A compatible and purpose-built blockchain may be created using Substrate, a framework that enables the production of bespoke or pre-built blockchains, to create Polkadot, a scalable, secure, and decentralised multi-chain network for the next web. The network employs a sustainable proof-of-stake consensus process. Gavin Wood, a co-founder of Ethereum, devised the protocol, which is being worked on by the Web3 Foundation with Parity Technologies providing the initial implementation.
Polkadot offers an interoperability protocol that employs segments, or shards, to extend the network in order to create a truly decentralised web where users are in charge. It can link independent blockchains, public networks, and oracles to enable a new type of web where information and transactions can be exchanged without any intermediaries.
The Polkadot network’s native token currency is called DOT, and its tiniest unit is referred to as a Planck. Tokens are locked up as part of linking new chains to the Polkadot network or playing another function in the ecosystem. It supports payments, network governance, staking, reward incentives, transaction fees, and other bonding procedures.
DOT’s supply is unrestricted, unlike the majority of other cryptocurrencies. This is intended to stimulate the network and dynamically change in accordance with user staking participation rates, increasing by up to 10% annually.
Polkadot uses a method of public and private key encryption to enable the transfer of money from one digital wallet to another. Your recipient address is the hash of your public key, and your private key serves as a password for approving and broadcasting transactions over the network. These pending transactions are confirmed in a block of transactions every six seconds or so, and the blocks collectively make up the Polkadot blockchain.
Of course, Polkadot provides much more than just the ability to send and receive money. Polkadot is a sharded multi-chain network that may process data and transactions on many chains simultaneously, or “parachains,” under the control of a central relay chain. Due to its sharded architecture, the network is divided into several sections, or shards. Because transactions may now be handled concurrently on each shard rather than sequentially over the whole network as they were in earlier blockchain generations, throughput has increased.
Therefore, many Parachains may connect to Polkadot, benefiting from the network’s overall security while greatly enhancing scalability, interoperability, and cross-chain capability and removing the congestion, excessive fees, and incompatibility of older blockchains. With the aid of a governance structure run by owners of the DOT native token, Polkadot maintains improvements automatically without the need for hard forks.
Instead of the mining reward incentives given in Proof-of-Work blockchains like Bitcoin, Polkadot employs a Nominated Proof-of-Stake (NPoS) consensus mechanism, paying users for locking up DOT tokens in a process known as staking.
Holders of DOT tokens can stake tokens to participate as Nominators, choosing to support up to 16 Validators as trusted candidates with their stake. Collators on Polkadot maintain Parachain nodes, Fishermen nodes keep the network safe, and Stakers interested in maintaining the entire network can run a Validator node. Then, validators create new blocks, check Parachain blocks, and ensure finality. Later on, we’ll go into further depth about these jobs.
Gavin Wood, one of the initial co-founders of Ethereum and the former CTO of the Ethereum Foundation, helped create the Solidity programming language for Ethereum. Polkadot is a flagship project of the Web3 Foundation and was co-founded by him. Additionally, Wood serves as CEO of Parity Technologies, the blockchain infrastructure company that created Parity. One of the most popular Ethereum clients on the network is Ethereum. Wood is actively engaged in the creation of both Polkadot and Substrate at the same time.
Robert Habermeier, a Thiel Fellow, and Peter Czaban, the Technology Director of the Web3 Foundation, worked with Wood to co-found Polkadot.
Following the successful raising of $145 million a year later, Polkadot ultimately launched its inaugural mainnet in May 2020. The original whitepaper was first published in 2016. The Web3 Foundation oversaw network governance during this initial Proof-of-Authority (PoA) phase, and Validators started connecting to the network to take part in consensus. When Polkadot established a sizable decentralised collection of Validators on the network by the end of June, the second Nominated Proof of Stake (NPoS) phase was then initiated.
By this point, authority over governance had shifted to DOT token holders rather than a single centralised organisation, and as a result, DOT exchange listings and wallet support were now possible. Following an incredible surge that saw DOT enter the top ten cryptocurrencies by market size for the first time, the DOT token was redenominated at a 1:100 ratio.
