Exploring Polkadot’s blockchain of blockchains

Polkadot is one of the most highly anticipated blockchain networks, forming a scalable ecosystem set to rival, or rather complement, the most established dApp platform, Ethereum.

The potential of Polkadot is already recognized by over 350 projects building out smart contracts, oracles, NFTs, DAOs, bridges, data, privacy, gaming, IoT, DEXs, and other defi solutions on the network. So what exactly is Polkadot, why is it so special, and what are the most exciting Polkadot projects to watch in 2021?

What Is Polkadot (DOT)?

Polkadot is a scalable, interoperable, and secure network protocol for the next web, built using Substrate, the modular framework that enables the creation of compatible and purpose-built blockchains by composing custom or pre-built components. Projects built with Substrate can therefore run natively on Polkadot.

Polkadot’s sharded blockchain connects several Parachains into a single network, allowing them to exchange data securely and process transactions in parallel. It facilitates upgrades automatically without hard forks, utilizing a governance system managed by DOT native token holders.

Polkadot is also currently the highest value and most secure Proof-of-Stake platform, offering estimated rewards of 13.66% per year with over $12.5 billion in staked value and more than 60% of eligible tokens staked. DOT can be staked on Polkawallet, via major exchanges like Kraken and Binance, or by using a Ledger Nano with Polkadot-JS.

A Brief History

As the flagship project of the Web3 Foundation, Polkadot was founded by Gavin Wood, the co-founder of Ethereum and former CTO of the Ethereum Foundation, where he helped develop Ethereum’s Solidity programming language. Wood is also CEO of Parity Technologies (previously Ethcore), the blockchain infrastructure firm that developed Parity Ethereum, one of the two most widely used Ethereum clients, and who also work on Polkadot and Substrate development.

Following its original 2016 whitepaper and successful $145 million fundraise in 2017, Polkadot finally went live on mainnet in May 2020. A redenomination of the DOT token then took place in August at a 1:100 ratio, coinciding with a meteoric market cap rise that saw DOT jump from outside the top 100 cryptocurrency rankings to reach the top ten.

Polkadot is now moving into the next stage of core infrastructure development, and 2021 will see continued research into further scalability on Polkadot 2.0, the features of which will be up to the token holders.

Polkadot Architecture Overview

Polkadot is a sharded multichain network, coordinated by its layer 0 Relay Chain, that processes transactions on several chains in parallel, known as ‘Parachains.’ Parachains derive their security from that of the entire network, significantly improving scalability, upgradability, and interoperability, eliminating the bottlenecks of legacy blockchains, and connecting with external networks via bridges.

Polkadot uses NPoS (Nominated Proof-of-Stake) as its consensus mechanism, designed with the roles of Validators, Collators, and Nominators, to maximize chain security. Stakers interested in maintaining the whole network can run a validator node, Collators maintain Parachain nodes, and DOT holders can stake tokens to participate as Nominators.

Relay Chain

The Relay Chain is the central layer 0 of Polkadot, responsible for the network’s consensus, security, and cross-chain interoperability. It comprises a minimal number of transaction types including, governance, Parachain slot auctions, and participating in NPoS. It focuses on coordinating the system as a whole while delegating more specific functions to the Parachains.

Parachains

Parachains are the specialized shards of Polkadot that allow transactions to be processed in parallel, delivering scalability and handling most of the computation on the network. Parachains most commonly take the form of a blockchain, optimized for specific use cases, and lease dedicated connection slots to the Relay Chain, which validates the connected Parachains to maintain a shared state across the ecosystem. They share in the security of the entire network and communicate with other Parachains using Cross-chain Message Parsing (XCMP).

Parathreads

Parathreads are an interchangeable alternative to Parachains that can temporarily participate in the network on a block-by-block basis, gaining Polkadot security without leasing a dedicated slot. It allows the scarce resource of a Parachain slot to be shared among competing Parathreads, accessing resources for a cheaper pay-as-you-go style fee rather than the equivalent of a long-term contract.

Bridges

Bridges make the Polkadot system compatible with external blockchains, allowing Parachains to trustlessly communicate with them.

