Polkadot cryptocurrency will be presented to you today. This startup managed to break into Coinmarketcap’s top 10, beating out whales like EOS, Litecoin and Tron. What is the secret of such a dizzying success, we are going to try to find out.
What is Polkadot (DOT)?
Polkadot is a multi-platform designed to integrate all current blockchains into a single global ecosystem, removing scalability, governance and interoperability issues forever. Independent distributed registries and even networks built on a different architecture could become one of Polkadot’s parachains. An overview without mentioning the Swiss company Web3 Foundation, which oversees the project.
The foundation is led by one of Ethereum’s leading developers, Dr Gavin Wood. Researchers from Inria Paris and ETH Zurich, developers from Parity Technologies and capital partners from crypto funds such as Polychain Capital are working together to implement Web3, which is based on Polkadot coin.
Technical features of Polkadot (DOT)
The Polkadot blockchain is equivalent to a whole set of autonomous crypto networks, each called a parachain, with unified security and fine-tuned interconnectivity. It must be said that Bitcoin’s first cryptocurrency does not meet the basic criteria. To be connected to the relay circuit, one must have:
A mechanism to generate fast and compact proof of completion of new blocks and notification of blockchain state changes (new UTXOs in the bitcoin ecosystem, or logs in Etherium).
Availability of financial transaction execution verification to a large number of independent auditors. For example, signature verification using the Schnorr scheme, or a smart contract for structuring logical chains with multi-signatures.
Running Polkadot validators full node on the bitcoin network would help ensure the first point of requirement. However, a softfork is required to implant a mechanism for extra-protocol control over the circulation of assets on the BTC network, and a hardfork is needed to use the Schnorr scheme for signature verification. It is unlikely that community members and developers would go for this without an absolute necessity.
The three main components of Polkadot:
Relay chain a logistics system that provides connectivity and, ensures consensus achievement and protection against attacks.
Parachains parallel chains to execute transactions and transfer them to the underlying system.
Bridges bridges for communication between parachains with their own, separate matching mechanism.
A Nominated Proof of Stake (NPoS) protocol is used to protect the Polkadot ecosystem. Viability is ensured by four groups of participants with different levels of tolerance:
Validators are responsible for forming the base chain (Relay Chain) and connect to parchains to validate blocks and make crosschain transactions. To become a validator, you need to make a certain bid (you need Polkadot crypto). Validators are rewarded with DOT tokens for performing their duties, and can lose their money if malicious activity is detected.
Nominators are the primary guarantors of blockchain security. They appoint and control the validators, accepting storage bids from them and being rewarded for doing so. Each nominator is responsible for the actions of their wards and their reward depends on the integrity and activity of their nominated validators.
Collators are the owners of the full nodes of any parachute. They form blocks in their chain and submit them to the validators for signature, providing them with proof of transactions. In critical situations, they can add blocks to their parachain themselves.
Fishermen (fishermens) represent the people’s control group. Fishermens cannot verify transactions and sign blocks, their job is to catch the unscrupulous ‘official’ (validator, nominator or collator) by the hand. To take part in the fishing, you also have to make a bet, but much smaller than the nominator or validator, but the reward in case of stopping an attack on the network will be solid. Its size, however, still depends one way or another on the amount of the pledge.
This option allows for a fairly large number of validators and encourages nominators to appoint participants with an untainted reputation to the role.
A BABE cryptoblock generation and GRANDPA finalisation scheme is used to create and republish data in the relay chain. In this way, an almost hundred per cent probability of block creation in a given time interval is achieved, while the provable and deterministic GRANDPA finalisation ensures stability and immutability of the ecosystem. The system has a high throughput and random branching is virtually impossible here. In addition, NPoS prevents holders of large sums from taking full control of the checking nodes, guaranteeing decentralisation of the network. Incidentally, the Etherium system is quite compatible with Polkadot after the Metropolis upgrade, as are other blockchains that support smart contracts or the Schnorr signature verification scheme.
Does it make sense for other eco-systems to become parachains, you might ask. Yes, of course, young projects will benefit first, but established cryptocurrencies will benefit as well. The developers will no longer have to constantly worry about protecting the parachain and can focus on innovation.
DOT token and its purpose
Now let’s understand the role of the Polkadot internal token in this distributed ledger model. The coin has three main functions:
Governance – the ecosystem’s internal cryptocurrency gives the owner the right to vote when making amendments to the software code. Without the approval of Polkadot coin holders, no major event will take place on the blockchain.
Functionality – DOT tokens are used to make bets and pay rewards to control nodes.
Connectivity – adding new parachains and removing inactive ones is paid for with Polkadot cryptocurrency.
There are 910,640,000 DOTs in circulation, with a total of 991,600,000 DOT coins. Additional tokens can be issued as needed.
Mining Polkadot (DOT)
As the system operates on the Nominated Proof of Stake (NPoS) consensus algorithm, DOT mining on computing hardware is not possible.
Tokens are earned by users involved in supporting the ecosystem functionality (validators, nominators and fishers).
Buying and trading Polkadot (DOT)
Purchasing Polkadot coin for fiat money or other crypto is easy, as most popular trading platforms support it, including the Binance exchange, as well as Kgakep, Bitfinex, Kucoin and many others.
On the Binance trading platform, tokens can be bought after a simple registration. All you need to do is get verified and set up Google Authenticator for security.
Available trading pairs:
Incidentally, Binance and Kraken added DOT tokens without even waiting for the completion of the demonetization process, causing serious displeasure to Gavin Wood. He stated that the actions of these exchanges have caused chaos in the community on the eve of the implementation of the update, which could lead to a collapse in the value of Polkadot. But on the other hand, it shows the high interest of crypto traders in the project. Polkadot’s prospects are probably quite significant, since two serious platforms listed it with such haste. According to the Kraken administration they did everything in the interest of their customers, Binance has not responded to Wood’s statements in any way.
Polkadot (DOT) wallets available
A local Polkadot wallet with a graphical interface is not yet supported. But there are several mobile and browser-based application options. You can download Polkadot wallet Signer for Android and iOS or Polkawallet to manage your Relaychain and Parachain assets anywhere and anytime. Suitable for placing DOT tokens are the official Binance Trust Wallet cryptocurrency wallet, the MetaMask browser app and Ledger or SafePal hardware safes. For a full list of wallets, see here.
So, let’s make conclusions and try to make a Polkadot forecast. Project’s developers set global goals, and even if they fail, sooner or later the idea will be picked up by another team. However, even at this stage Polkadot has enough competitors. For example, Cosmos and Wanchain, and even Ethereum 2.0.
Although Polkadot’s bandwidth is much higher, it is still premature to make accurate predictions. The technical benefits need to be proven in practice, otherwise no major payment network will want to become a parachain. As for investments, DOT is promising for short and mid-term trading, but the feasibility of long-term investments is still questionable. Don’t forget about the need to diversify your investment portfolio. Good luck to you!