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What is Polkadot (DOT)?

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  • Author: Gunavarshini
  • Reading time: 12 minutes

Polkadot is a decentralized protocol that functions as a token which can be bought and sold on exchanges.

The purpose of the Polkadot protocol is to enable secure communication between independent blockchains. This allows for the transfer of data or value without the need for a middleman.

The protocol's design prioritizes speed and scalability by using numerous parallel blockchains or "parachains" that decrease the processing demands on the primary blockchain.

Fun Fact : Polkadot is being built by Gavin Wood, a co-founder of Ethereum.

DOT is a governance token that enables holders to participate in the protocol's future direction.

Secondly, it is utilized for staking, which is the process used by the Polkadot network to authenticate transactions and release new DOT tokens.

DOT is also available for purchase and sale on exchanges such as Coinbase and can be integrated into your investment strategy.

Quick facts

  • The protocol is designed to be scalable and fast, using parallel chains called "parachains" to handle transactions.

  • Polkadot's native token is called DOT, which can be used for staking and governance within the network.

  • Polkadot was founded by Dr. Gavin Wood, who was also a co-founder of Ethereum.

How does Polkadot work?

Polkadot enables blockchains to connect and function alongside it by using parallel chains referred to as "parachains".

This permits them to utilize the network's proof-of-stake validation and security for transactions. In the network's "relay chain," addresses of transactions are inspected and data is standardized to ensure universal comprehension across all systems. Here, security is pooled from all chains.

Connected blockchains can continue to utilize their own proof-of-stake mechanism while managing their own dApps or tokens and deciding on when and how to update their code.

The layer provided by Polkadot is flexible, permitting networks to preserve their own security and include new protocols according to their preferences. This provides blockchains with the ability to pick and choose functionality that suits their requirements.

Why is Polkadot important?

When developers create decentralized systems, they usually have to start from scratch.

This process can be time-consuming and expensive, and it can lead to a lot of different networks competing against each other.

This means that valuable resources and talent are being diverted to building new networks instead of improving existing ones.

Polkadot wants to change that by providing a way for developers to build on top of multiple blockchains instead of just one.

The goal is to create a standard that everyone can use, so that developers can focus on creating value and innovating, rather than constantly reinventing the wheel.

This would make it easier for developers to build decentralized systems, and it could lead to more collaboration and innovation in the blockchain space.

The most critical issues that blockchain-based systems need to solve are scalability, which is the number of transactions the network can process per second, and governance, which involves managing protocol upgrades and changes by the community.

Polkadot aims to solve both these problems by providing a solution that can handle a large number of transactions through its scalable architecture while maintaining a secure and decentralized governance mechanism.

In other words, Polkadot's design allows for increased scalability while still providing a reliable system of governance for the community to manage upgrades and changes to the protocol.

Dr Gavin James Wood, founder of Polkadot

Dr. Gavin James Wood, the co-founder of Ethereum, was initially disinterested in cryptocurrency when Bitcoin launched in 2009. However, in 2013, Jonny Bitcoin and Vitalik Buterin approached Wood hoping his coding expertise could help turn Ethereum's white paper into a functional blockchain.

Wood joined Buterin in Miami and within weeks, they wrote Ethereum's PoC-1, which they presented at the North American Bitcoin Conference in 2014.

Six months later, Wood and other founders officially founded Ethereum in Zug, Switzerland. Wood played a crucial role in the development of the smart contract language Solidity and the Yellow Paper, which was the first formal specification of any blockchain protocol.

Two years into his role as Ethereum's CTO, Wood and Dr. Jutta Steiner founded Parity Technologies to develop core blockchain infrastructure for Ethereum and other Web 3.0 networks.

Wood's vision was to use blockchain infrastructure to decentralize the web and disrupt the centralized node-based software application status quo. This led to the launch of Parity Technologies and Web3 Foundation, which aimed to usher in a new wave of technological evolution.

Despite having a passion for designing complicated board games in his youth, Wood has become a significant figure in the development of the blockchain ecosystem.

Polkadot down memory lane

Polkadot launched its mainnet in May 2020 and quickly became popular among investors, developers, and cryptocurrency traders.

In less than a year, it has achieved several impressive feats and developments, such as becoming the fourth-largest cryptocurrency with a peak market capitalization of almost $18 billion.

Additionally, it underwent a redenomination process, with old DOT tokens split 100 ways to produce new DOT tokens, increasing the supply from 10 million to 1 billion.

Polkadot also underwent a rebranding process with input from the community via the Polkadot Brand Bounty Program, which was carried out by design agency Koto. Moreover, the platform has seen a significant increase in developer activity, with over 340 projects currently being developed on the platform.

What is DOT?

The DOT token holds several roles within the Polkadot network.

Its holders have control over auction dynamics, network fees, and scheduling of new parachains.

The DOT is also crucial for the platform's security model and consensus mechanism. This ability to create blockchain networks quickly has attracted attention from investors and developers.

For the platform to function correctly, the DOT holders must actively participate and stake their tokens to participate in various functions.

Staking is a technique that discourages malicious actions in the network, and the amount of DOT staked depends on the activity and its duration.

