The Polkadot token (DOT) price skyrocketed in February along with other cryptocurrencies, gaining 353 percent since the beginning of the year by reaching the $42 mark.
Polkadot is gaining popularity as the project aims to decentralize the web by connecting blockchains and allowing them to interact with each other, which will enable new applications such as certain decentralized financial services (DeFi).
What is Polkadot?
The Polkadot network was launched in 2017 by Gavin Wood, co-founder of Ethereum. The project is being developed by the Swiss-based Web3 Foundation to enable a fully decentralized web.
Web3 refers to the next-generation Internet, where decentralized platforms give users, rather than large corporations, control over their privacy and personal data. Web3 is about AI-managed services, decentralized data storages, and edge computing infrastructure
According to the website, “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 develop a superlative Web3 implementation, with Polkadot at its core.”
The DOT cryptocurrency is a digital token that uses the network for staking, bonding, and governance. Bonding involves locking a certain amount of tokens for a given period. Tokens are used by the Polkadot community for governance to vote on changes to the network. Unlike cryptocurrencies such as Bitcoin (BTC), Polkadot can be updated to fix bugs or introduce new features without the need for a “hard fork,” making it easier to adapt.
Architecture
The project takes a similar approach to the consensus algorithm as Cardano or Ethereum 2.0. Unlike Bitcoin, the necessary security and decentralization are not achieved with the Proof-of-Work (PoW) consensus algorithm, but with the Proof-of-Stake (PoS).
Staking
Polkadot uses a proof-of-stake (instead of proof-of-work) approach to secure the relay chain against attacks. The amount of dots is currently increasing by 10% per year (but the inflation rate is expected to decrease somewhat in the long run).
With proof of work, A 51% majority is required to confirm the validity of new coins and transactions. In proof of stake, on the other hand, individual nodes are selected to perform this task. This can be done randomly (Randomized Block Selection) or based on how long and how many coins have already been documented by a node (Coin Age Selection). In any case, it is up to fewer entities than with proof of work to verify transfers. This reduces the load on the network. The randomness factor is intended to prevent manipulation. It is also important to know that nodes that want to participate in the proof of stake procedure must deposit a certain number of coins (called “stakes”). They lose them if they act maliciously. — Proof-of-Stake: Will Cardano and Eth 2.0 Be the GREEN-Revolution?
By doing so, Polkadot introduces much higher scalability than currently possible with Ethereum / Bitcoin and at the same time tries to eliminate the high power consumption of PoW through PoS. Blocks are no longer backed up with computational power in PoS, but with the staking of a certain number of the native token DOT.
The architecture of Polkadot is very reminiscent of Ethereum 2.0, where the names for the individual components are different but contain similar functionalities.
Relay Chain
The relay chain is responsible for the aggregated security of all chains connected to the network, the consensus, and the interoperability of the network. It is therefore also referred to as Layer-0.
Parachains
These are blockchains that are connected to the relay chain and run in parallel. Each chain can have its token and modify its functionality for specific use cases.
Parathreads
Parathreads are similar to Parachains. Here, however, the “pay-as-you-go” model is applied to increase cost-effectiveness and flexibility. The idea is to allow other blockchains to connect to the network only for a certain amount of time.
Bridges
Bridges make it possible for Parachains and Parathreads to connect and communicate with external networks such as Ethereum and Bitcoin.
Last Steps
The conversion of the Parachains V1 to the mainnet is already going on. Testing is being done on ROCOCO, the testnet for Polkadot. The auctions for the Parachains, to get a place as a parachain on Polkadot, will be implemented in the next 6 months.
Participants bid for one of the places with their DOT tokens, which they have to bond to the parachain. Polkadot is currently aiming for a total of 100 parachains.
Governance
Polkadot follows a strictly scientific approach in its development and implementation.
Any changes to the protocol are secured by so-called peer reviews, i.e. scientific reviews by independent reviewers and the community.
With this approach, the project guarantees stability, security, and quality. This is mainly possible due to the expertise of the Web3 Foundation, supporting the Polkadot protocol with all available means. A positive signal!
Goals
- Interoperability: Polkadot wants to connect different blockchains and provide a communication layer to exchange information, smart contracts, and tokens.
- Decentralized Finance: Polkadot’s focus is primarily on higher scalability, decentralization, and easy integration of existing Ethereum applications.
- Digital Identities: In the digital age, identities are one of the core issues that Polkadot is trying to solve with its new concept. This involves the decentralized management and securing of data. Polkadot’s approach is focused on innovative projects for the decentralized web of the future.
Conclusion: Outlook
According to the DOT price forecast by WalletInvestor, an algorithm-based online forecasting service, the coin price will rise to $125.515 in one year. DigitalCoin also has a bullish Polkadot 2021 forecast.
Polkadot already has a firm place in the crypto world thanks to its special concept. The project enables the connection of external blockchains to the own relay chain through its interoperable approach. In August 2020, the native DOT token conquered the trading venues of this world and recorded rapid price gains.
— Is Polkadtor THE Ethereum-Killer?
Accordingly, the DOT token could also represent a good investment in the long term.
From a technical point of view, Polkadot for sure outplays most of its competitors. The special concept and the innovative approaches make crypto-technology unique. From an investment point of view though, the still young and unknown coin may lack in terms of trust and there is a risk of being replaced by ETH 2.0.
I recommend crypto.com* (higher fees, user-friendlier and credit card) or BitForex* (low fees, classic trading platform) to purchase Polkadot (DOT).
The article includes the personal opinion of the author.
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