What is Polkadot?
Polkadot is a multi-chain network that enables interoperability between different blockchains. It consists of two parts: the relay chain and the parachains. The relay chain is the main chain that connects all the parachains, while the parachains are the individual chains that run in parallel to each other.
A parachain is similar to a sidechain in that it is a separate blockchain attached to the main blockchain (known as the relay chain). However, it has independent validators and can process transactions in parallel with the relay chain. This makes it possible for the Polkadot network to scale horizontally and support many transactions. Polkadot enables these different chains to interact, allowing a more seamless experience for users and developers.
DOT is a digital asset used to participate in the Polkadot network. DOT holders can vote on governance proposals, validate transactions, and earn rewards for their participation. Because of DOT, the interoperable network remains decentralized, allowing validators to power transfers between compatible blockchains at any time. DOT has no total supply and is inflationary. On launch, 1 billion DOT was issued, and the number will continue to rise over time.
DOT is affected by the Following Factors
Polkadot has a broad support base with active developers. Besides, the project’s foundation is solid. In their quest to develop a highly innovative and scalable blockchain project with cross-chain capabilities, DOT has increasingly become the center of attention. Overly, the price of DOT is affected by the following factors:
There are a few key factors that affect the price of Polkadot (DOT), and these include:
- The trading volume of DOT: The more DOT coins traded, the more liquid the market is and the easier it is to buy and sell DOT. This can impact the price, as more buyers and sellers will be able to trade closer to the market price. Besides, the higher there are trading volumes, the more traders are confident in the project, creating a network effect that, depending on the prevailing trend, may lift or crash prices.
- The overall market conditions: When the cryptocurrency market is doing well, DOT tends to do well. However, DOT’s price will also likely suffer when the market is bearish. This was best illustrated during the crypto bear winter of 2022 when DOT prices dropped by over 80 percent as digital asset prices contracted across the board, weighing negatively on the coin.
- News and media coverage: Any positive news or coverage about Polkadot can help drive the price as more people become aware of the project and get interested in buying DOT. With DOT’s re-denomination and the Polkadot Parachain Slot Auction announcement, the launch received support across the crypto and blockchain spheres, pumping DOT higher.
- Project Innovation: Polkadot continues to build, and many investors are actively tracking the performance of DOT. However, there is a direct relationship between how actively developers release new features, such as the announcement of the Polkadot Parachain Slot auction, and prices. DOT prices rose on this announcement, highlighting how sensitive DOT prices, and thus, valuation, are on on-chain developments.