Have you heard of Gavin Wood? No?
Well, that’s the first CTO of the Ethereum Foundation, the inventor of Solidity, and the writer behind the Yellow Paper specifying the Ethereum Virtual Machine. And nowadays, Gavin Wood is also the leading figure behind Polkadot.
That is relevant because Polkadot was finally launched in 2020 after two years of development, grabbing a lot of attention. The project got so much attention that Polkadot’s DOT token got into the top 15 cryptocurrencies by market cap in a few months, where it still keeps its position even in 2022.
What is Polkadot?
Polkadot is a shared blockchain project focused on enhancing blockchain interoperability and scaling, intending to be comparable to, if not better than, Ethereum. The project also tries to promote a heterogeneous multi-chain architecture, which has garnered a lot of attention from a large community of investors, developers, and users and is regarded as one of the most creative initiatives in the crypto space.
Many projects also want to become essential to Web 3.0 and surpass Ethereum in functionality. Still, Polkadot is not just a wishy-washy whitepaper with token trading around.
Polkadot was founded by Dr. Gavin Wood, Robert Habermeier, and Peter Czaban within the Web3 Foundation.
And while Habermeier and Czaban may not be that well known, Wood gathered a lot of influence in the crypto world thanks to being an Ethereum co-founder, Parity Technologies founder, and the creator of the smart contract coding language Solidity.
Polkadot’s vision is to build an ecosystem where different projects can create their projects and rely on its security instead of building from the ground up. It aims to improve blockchain technology‘s interoperability, scalability, and speed.
The network connects blockchains through a system involving a Relay chain, several shards called parachains, and bridges.
The main relay chain provides the consensus for the whole platform and handles cross-chain transactions.
The parachains are designed to perform several transactions in parallel and scale horizontally. State machines in parachains can aid in the creation of dedicated blockchains where the data structure is globally coherent and validatable by the Relay Chain validators.
A network maintainer known as a collator is in charge of maintaining parachains. Its function is to maintain a full node of the parachain, store all essential parachain information, and generate fresh block candidates to deliver to the Relay Chain validators for verification and inclusion in the Polkadot shared state.
There are also Parathreads in addition to Parachains. The two are very identical, except that Parathreds uses a flexible pay-as-you-go concept rather than purchasing a complete slot. A subset of the Relay Chain’s parachain slots will be identified as part of the parathread pool.
That is, certain parachain slots will have no parachain associated with them and will instead be utilized as a space for the winner of the block paratheread fee auction to put their block candidate.
Also, the bridges are the pieces of code that work as consensus adaptors to external chains. And makes the Polkadot ecosystem compatible with external blockchains such as Bitcoin, Ethereum, or Tezos.
The first ICO for the DOT token took place back in 2017, with a price of $0.29 per token, and managed to raise over $145 million even though the token was not usable until the network’s launch. After the first network candidate was launched in May 2020, Polkadot had a second ICO in July with a price of $1.25 per DOT.
And just like the first ICO, it was preceded by a private pre-sale. In May 2022, the DOT price reached $16.36 with a market cap of $16.16B. But the May 2022 values were not the all-time high of the DOT. DOT got its all-time high in November 2021 when it hit $54.98.
Since the beginning, the role of DOT has been to enable the governance system, incentivize the Nominate-Proof-of-Stake consensus protocol, and be used for fees and payments. But now, DOT will serve three key functions in the Polkadot ecosystem: it will provide governance for the network, operate the network, and create parachains by bonding the DOT.
The DOT based Governance
The Polkadot governance system employs a referendum-like method called Referenda. The voting system aims to engage a large part of the community by granting token holders voting rights based on their stake.
To become a voter, a DOT holder must lock their tokens up for at least the enactment delay period beyond the end of the referendum. There is also the possibility to vote without locking, but the vote’s value is drastically reduced.
The governance system goes as far as voting and covers the proposal.
Any holder can propose a referendum by depositing a minimum amount of DOT for a certain period.
Additionally, the governance system includes a Council and Technical Committee. The two organizations don’t have any real power. They are meant to make and manage proposals and lines of defense against software errors.
The DOT Staking
Polkadot has a staking consensus protocol at the base. But besides becoming a validator with a 24/7 active node, the staking also engages a system of nominators.
The validators are there to validate transactions.
On the other hand, the nominators are there to nominate a validator. The nominator attributes his stake to up to 16 validators that he trusts and will earn rewards based on their activities. However, if the nominated validator won’t act accordingly, the nominator will also suffer consequences.
It’s important to note that the validators and nominators secure the Relay Chain. As for the shards, they are taken care of by collators who collect shard transactions and produce proofs for validators.
The DOT based Fees and Payments
To prevent the abusive use of resources, Polkadot uses a network fee system similar to Ethereum’s Gas-metering model. The operations are charged in DOT before execution, and once the fee is paid, the nodes will validate the transaction.
However, when the transactions occur within a shard, the users don’t necessarily need to hold DOT tokens. Each shard has its economic model and may or may not have a token.
Polkadot and interoperability
Nowadays, most blockchains are data silos. Polkadot attempts to bring them together and make them communicate seamlessly in one unified blockchain.
