This guide covers what could one day become the new base layer of the Internet of the future — Polkadot, a web3 protocol that supports multiple decentralized networks; an Internet of blockchains, if you will.
While this may sound too futuristic, the concept is actually quite simple.
Bitcoin and Ethereum are two separate blockchains that are incompatible. But if we had an underlying layer (layer 0) that supports both chains, then we can enable two-way communication between them, which is the goal of the DOT ecosystem. And it might be closer than you think.
Polkadot was developed in 2017 by Gavin Wood, who also co-founded Polkadot’s now esteemed rival network, Ethereum. Back then, it was initially called Ethcore and was designed to be a core infrastructure for ETH. Unfortunately, Gavin found the hurdles he foresaw in Ethereum’s development roadmap too troubling to ignore so he had to come up with a new type of protocol. That was when he first released the Polkadot whitepaper.
Wood ideated a new-generation protocol that is multichain and overcomes the dreaded “blockchain trilemma”, which is the concept of reconciling three desirable attributes of blockchain systems that are simply too difficult to put together. These are:
- security, and
Reconciling these three under one system would be a blockchain developer’s wet dream. And while Polkadot is far from being the only player that is attempting to do this, it has some of the most dormant yet promising technologies in the industry.
What is Polkadot?
Polkadot is a nominated proof-of-stake (NPoS) web3 protocol that leverages the power of parallel chains or ‘parachains’ to solve the so-called blockchain trilemma, with an ambitious goal of becoming the internet of blockchains.
Now, let us talk about Polkadot’s three major components and how fast it can potentially go. Its primary parts are called “relay chain,” “parachain,” and “bridge,” which seamlessly work together to bring the best experience for users and developers.
But how exactly do they work together?
Relay chain serves as Polkadot’s main blockchain and is in charge of helping parachains attain consensus (a procedure used to authenticate transactions) and transaction delivery.
Parachains, meanwhile, make the relay chain’s task more efficient by allowing it to offload most of its processing operations to enhance the overall efficiency of the platform.
Note that parachains, even with their increasing number within the Polkadot platform, shouldn’t be confused with decentralized applications (dApps). Unlike general-purpose blockchains that are one-size-fits-all, parachains are blockchains designed to target specific applications in web3.
Moreover, each parachain is a full blockchain in itself, not just a watered-down or partial one. They are also the biggest and most critical components of the Polkadot ecosystem (we’ll take a deeper dive into this aspect later in the article).
Bridges, meanwhile, allow parachains to link and exchange data with each other to boost their efficiency. In other words, they enhance the interoperability of parachains.
When it comes to speed, it can break past a 1,000 transactions per second (tps) threshold, which is miles away from Bitcoin’s seven and Ethereum’s 30 tps.
But this is only the beginning as it can literally increase by leaps and bounds as the number of parachains increases. It could theoretically reach a million transactions per second, a god-like capability still unseen in the blockchain industry. We will discuss the inner workings of Polkadot in more detail in the Key Components section. But first, let’s dwell into DOT’s use cases.
What is it Used For?
Developers can leverage the inherent security mechanism of the Polkadot network by building their own parachains, allowing them to specialize in certain areas or double down on certain features without worrying about issues. All parachains are interlinked not only with the main chain, but with each other, allowing for cross-chain communication that has been too difficult to pull off in other blockchain architectures.
Ethereum co-founder Vitalik Buterin caused a bit of a ruckus when shared his argument via Reddit and Twitter, stating:
The future will be *multi-chain*, but it will not be *cross-chain*…Vitalik Buterin
Admittedly, Vitalik appears to have owned up to the fact that a cross-chain ecosystem is unlikely feasible on Ethereum due to the limitations of its protocol’s architecture. However, Wood thinks differently about his web3 protocol since it has been designed to retain security features while allowing both data and tokens to flow seamlessly across chains.
In essence, Polkadot exists as an infrastructure for developers to build “the Internet of blockchains”, the “future of the web”. People call it by different names, but it all boils down to a more democratized Internet; one where value is spread throughout the masses and not concentrated on a few large entities like today.
To bring forth this ‘utopian’ vision, Polkadot continually builds its complex toolset for builders to use.