Validators

Validators secure the Relay Chain by staking DOT and running nodes, validating Parachains, and participating in consensus with other Validators, receiving staking rewards in return. They play a crucial role in adding new blocks to the Relay Chain and, by extension, to all Parachains, allowing parties to complete cross-chain transactions via the Relay Chain.

Polkadot pays validation rewards equally to all Validators regardless of their stake, with staking rewards then distributed pro-rata to all stakers after the Validator payment is deducted. This incentivizes the nomination of lower-staked Validators to create an equally-staked Validator set.

Collators

Collators maintain a full node for the Relay Chain and a full node for a Parachain. Collators aggregate Parachain transactions to produce new Parachain block candidates to pass to Validators for verification in the shared state of the Polkadot network.

Nominators

Nominators are other DOT holders, helping to secure the Relay Chain by staking DOT and selecting the best performing Validators in return for a share of the staking rewards.

Fishermen

Fishermen are stakers and Parachain full nodes that perform a policing role to monitor the Polkadot network for any bad behavior and report it to Validators. If they are proven correct about a report, they are rewarded but risk losing their stake if they are wrong.

Governance

The development of Polkadot is governed by three types of users:

DOT Holders

Any DOT holder can use their tokens to propose changes to the network and vote on the proposals of others.

The Council

The Council is elected by DOT token holders and responsible for both proposing changes and determining which changes are made. Council member proposals require fewer votes for approval than those by ordinary DOT holders.

The Technical Committee

The Technical Committee is composed of the development teams that are building Polkadot. It can make special proposals in an emergency and are voted in by Council members.

The DOT Token

DOT is the native token of Polkadot serving the purposes of network governance, staking, transaction fees, and bonding to acquire and connect to a Parachain slot. It enables certain functions for holders to:

• Add new Parachains.
• Become a Validator, Collator, Nominator, or Fisherman.
• Participate in the governance of Polkadot.
• Become a Collator for a Parathread by making bids for block inclusion.
• Participate in the decision-making process for global upgrades or changes to Polkadot.
• Earn staking rewards.

DOT is also inflationary, so there is no maximum supply as in Bitcoin. The inflation is designed to incentivize the network and dynamically adjust according to the staking participation rates, up to a maximum of 10% per annum. DOT currently has an allocation of approximately 1 billion tokens following the network’s redenomination.

What Benefits Does Polkadot Offer?

Combining this infrastructure and tokenomics, Polkadot delivers several benefits to users, including:

• Limitless Scalability – Parachains connected through bridges grow the network’s utility.
• NPoS Consensus – Open and adaptable consensus mechanism to host different chains.
• Cross-Chain Functionality – Interoperable data and value transfers between chains.
• Governance Mechanism – Clearly defined community governance.
• Upgradeability – Supporting upgrades without requiring hard forks.
• Pooled Security – Connected Parachains benefit from pooled security through Polkadot’s Relay Chain, avoiding isolated smart contract vulnerabilities.
• Defi compatibility – Defi relies on composability, cross-chain communication, value transfers, and integration, all key components of Polkadot.

Top Polkadot Projects

We are witnessing rapid growth in the development of new Polkadot projects, diversified across a range of industry sectors. There is also an increasing trend for major Ethereum and other blockchain-based projects to extend support to the Polkadot ecosystem too.

Kusama (KSM)

Kusama is an early, unaudited, and unrefined release of Polkadot, described as a canary network for Polkadot experiments. Kusama serves as a proving ground, allowing teams and developers to build and deploy a Parachain or try out Polkadot’s governance, staking, nomination, and validation functionality in a real environment.

Kusama is a live network with its own native token, KSM. It is not to be confused with Polkadot’s Rococo testnet that launched in August, capitalizing on growing interest to allow projects to test Parachain functionality before deploying onto Polkadot itself.

Acala Network (ACA)

Acala Network is a financial hub for the Polkadot ecosystem, providing key financial primitives including; a decentralized stablecoin (aUSD), staking derivatives, and a DEX. Acala Network powers cross-chain liquidity and defi applications on Polkadot and connected blockchains.