The mainnet launch drew on the success of the Kusama network’s alpha release in 2019, which was hailed as a canary network and a live testing environment for Polkadot’s technology and features, including its native coin KSM. Kusama is Polkadot’s sister network. Then, in 2020, Rococo, a crucial step toward enabling Parachain capabilities, was released by Polkadot.
Polkadot is currently entering the next phase of the development of its core infrastructure, which includes the distribution of Parachains auctions, Parathreads, and cross-chain message transfer. After that, it will be a fully operational Relay Chain that controls the whole system, including Parachains, and offers security via NPoS. Later, more on this.
Among the top blockchain systems, Polkadot is exceptional in that it offers sharding for scaling, the pooled security of a central relay chain and adaptive consensus, as well as the interoperability of a multi-chain network. Throughput is substantially increased by the parallel processing made possible by performing transactions in different shards, and cross-chain capabilities allows transfers of any kind of data or asset across shards.
Polkadot also reduces the need for projects to select between several separate blockchain networks by offering interoperability with already-existing platforms like Ethereum, with clearly defined community governance, and automated updates.
Due to Polkadot’s use of the Substrate blockchain technology, other projects utilising Substrate may rapidly and easily develop bespoke chains that operate natively on Polkadot. This implies that you may use the framework to begin developing a blockchain before you are ready to release it to the network.
The promise of Polkadot really resides in enhancing current blockchains rather than competing with them, despite the “Ethereum killer” moniker that it occasionally receives. Over 350 projects in its ecosystem that are developing smart contracts, decentralised finance (defi), oracles, digital collectibles (NFTs), gaming, and other solutions, most notably Chainlink and 0x Protocol, have already acknowledged this.
Polkadot is not a platform for smart contracts by itself. As a result, major protocols have seen the highest rise in active developers. Instead, it provides the framework for decentralised app (dApp) developers to incorporate smart contracts across an interoperable network with wide-ranging functionality.
With over $20 billion in staked value, Polkadot is presently one of the top staking platforms, delivering projected payouts of over 13% annually. The market capitalization is approximately $30 billion, and more than half of the qualifying tokens are held.
By staking DOT, customers may, in addition to any financial gains, counteract the rate of inflation compared to simply holding and get an annual return on their investment. In proportion to the amount of DOT they are staking, DOT also gives participants the option to vote on network enhancements and future feature sets.
Many projects have already been attracted to Polkadot because of its scalability, interoperability, and cross-chain functionality, including Acala’s cross-chain defi hub and stablecoin platform, Moonbeam’s smart contract Parachain that enables developers to use existing Ethereum dApps on Polkadot, Chainlink’s oracle technology, and Polkastarter’s decentralised exchange platform. As a result, the network and the DOT tokens needed to create, secure, or use Polkadot Parachains gain value and utility over time.
Following the community governance vote in 2020 to redenominate at a 1:100 ratio from the 10 million tokens at genesis, DOT now has a supply of about 1 billion tokens, eliminating tiny decimals and facilitating computations.
The quantity of tokens is anticipated to grow by 10% annually as a result of Polkadot’s inflationary monetary strategy, with Validator payments based on the staking rate and the balance going to the network treasury together with transaction fees to dynamically modify the incentive to engage in staking.
For many organisations and people, Polkadot provides a variety of uses. It makes it possible to use a different, decentralised payment mechanism free from the meddling of middlemen, giving you more control over your money.
As an alternative to costly and drawn-out foreign transfers, DOT may also be used for speculation and investing. For the hundreds of millions of individuals who have access to cellphones but no bank accounts, it can also help create an alternative financial system. We are also presenting a new potential for income production or augmentation through DOT staking.
The bottlenecks of legacy blockchains and their high transaction fees are removed by Polkadot’s interoperable, scalable, secure, and decentralised platform, opening up use cases for projects working on defi, oracles, digital collectibles, gaming, IoT, privacy, gaming, cross-chain solutions, and more.
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