What is Polkadot Coin ($DOT)
Polkadot Coin ($DOT) is the protocol’s governance and staking token. Participants can use it to exercise their governance rights, enforce the network’s consensus mechanism and create new parachains by bonding their tokens.
Now, let us dive into its three main functionalities.
$DOT allows holders to participate in any decision-making regarding the protocol, such as changing network fees, timetables for the approval of new parachains, and schedules for upgrades and bug fixes on the network.
Staking allows Polkadot’s validators and nominators to lock DOT tokens and earn staking rewards in the process.
Moreover, it also serves as a rewarding system and a precautionary measure for DOT holders. Good actors receive corresponding rewards, while the “bad” ones automatically lose their stakes. Polkadot’s staking feature is currently in Beta Mode.
To stake $DOT, head over to the staking portal and connect your wallet.
DOT holders can also add new parachains to the Polkadot platform by bonding or locking their tokens to a specific project. If that parachain becomes dormant and loses relevance, the system will remove it by (un)locking the bonded tokens and returning them to their holders. Moreover, holders can also retrieve their tokens once a parachain’s lease expires.
The Polkadot Ecosystem
Polkadot has a rich ecosystem of parachains due to the nature of its design. It is not a mere layer-1 blockchain, but a layer-0 protocol that hosts multiple blockchains we call parachains. Two of its prominent parachains are Moonbeam and Acala, which are both Ethereum-compatible, which has allowed Ethereum dapps to build on the Polkadot network.
Moreover, something big appears to be brewing in the gaming and NFT space, as DOT is currently building the infrastructure NFT 2.0, a new generation of non-fungible tokens with complex functionalities that could blow us all away. The gaming scene is also building strong, as the subsector is led by none other than Enjin’s Efinity.
Let’s look into each under a microscope.
Moonbeam is a parachain designed to be interoperable with the Ethereum network. It can create applications that produce token economic models, governance, node incentives, and other critical functionalities similar to how Ethereum dapps are built.
The parachain aims to combine the benefits of Polkadot’s scalable and interoperable features with Ethereum’s well-known and convenient tools. Through this synergy, developers can easily migrate Ethereum dapps to Moonbeam or build Ethereum-compatible ones in the Polkadot ecosystem. Two of the most prominent EVM-compatible protocols built on Moonbeam are Mintverse and Minterest.
Mintverse is an NFT aggregation marketplace allowing users to collect and trade NFTs and create web3 digital assets. It boasts an advanced system that aggregates liquidity for millions of NFTs on Moonbeam, Ethereum, and BNB Chain, providing users with the most competitive prices.
Minterest is a borrowing and lending web3 platform that offers a ‘buyback mechanism,’ a feature that allows contributing users to gain revenue from the network. This revenue is separate from the rates users can earn from their lending and borrowing transactions, giving them multiple income streams. It also aims to offer the highest long-term yields in the decentralized finance (DeFi) industry.
Acala is an Ethereum-compatible parachain specially built to offer DeFi solutions. It has tailored services, including multi-collateralized stablecoin backed by cross-chain assets and a decentralized automated market maker (AMM) asset exchange.
Tapio Protocol is a synthetic asset protocol that backs any uniform asset pairs and offers standardized yield handling. Tapio is also a parachain and application-agnostic platform, allowing it to be compatible with EVM parachains and link synthetic assets with dApps.
Now, you might be wondering why the top dapps in the Polkadot network happen to be Ethereum ‘clones’ for lack of a better word. The reason for this is that there are several developers that are struggling with Ethereum’s issues that they had to start looking elsewhere for solutions. Ethereum-compatible parachains like Moonbean and Acala offer ETH builders an opportunity to test out their system in a new blockchain, and the results were terrific.
But that doesn’t mean the layer-zero protocol isn’t building its own unique thing. In fact, its NFTs are something else entirely.
Polkadot is also a network optimized to facilitate the next generation of non-fungible tokens (NFTs), which it calls NFT 2.0. This new breed of digital assets is aimed to expand the industry beyond art-based products by exploring other utilities such as customization and derivative functionalities. These features, on top of other areas it explores, can potentially enhance NFTs’ features and extend their lifelong value as well.
In fact, a growing number of NFT-focused parachains are currently sprawling on the platform to expand NFTs’ utilities and potentially create new services out of these novel use cases.
Let’s take a look at some of these promising parachains.