What Influences Polkadot’s price

The price of Polkadot (DOT) is influenced by a variety of factors, similar to other cryptocurrencies. These factors can include but are not limited to:

1. Market demand

The basic law of supply and demand is one of the main factors influencing the price of DOT. If there is a high demand for the cryptocurrency and a limited supply, the price tends to increase. Conversely, if the demand is low and the supply is high, the price tends to decrease.

2. Adoption and integration

The adoption and integration of Polkadot into various industries and applications can also impact its price. For example, if a major company or platform adopts the technology, it can increase the demand for DOT and thus its price.

3. Competition

The presence of competing platforms and cryptocurrencies can also impact the price of Polkadot. If another platform or cryptocurrency gains significant traction or offers similar features, it may impact the demand for DOT and ultimately its price.

4. Regulatory developments

Regulations and legal developments related to cryptocurrencies and blockchain technology can also impact the price of DOT. News related to regulatory clarity or restrictions can impact market sentiment and thus influence the price of DOT.

5. Overall market sentiment

The overall sentiment of the cryptocurrency market, including investor sentiment, can impact the price of DOT. If the market is bullish and investors are optimistic about the future of cryptocurrencies, it can increase the demand for DOT and drive up its price.

Polkadot vs Solana

Polkadot and Solana are two popular blockchain networks, but they differ in their structure and consensus mechanisms.

Polkadot uses a distributed network of parallel blockchains, known as parachains, which can be customized for various applications and can share data and assets with each other. In contrast, Solana uses a monolithic network structure without sharding, layer 2 scaling or parallel blockchains.

Polkadot uses Nominated Proof of Stake (NPoS) consensus, where validators run nodes for consensus, and nominators can back them with their stakes.

On the other hand, Solana uses a mixture of Proof of Stake (PoS) and Proof of History (PoH) to ensure network security and synchronize time across all nodes.

In terms of transaction speeds, Solana is faster than Polkadot, offering up to 65,000 transactions per second (TPS) compared to Polkadot's 1,000 TPS. Polkadot is built from the ground up for interoperability, whereas Solana offers some interoperability through bridges.

How to buy DOT?

To buy DOT, you will need to:

  1. Set up a wallet that supports the storage of DOT. Some options for DOT wallets include MyEtherWallet, Trust Wallet, and Ledger Nano.

  2. Find a cryptocurrency exchange that supports the purchase of DOT. Some popular exchanges that offer DOTinclude Binance, Bitfinex, and Kraken.

  3. Create an account on the exchange of your choice and complete the necessary identity verification processes.

  4. Deposit funds into your account using a payment method supported by the exchange.

  5. Search for DOT on the exchange and place an order to buy it using the funds in your account.

  6. Once the order is complete, DOT will be credited to your account on the exchange. Make sure to transfer it to your wallet for safekeeping.

It is important to note that the process for buying DOT may vary slightly depending on the exchange you are using. Be sure to carefully read and follow the instructions provided by the exchange to ensure a smooth and secure transaction.

How To Stake Polkadot?

  1. Set up a wallet that supports the storage of DOT. Some options for DOT wallets include MyEtherWallet, Trust Wallet, and Ledger Nano.

  2. Find a validator or staking pool that allows you to delegate your DOT tokens. Some popular options include Bitfinex, Binance, and Kraken.

  3. Transfer your DOT tokens from your wallet to the validator or staking pool of your choice.

  4. Follow the instructions provided by the validator or staking pool to complete the staking process. This may include setting up a staking account, choosing the amount of DOT you want to stake, and agreeing to the terms and conditions of the staking service.

  5. Once your DOT tokens are successfully staked, you will begin earning rewards in the form of additional DOT tokens. These rewards will be credited to your account periodically, depending on the terms of the staking service you are using.

It is important to carefully research and compare different validators and staking pools before deciding which one to use. Be sure to consider factors such as fees, reputation, and track record when choosing a staking service.

Final Thoughts on Polkadot

Polkadot's rapid success since its launch in May 2020 has been impressive, and it has quickly become a top player in the cryptocurrency market.

However, the platform must continue to evolve and innovate to stay ahead of its competitors.

One of Polkadot's primary goals is to address the scalability and governance issues that have plagued many blockchain-based systems. The platform's use of parachains, or parallel blockchains, and its proof-of-stake validation system are two key elements that set it apart from other platforms.

However, competitors like Dfinity and WanChain are also working to address scalability and interoperability, which could put pressure on Polkadot to continue to improve its offerings.

Meanwhile, Cosmos is seen as Polkadot's biggest competitor. Launched in March 2019, Cosmos has been focused on blockchain interoperability for several years, which is another key challenge that Polkadot is addressing.

Both platforms aim to create a standard for blockchain networks to build on, but they have slightly different approaches.

Cosmos uses a hub-and-spoke model, while Polkadot's parachains operate in parallel, with the ability to communicate with each other securely.

While Polkadot has already achieved significant milestones, it will need to continue to stay ahead of the curve to maintain its position in the market.

The competition in the blockchain space is fierce, and platforms like Dfinity, WanChain, and Cosmos are all working on innovative solutions to the challenges facing the industry.

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