Reef Finance (REEF)

Reef Finance is a gateway to defi through its smart liquidity aggregator and yield engine that enables trading with access to liquidity from both CEXes and DEXes. It offers smart lending, borrowing, staking, and mining through the AI-driven personalized Reef Yield Engine.

Polkastarter (POLS)

Polkastarter is a permissionless DEX built for cross-chain token pools and auctions, enabling projects to raise capital cheaply and quickly on a decentralized and interoperable platform based on Polkadot. Users can participate in a secure and compliant environment and use assets that go way beyond the current ERC20 standard.

Moonbeam (GLMR)

Moonbeam provides an alternative for projects to the cost and complexity of implementing a full Parachain themselves, making it a lot easier to build decentralized applications on Polkadot and integrate with other blockchains, including Bitcoin and Ethereum. Moonbeam’s compatibility with the Ethereum developer toolset allows for fast deployment of applications that work with users and assets on remote chains, either through native Polkadot or bridge-based integrations. The network’s Kusama deployment will be called Moonriver and have its own utility token called River.

Rio Chain (RFUEL)

RioChain, the core element of the RioDefi ecosystem, is a Polkadot Parachain built using the Parity Substrate framework. Alongside its RioChain wallet and block explorer, RioDefi provides access to a scalable and interoperable cross-chain defi ecosystem. It expands the service offering potential for dApp developers, including Bitcoin lending and saving platforms, stablecoin loans, and e-commerce, connecting centralized financial systems to decentralized blockchains.

Mantra DAO (OM)

Mantra DAO delivers a community governed protocol positioned as a gateway to cross-chain, multi-asset defi services focussing on staking and lending. Mantra DAO allows users to onboard collateral from other connected chains, including Bitcoin, and leverage the existing Ethereum defi ecosystem.

Interlay (PolkaBTC)

Interlay is helping to make decentralized finance interoperable by designing the Bridge-Parachain infrastructure and building the BTC-Parachain – a trustless bridge between Bitcoin and Polkadot. Once deployed, users will be able to mint 1:1 bitcoin-backed assets onto Polkadot, as PolkaBTC, and then use these across a wide range of applications, including decentralized exchanges, stablecoins, and lending protocols.

Polkaswap (PSWAP)

Polkaswap is a non-custodial cross-chain AMM DEX designed uniquely for the Polkadot ecosystem. It provides a standard bridging interface and will enable the listing and exchange of tokens for all Substrate Parachains and other blockchains like Ethereum and Bitcoin.

Manta Network (MANTA)

Manta Network allows users to swap Polkadot and its Parachain tokens with corresponding privacy tokens, pay with those privacy tokens, redeem base coins, and anonymously trade private versions of tokens on the platform, previously challenging to leverage in defi.

Exeedme (XED)

Exeedme is a blockchain gaming platform built on Polkadot and launched on Polkastarter that enables all gamers to create new revenue streams by leveraging the power of NFTs and DeFi to incentivize gamers to monetize their skills.

Edgeware (EDG)

Edgeware is a high-performance, self-upgrading smart contract platform in the Polkadot ecosystem. Unlike previous blockchains, Edgeware users organize into groups, projects, and businesses to develop the chain, along with their own products and services. It is funded by the public through Edgeware’s innovative on-chain treasury, like a digital city, and legislated by elected participants.

Clover Finance (CLV)

Clover Finance is a powerful smart contract platform that enables Ethereum developers and projects to migrate their contracts to Polkadot. By minimizing the changes required to run existing Solidity smart contracts on the new network, Ethereum projects can simply replicate their dApp and deploy it to Clover using MetaMask, Truffle, Remix, and other familiar tools.

SpiderDAO (SPDR)

SpiderDAO’s vision is to bring unparalleled online privacy to the end-user, addressing the shortcomings of current DAO frameworks. SpiderDAO uses a multi-layered governance setup based on hardware and software tools on top of a fair and resilient hardware-based DAO built on Polkadot.

Laminar (LAMI)

Laminar is building an open finance Polkadot Parachain platform, powering synthetic assets, margin trading, and money markets.

Darwinia (RING)

Darwinia Network is a decentralized cross-chain bridge network building on Substrate. It provides the safest general bridge solution, connecting Polkadot, Ethereum, TRON, and other heterogeneous chains by cross-chain assets transfer. Darwinia focuses on defi, NFT trading, and gaming markets.