Unique network is a parachain specifically built to be a hub for games, dApps, and marketplaces. It is compatible with Polkadot, Kusama, and Ethereum platforms.
It offers plenty of features, including sponsored transaction fees, eco-friendly NFTs, a customizable personal marketplace, and allowing users to rent out their digital assets. Moreover, Unique Network is uniquely designed for scalability and efficiency, as it won’t suffer from network congestion and high transaction fees even with increased activity on its platform.
RMRK (pronounced as ‘Remark’) is even more exciting. It is a platform that allows users to build and assemble “Lego NFTs,” enabling them to create a rich and dynamic multimedia asset. Your NFTs need not be static; they could change over time.
Through RMRK’s features, developers can now create equippable, multi-resource, and composable NFTs, which are attributes no protocol has implemented in combination. Imagine your NFT having the ability to own another NFT, which has multiple applications including avatar and clothing, among others.
The most exciting part is that this is only the beginning of RMRK, as it has plans to scale on a multi-chain level.
Efinity is the flagship parachain project of Enjin, one of the leading GameFi platforms in web3. Enjin has launched Efinity with optimized gaming in mind as the parachain fully supports prime web3 games such as Cryptoblades and more than a hundred other dApps. Moreover, Enjin envisions Efinity to be a critical foundation for a decentralized and interoperable metaverse.
Advantages of Polkadot
Polkadot’s multichain nature makes it a unique and potentially disruptive blockchain platform in the web3 space. But what exactly makes it a ‘multi-chain network in the first place?
In case you’ve never skipped reading up to this point, you’ll surely guess that it’s the presence of growing parachains inside the Polkadot’s ecosystem. And just to remind you, it not only aims to handle several dozens of parachains under its Polka wings but to be a massive network the size of the Internet (possibly).
Imagine having wide choices of custom-built blockchains (not just dApps) right inside one mega protocol. This is the multichain future that Polkadot is pursuing; and an ambitious one at that.
Interoperability is the ability of various platforms to interlink and leverage their mutual benefits. And while most blockchain platforms still fall short, Polkadot has been very busy facilitating this feature on their parachains.
Developers can potentially augment their creations through Polkadot’s ability to link their parachains with other networks across the ecosystem seamlessly; an Internet of blockchains, as stated earlier.
Polkadot is a much more scalable platform compared to several other blockchain networks. In fact, it is so scalable that it doesn’t need a layer-2 network just to maintain seamless transactions. Its primary layer can achieve scalability on its own through parachains, enabling it to handle multiple transactions simultaneously.
But parachains always have a choice to integrate layer-2 solutions if they seek God-tier scalability, which might be necessary for the future.
Blockchains typically rely on miners or validators to secure their network but building an army large enough to keep their platform decentralized takes so much time and resources.
Parachains setting up shop on Polkadot don’t need to face the same gigantic problem. Right off the bat, the platform provides them with bank-level security enabling them to operate as early as possible.
Instead of establishing security from scratch, all parachains can leverage the security provided by the Relay Chain’s validators for robust network protection.
Developers can only establish a project inside the Polkadot network by winning a “parachain slot” in bidding. This event subscribes to a type of bidding called candle auction, where a candle’s expiration determines the end of an auction.
But why candle?
Bidding with a pre-determined or anticipated time of ending would encourage bidders to hold their bid and only unleash their aggressive offers moments before the auction ends. Through this “hack”, bidders can potentially save a lot of money, and the auction loses the opportunity to generate more revenue.
To prevent this, a candle is used to prevent bidders from anticipating the end of the bidding event, encouraging them to submit high offers as early as possible or risk losing.
For web3 natives wanting to help their favorite projects participate in auctions, they may participate in ‘crowdloans’. This mechanism allows participants to pool their DOT tokens and boost a project’s fund for bidding. As a reward, supporters usually receive native tokens from these projects.
In case the project wins in the auction, it will automatically lock its supporters’ tokens. And as a policy, they can only redeem these tokens after a project’s parachain slot expires, which will take 96 weeks.
For a detailed guide on how to fund your favorite ‘parachain wannabe’ project, please head on to this link.
Disadvantages of Polkadot
Poor User Experience
As we have seen earlier, Polkadot excels in the areas of security, scalability, and decentralization. But one aspect it may have missed is its user experience (UX), which is drawing increasing flak from many users.
