to interact with data and assets held on other blockchains.
- Scaling: Currently, most blockchain transactions are processed sequentially on nodes in the network, which creates queues and limits transaction speeds. Polkadot utilizes parachains in order to eliminate these queues. Several parachains are running in parallel over a single Relay chain, with each parachain processing multiple transactions simultaneously. As dozens of blockchains could run in parallel, this system is expected to be hundreds of times more scalable than Proof-of-Stake (PoS). A Polkadot system could potentially have multiple relay chains interconnected by a main relay chain, resulting in scalability 1 000 times to 10 000 times greater than the current PoS system. Considering that Polkadot Relay uses Substrate, the same technology base that most parachains are built upon, this is a realistic scenario.
- Security: Currently, many new standalone blockchains are unable to find a sufficient number of validators in order to operate securely. Polkadot links security across the network, in order to enable individual blockchains to leverage existing shared security without having their own validators. In this way, each chain can strengthen its vulnerabilities. Polkadot's shared chain security system does not require a community of validators to be secure. Therefore, each blockchain can focus on scaling or transaction speed, while Polkadot's Relay chain handles security.
How the Network is Secured
Polkadot Relay chain security is provided by 297 active validators that change after every epoch (24 hours). After each epoch, new validators are nominated. There are 950 validators waiting to be elected.
There are only hardware requirements for validators. It is not necessary to have $DOT coins for staking to become a validator, that is taken care of by the nominators who choose the validators for the given epoch.
The nomination process is divided into 3 phases:
- Intention to nominate: anyone who wants to participate in the nomination
- Electable nominator: a nominator who is selected for election by the NPoS. This selection is made using a bag-list
- Active nominator: nominators who have emerged from the NPoS election algorithm and have supported active validators. The top 256 nominators for a given validator will receive a staking reward
The bag-list works as follows:
For example, we choose 7 users and 3 bags
Alice: 10 $DOT, Bob: 11 $DOT, Charlie: 15 $DOT, Dave: 20 $DOT, Eve: 100 $DOT, Frank: 1000 $DOT, Georgina: 2000 $DOT.
Bag1: Max. 2000, Min. 1000 – Frank, Georgina
Bag2: Max 1000, Min. 20 – Eve, Dave
Bag3: Max 20, Min 10 – Alice, Bob, Charlie
In the bag, the order is determined by the date $DOT was added to the staking. In the case of five nominees, Frank, Georgina, Eve, Dave, and Alice will be selected. Even though Alice only has 10 $DOT in her bag, she is still first. It is not the number of $DOT in the staking order that determines her inclusion in the bag, but rather the date on which she was added to it. It is possible for Charlie to move up in his bag by pressing the button "Move Up". It is located in a wallet if the user can climb higher in his bag order. As a result, if Charlie had done so and reached the top of the bag order, the rewards would have been allocated to Frank, Georgina, Eve, Dave, and Charlie. In this model, nominators are encouraged to distribute their coins among a variety of validators.
Polkadot Relay chain security is decentralized through validators elected by nominators. Although NPoS consensus does not require as much computational power as PoW, even this small amount of power must be utilized somewhere. The majority of these servers are leased from Google or Amazon Web Services. Most of the computations on the network are performed by these services. In the event that these cloud services of large corporations are forced to shut down by government authorities in the future, the entire Polkadot ecosystem would be impacted.
How to become a Polkadot validator:
It is easy to become a validator on the Polkadot blockchain. All you need is a wallet and the following hardware requirements:
- 4-core 3,4GHz CPU
- 16 GB DDR4
- 1 TB SSD
- Linux operating system
- 24/7 online connection with 62,5 MBit/s
- NTP installed (Network Time Protocol)
To set up your node, watch the video.
It is important to have as much $DOT as possible in staking in order to become an active validator. You can obtain them by depositing them or from nominators. Here is a list of all validators with $DOT coins in staking.
Benefits of the validator:
- Receive a reward in the form of $DOT coins
- Determine the distribution of rewards to nominators
- Actively manages network security
How to become a Polkadot nominator:
You can either become a nominator yourself or leave your votes for the pool.
The following table compares solo nominations with pool nominations.
Video instructions on $DOT staking for nominating.
Video instructions for nominating in the pool.
- No hardware to worry about
- Not directly involved in network security
Polkadot will focus its blockchain efforts in Q4 2022 on parachain scalability, parachain development, relay chain control, cross-chain communication, and staking.
Here is a detailed description of all deployed innovations.
The Polkadot ecosystem is divided between parachaines.
The largest parachains of Polkadot:
There are 15 DeFi parachains in the Polkadot ecosystem.
Total DeFi TVL within the parachains is 738 530 000 USD.
Polkadot provides grants to support the development of the DeFi ecosystem on its platform. During the distribution of the $DOT coins, Web3 Foundation retained 11.6 % for future investment purposes.
Polkadot's community is very friendly and active on Discord. Any question is answered within a few moments.
Polkadot's Twitter feed is regularly updated with new information about the entire ecosystem. YouTube provides a variety of educational videos that can assist you in becoming more knowledgeable. Additionally, there are several interviews with Polkadot blockchain content creators.
Among other partners are Coinbase Custody, FC Barcelona, and Chainlink.
Where to Buy
Most crypto exchanges offer the purchase of $DOT.
When purchasing on decentralized exchanges (DEX), it is preferred to use those based on the Polkadot blockchain:
There is no exchange limit when buying on centralized exchange (CEX). Since $DOT is one of the top 20 cryptocurrencies, almost all CEXs support it.
Polkadot may appear to be a chaotic and large ecosystem. At first, it seemed that way to me, but the opposite is true. Parachains operate quickly and smoothly. The major advantage of the Polkadot blockchain is its Substrate framework, which makes it easy to program parachains. I do not particularly like the way that new parachain slots are auctioned on the Polkadot blockchain. In my opinion, they are very unfair to small projects that do not have sufficient capital to participate. A small, promising project does not stand a chance. Polkadot's DeFi ecosystem is overall incoherent. Several projects that I have tried on parachains have failed, either as a result of bugs in the code or as a result of whales sucking up funds. Polkadot is still a very young, but I believe it has a bright future. The project has the potential to succeed where others have failed, and provide a solid Web 3.0 foundation for the future of the decentralized Internet.