Dock (DOCK)

Dock provides a range of tools incorporating blockchain technology that enable businesses and developers to create verifiable decentralized identities (DIDs) and also create, manage and present credentials. It moved from Ethereum to the Polkadot ecosystem to take advantage of increased scalability and interoperability.

Chainlink (LINK)

Already established as the leading oracle network on Ethereum, Chainlink’s Polkadot implementation will make off-chain data feeds, various APIs, and traditional payment services available to the Polkadot network. Data from the Chainlink oracles Parachain can, therefore, be leveraged by all blockchains in the Polkadot ecosystem and used to trigger smart contract messages and settle transactions across different chains.

Akropolis (AKRO)

Akropolis is dedicated to the needs of the unbanked economy, delivering a light and modular OS framework for creating for-profit DAOs, with customizable user incentives, automated liquidity provision, and treasury management. Its Sparta platform enables undercollateralized loans and passively generates yield via different defi protocols, and its Delphi product executes automated dollar-cost averaging saving strategies for digital assets. The initial Akropolis implementation was on the Ethereum blockchain, later launching a Polkadot Parachain and ERC20 to Substrate bridge.

Ontology (ONT)

Ontology is a high-performance public blockchain specializing in digital identity and data. Ontology is now building a Parachain on Polkadot to accelerate the adoption of its decentralized identity solutions and provide a series of credit-based services on decentralized identity and cross-chain communication.

Bluzelle (BLZ)

Bluzelle is a decentralized database for Web3 powered by Cosmos, allowing developers to pay for storage space and read/write to the decentralized database. While data storage is the foundation, Bluzelle is in the process of developing data feeds and oracles for the next phase of its evolution, which includes integrating its solutions with various Polkadot projects.

OriginTrail (TRAC)

OriginTrail is a decentralized, open-source knowledge graph solution, allowing infinite scaling of data that can be shared both publicly and privately for supply chain and digital identity solutions. Originally built on Ethereum, OriginTrail is now being implemented on Polkadot.

Ankr (ANKR)

Ankr makes it easy to deploy blockchain nodes in a matter of minutes. With support already in place for more than 40 blockchain protocols for staking or development purposes, Polkadot has now been added to its node market too, helping projects to get up and running on the ecosystem quickly.

Ocean Protocol (OCEAN)

Ocean Protocol already provides a marketplace for access to ERC20 data assets in defi. It is now also building on top of Polkadot, allowing for a bridge between data sets across connected blockchains.

Celer Network (CELR)

Celer Network is a popular layer 2 scaling solution for blockchains like Ethereum that has partnered with the Web3 Foundation to develop advanced layer 2 scalability and interoperability on the Polkadot ecosystem.

Ren (REN)

Ren is an open protocol that enables the permissionless and private transfer of value between any blockchain, deploying a RenVM bridge module on the Acala network. The BTC gateway is provided by RenVM while minting and burning of renBTC on Acala are enabled by this gateway module, bringing bitcoin and other assets to the Polkadot universe.

The Ecosystem to Watch in 2021

Despite the significant market cap growth of Polkadot overall, now consistently in the top five, its valuation ratio has remained largely static against Ethereum. Dan Morehead, founder of blockchain investment fund Pantera Capital and Polkadot investor, suggests it is therefore undervalued comparatively, commenting that:

“Polkadot is only trading at 10% of the value of Ethereum, and our theory is that it has a much higher than 10% chance of being a competitor to Ethereum.”

With over 350 projects already onboard and development currently growing at a rate of 44% a year, Polkadot certainly has momentum on its side, so it’s not unreasonable to expect its market share to increase beyond just 10% of Ethereum as it rides the crypto and defi waves through this latest cycle.

Polkadot shuns the idea that there should only be one blockchain. It represents an era of decentralized scalability, interoperability, composability, and security, not built-out as independent protocols, but as a blockchain of blockchains to bridge the existing infrastructure, ignite new use cases, and become a hub of decentralized finance in 2021 and beyond.

For more information, explore the Polkadot ecosystem on CryptoSlate.

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