What is Polkadot? A Beginner's Guide

Polkadot hit the markets a little less than a year ago but is already one of the projects with the highest evaluation. Read in our new Polkadot guide what is Polkadot aiming to achieve and how DOT quickly gained a position in the top ten.

Key Takeaways

  • Polkadot is a multichain protocol which allows to create parallel-running chains that can communicate with each other;
  • The native token of the network, DOT is used in governance, staking and parachain creation;
  • The direction of development the project and the community are aiming at right now is expansion via parachains. On-chain fully automated parachain auctions are soon to be rolled out on the mainnet, and VCs are creating funds to help builders secure a parachain.

What is Polkadot?

image 720 5 - What Is Polkadot? A Beginner's Guide
Source: Polkadot

Polkadot is a blockchain platform which takes the existing technology a step further: its main purpose is to build a system of connected blockchains. The mission of Polkadot is to become a foundation for the decentralized Web, made for users by users.

Polkadot uses a unique consensus algorithm called GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement). It separates finality from block production, resulting in instant confirmations and fork resistance. 

The block production is dictated by the Blind Assignment for Blockchain Extension (BABE) algorithm. BABE dictates block production, GRANDPA finalizes them and Nominated Proof-of-Stake chooses validators to record this in the blockchain.

The platform makes the creation of new chains very easy with parachains, and in return developers get secure and scalable blockchain to build on. Existing chains can also connect to the Polkadot ecosystem with the help of blockchain bridges.

What is Polkadot Relay Chain?

Relay chain of Polkadot is the main chain of the network. As in similar networks, it is responsible for security, consensus and interoperability.

By delegating individual transactions to parachains, the network processes thousands of transactions at once. Relay chain only records the outcome of bulks of these transactions.

Parachains and Parathreads

Another fundamental component of the Polkadot ecosystem is parachains which are individual sub-chains of the network. They are customisable, can be adjusted for specific use cases and have their own tokens.

To secure a parachain, though, the team has to win in an auction or pass a governance proposal. An alternative with a lower entry barrier would be using a parathread.

Parathreads are similar to parachains with the only difference that they do not require continuous connectivity to the network. Each block incurs a fee, and this can be convenient for chains that do not need to produce them often (such as oracles).

Bridges to Other Blockchains

Last but not least, Polkadot brings existing blockchains to the network via bridges. Namely, at the moment, Bitcoin, Ethereum and EOS bridges are in development.

image 720 1 3 - What Is Polkadot? A Beginner's Guide
Source: Polkadot

In the example above, we see how a decentralized insurer could issue a payment in DAI to the user without going off-chain. The interaction involves an insurer that runs on a parachain of polkadot, oracle and IoT info sources on different parachains, and an Ethereum bridge.

Bridges can make chains communicate either by issuing a wrapped version of an asset or translating data within the bridge protocol. For example, PolkaBTC issues Bitcoin-backed assets and ChainX uses its own consensus to bridge BTC and Substrate-based chains.

History and the team of Polkadot

As we already mentioned in this Polkadot guide, it became a top-10 cryptocurrency as soon as it launched in 2020. Why is that? Mainly this is because of its team and research that led to its development and launch.

The foundations for the project of a decentralized web trace back to 2016. Web3 Foundation, founded by Gavin Wood and Peter Czaban, oversees the development of Polkadot.

Gavin Wood is known as a co-founder of Ethereum and the developer of Solidity programming language. Peter Czaban is an alumni of Oxford who specialized in Bayesian Machine Learning and worked in defense and with decentralized networks extensively.

The third co-founder of Polkadot is Robert Habermeier, member and contributor in the Rust community. He has a research and development background in blockchains, distributed systems, and cryptography.

What is DOT?

To make decentralized governance, interoperability and staking possible, Polkadot has the utility token DOT. What is Polkadot’s token DOT like under the hood?

DOT powers the set of relay chain validators, which secure the array of parachains of the network. The consensus used by the network is nominated proof-of-stake, in which nominators choose validators to propagate the network.

Any staker can be a nominator but only nodes that have a record of fair behavior get to be validators.

In August 2020, DOT were redenominated without affecting the total supply. The current allocation of DOT is 1 billion.

DOT Price

image 720 2 1 - What Is Polkadot? A Beginner's Guide
Source: TradingView

Following the redenomination, the price of the token rose from $2.76 to $6 in a couple of weeks. Until 2021, this has been the historical maximum of the coin.

As soon as 2021 started, DOT caught on to the bull run of the market. In February it reached $40, then $48 in April and on May 15, 2021 — its ATH of $49.69.

Now it is back to the January price, and at the moment of writing this Polkadot guide, the DOT price is $13.24. The coin ranks 9th by market capitalization according to CoinMarketCap.

How to Use DOT?

As evident from what we previously said in our Polkadot guide, the primary purpose of DOT is to be utilized in the ecosystem. The coins can be used to purchase a parachain slot or staked to secure the network for passive income.