With today’s available technologies, having a smooth UX should be the bare minimum for all tech platforms, and no one can blame users for expecting and demanding this type of standard.
Many users complain that Polkadot’s staking functionalities are much more complicated than other blockchain protocols. In fact, an average user (who isn’t tech savvy) will likely get intimated with the platform and may leave for other user-friendly networks.
Relatively Fewer Interest
Polkadot’s UX problem may explain the blockchain community’s lukewarm response to the platform, despite its impressive offerings.
And it serves as a lesson for current and future web3 platforms. While features are undoubtedly critical to any decentralized services, the market will always lean on user-friendliness before anything else.
Polkadot already has robust web3 offerings within its platform, and it appears that a smooth UX is the only missing piece in its equation.
This is a challenge that definitely needs to be addressed soon.
Key Components of Polkadot
The Relay Chain is Polkadot’s main chain, which handles the network’s heavyweight tasks such as consensus processing, cross-chain interoperability, and shared security.
You can help protect the platform’s Relay Chain by becoming a ‘Nominator’ or ‘Validator.’ A nominator’s task is to secure Polkadot’s main chain by picking the most reliable validators for the platform. It can also increase the network’s security via $DOT staking.
A validator, meanwhile, can safeguard the blockchain by staking $DOT, joining in consensus with fellow validators, and validating proofs from collators.
Moreover, the Relay Chain is combat-ready for Polkadot’s critical operations, such as network upgrades and settling consensus disputes. Through its advanced governance system, platform participants can rest assured that the main chain will handle all these aspects with 100% transparency and accountability.
Nominated Proof-of-Stake (NPoS)
Nominated Proof-of-Stake (NPoS) is the latest consensus mechanism of the Polkadot network.
In NPoS, nominators select trustworthy validators using their own $DOT stakes. If nominators pick bad validators, they lose their stake, which incentivizes them to do their job properly.
Moreover, validators protect the Relay Chain and validate proofs. Nominators, meanwhile, can join in Polkadot’s staking options by nominating their fellow nominators.
As for the developers, they may continue creating new web3 projects to win bounties given by the platform.
If you’re interested in safeguarding the Polkadot blockchain or creating new tools for the network, select one of these links to know more about these tasks.
Canary networks are virtual testing grounds for projects, which help developers test and calibrate their creations before releasing them to the public.
Project teams cannot risk testing critical features in a real-world setting, as they may backfire and cause irreversible damage to a product and platform even before launching. Plus, competitors may take advantage of this opportunity to advance in the market competition.
Not a risk worth taking.
Canary networks eliminate this problem by allowing developers to freely test any features and monitor their benefits and consequences in a controlled environment.
Now, let’s talk about Polkadot’s canary network called Kusama.
Kusama is a pre-production web3 protocol designed to have a looser environment than Polkadot, offering project teams more flexibility in testing various features. It even cloned Polkadot’s dual blockchain system, enabling developers to generate realistic data on their series of feature testings.
But Kusama isn’t the only canary network existing in the web3 space. In fact, other Polkadot parachains also use their own testbeds to launch their experiments.
Here are the current Polkadot parachains utilizing the Kusama network to power their canary blockchains:
|Polkadot Parachain||Kusama-Based Canary Network|
While a growing number of Polkadot projects are using Kusama for their canary networks, it is not a requirement for parachains. But it will be a ready option for participants that lost in the platform’s slot auction.
And while this offers them an opportunity to grow, it doesn’t mean that they can jump on Kusama right away. Why? Because it also has its own limited slots, which means that projects would need to secure another slot for themselves again.
But the good news is, Kusama’s bond requirement is typically lower than in Polkadot, allowing creators to afford a parachain slot.
Let’s have an overview of two common canary networks: Moonriver and Karura.
Moonriver is a Kusama-based canary network for the Moonbeam parachain. In other words, Moonbeam’s newest codes and features are launched first on Moonriver to test their limits and viability. Once they are fully optimized, the system will transfer these features to Moonbeam for mainstream usage.
Karura is Acala’s canary protocol, which also runs as a parachain on the Kusama network. Before deploying Acala’s newest features to the public, they are first tested on Karura’s virtual environment to reveal their possible implications in a real-world setting.
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