And of course, DOT is a governance token. As such, DOT holders are entitled by the protocol to determine fees, auction rules, parachain addition and platform upgrades.

What is Polkadot Similar To?

Polkadot is not the first project which set out to bring closer the rapidly expanding blockchain multiverse. Cosmos’ development started around the same time, in 2016.

Cosmos is secured by a hybrid proof-of-stake algorithm. The main difference is that each sub-chain there is governed independently from Cosmos Hub.

As for Polkadot vs Ethereum, it is clear that the first is a step forward from the second. After all, even given that Ethereum allowed smart contracts to exist, ETH cannot be used as a medium between separate tokens or apps, like DOT.

What is Polkadot criticized for?

In May 2021, Polkadot network experienced outages due to an out-of-memory error making nodes fail. The amount of nominators was greater than outlined in the compiler and the blockchain’s state transition function crashed.

Despite the fact that the necessary fixes were implemented, this still led to more than an hour of network outage.

Legal experts give a fair warning that DOT can face scrutiny from the Securities and Exchange Commission. DOT were sold in ICOs long before the launch of Polkadot, which can legally be defined as an investment contract.

What is Polkadot’s future?

To get a glimpse of the future of Polkadot, you can follow the development of its canary chain Kusama. 

Canary chain means that it is similar to the original but with less restrictions for developers. Unlike the testnet Rococo, Kusama is more representative of an actual post-release environment because it has more independent validators.

Last month, the first parachain auctions were successfully concluded in Kusama. The mechanism can soon be expected to work in full force on the main chain.

Venture capital firm Master Ventures has established a fund for projects which would like to participate in these auctions. The VC will allocate $30 million in DOT and KSM for the builders.

Social Media Posts

Community member Gavin Hood is surprised that Polkadot is still not appreciated higher than Ethereum, the faults of which it fixes, as he claims.

Media-savvy influencer Ben GCrypto compared popular altcoins by the developer activity — Polkadot and Kusama come out on top! The statistics counted the number of pull requests on GitHub.

A bearish Polkadot price prediction comes from Trader XO — he’s expecting it to drop further to $10. The replies from the community members are positive regardless: the lower the price, the better the opportunity to open a position.

Which Wallet to Choose for DOT?

DOT can be stored in most popular multi-coin wallets. There is an official wallet readily available at the project’s website, too.

If you want to store and stake DOT, pick the Exodus wallet! It has the option to swap coins and tokens right in the application, powered by ChangeHero.

For safer storage, you can choose Ledger hardware wallet but remember, swaps and staking can only be done in a hot wallet.

How to exchange Polkadot?

For your convenience, DOT can be bought on ChangeHero in five easy steps:

  1. Choose the currencies on the home page, amounts and the type of exchange. Provide your wallet address in the next step and check the amounts;
  2. Double-check the provided information, read and accept the Terms of Use and Privacy Policy;
  3. Send in a single transaction the sum of cryptocurrency you will be exchanging. Fixed Rate transactions have a 15-minute limit;
  4. And now, relax! We are doing all the work: checking the incoming transaction and doing the exchange as soon as it arrives;
  5. As soon as the exchange has been processed, your DOT are on the way to your wallet. We’ll be happy to hear your feedback if you enjoyed using ChangeHero!

Customer support is always available in chat on our website, official Telegram group or through the email: [email protected].

Conclusion

Polkadot is a crypto project renowned for its legitimacy and versatility. Their vision of Web 3.0 is something to look forward to, and with the speed of development they might as well achieve what their competitors could not.

Enjoyed the Polkadot guide? For more information about Polkadot and other top crypto projects, keep an eye on our blog and subscribe to ChangeHero on social media: Twitter, Facebook, Reddit and Telegram.

FAQs

What is Polkadot used for?

DOT can be used to purchase a parachain slot or staked to secure the network for passive income. DOT can determine fees and auction rules, vote on parachain addition and platform upgrades.

What is so special about Polkadot?

Polkadot aims to create a web of the new standard, decentralized and governed by users. To do this, Polkadot lets developers build on sovereign chains which can transfer data and value between each other.

The communication is not limited to the parachains of Polkadot, as several bridges to other blockchains are in development.

Does Polkadot have a future?

To peek into the future of Polkadot, you can follow the progress of Kusama. For example, recently the parachain auction mechanism was tested there, which means it will soon be launched in Polkadot.

VCs like Master Ventures are already launching funds to help developers with securing a spot in the Polkadot network.

What is DOT crypto?

The utility token DOT makes decentralized governance, interoperability and staking possible in the Polkadot network.

What is the price of Polkadot?

At the moment of writing this Polkadot guide, the DOT price is $13.24.


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Polkadot guide - What Is Polkadot? A Beginner's Guide
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What Is Polkadot? A Beginner's Guide
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What is Polkadot? It is a multichain protocol which allows to create parallel-running chains that can communicate with each other.
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Janu
Janu
3 days ago

Good explanation of basic concepts