The model of parachains and bridges brings unprecedented possibilities in the field of blockchain.
The Polkadot network offers the possibility to “teleport” other cryptocurrencies in the ecosystem via a two-ways smart contract. It can also produce a tokenized version of the original coin.
It’s important to note that the parachains can also communicate between them.
All cross-chain transactions use a queuing mechanism in which the Relay Chain validators are tasked to move transactions from the output queue of one parachain into the input queue of the destination parachain. The Relay Chain will store only the associated metadata as a hash in this operation.
The launch and the roadmap
After three years of development and research, the Polkadot project is largely completed, as the Web3 Foundation is close to removing the Sudo module from the network. As presented by Gavin Wood, the project has to go through 7 phases until its compilation, from which 3 phases rely primarily on the dynamic the governance will take.
1. Chain Candidate (May 2020)
The Web3 Foundation launches a candidate chain as a proposal for the Polkadot Relay chain. This is the most centralized stage employing the proof-of-authority(PoA) consensus.
2. Switch to NPoS (June 2020)
After assuring the stability of the chain, the Web3 Foundation enables the transition to Nominated Proof of Stake with its Sudo key to change eras. In this phase, the network runs with a set of decentralized validators that are meant to increase over time.
3. Enabling Governance (July 2020)
In this phase, the Polkadot’s governance system is enabled, allowing for the election of the first Council and Technical Committee and the start of accepting public proposals.
4. Remove Sudo (July 2020)
The Web3 Foundation initiates a final runtime upgrade and removes the Sudo module. At this point, Polkadot becomes a live, fully decentralized network running without the Sudo Module. Root calls are only dispatched via governance.
The network upgrades will depend on the DOT token holders from this point onward.
5. Polkadot balance transfers (August 2020)
The network starts allowing balance transfers. The DOT tokens become transferable and stop being just an indicator.
6. Redenomination (August 2020)
On August 21, 2020, the redenomination of DOT took place. With this change, the native token on Polkadot occurred. From this date until any other changes, one DOT equals 100 new DOT.
7. Enable core functionality (December 2021)
After years of research and development, and a multi-stage launch that began in May 2020, the Polkadot launch is completed on December 18, 2021, with all auction-winning parachains producing blocks on the network.
Polkadot 2.0
Polkadot has entered a new epoch after all the significant updates and development. Now, the project will present Polkadot 2.0, where academics are thinking about the future generation of the Polkadot network. But there are many unanswered questions about topics of development that are soon to be answered.
Will the new version have an impact on scalability?
What is the maximum number of parachains that can be formed using horizontal scalability?
Will there be several Relay Chains connected by parachains?
How many Relay Chain levels may be nested?
How will validators collaborate to validate blocks on different Relay Chains?
How does XCM operate in the nested setup, and how will AnV work?
Sidenote. Polkadot’s AnV – Available and Validity protocol allows the network to be effectively shared among parachains while retaining strong security assurances. Cross Consensus Message Format, often known as XCM, is connected to cross-chain in the same way as REST is related to RESTul. XCM does not transport messages between systems; instead, it provides a format for how message transmission should be conducted, comparable to how RESTful applications employ REST as an architectural deployment style. At the same time, XCM aspires to be a language for expressing ideas between consensual systems, therefore Cross Consensus.
These are going to be the questions that will be answered after the Polkadot 2.0 version is going to be released.
Polkadot and the staking race
2021 is believed to be the year of staking. And taking into consideration that Polkadot managed to launch the NPoS consensus in 2020, it inevitably has to race with Cardano and Ethereum.
And right now, all three networks are pretty in the same position.
The staking is live.
The network has limited functionality.
The smart contracts on the Polkadot Relay Chain will not natively support smart contracts; however, parachains on Polkadot will support smart contracts.
And just like Ethereum and Cardano, Polkadot’s staking network is slowly but surely expanding.
A crypto report by electric capital also found that the Polkadot ecosystem had the second-highest number of cryptocurrency developers and was growing faster than Ethereum in its early days. Also, Polkadot is known as the platform with the lowest carbon footprint of any cryptocurrency.
How Polkadot’s staking implementation will compare to the others and what the feedback of the crypto community will be is yet to be seen.
Key takeaways
- Polkadot is a sharded blockchain project focusing on improving blockchain interoperability and scaling, and its objective is to become similar to or even better than Ethereum. Polkadot was founded by Dr. Gavin Wood, Robert Habermeier, and Peter Czaban within the Web3 Foundation.
- Polkadot connects blockchains through a relay chain system, several shards called parachains, and bridges. The relay chain provides the consensus for the whole platform; the parachains scale horizontally and have state machines that can help create dedicated blockchains; the bridges work as consensus adaptors to external chains.
- The Polkadot governance token DOT got its all-time high in November 2021, when it hit a price of $54,98.
- As explained by Gavin Wood, Polkadot has 7 phases: Chain Candidate, Switch to NPoS, Enabling Governance, Polkadot balance transfers, and Enable core functionality, with the 8th to come as Polkadot version 2.0. The project is currently in the 8th phase, as the last one was done in December 2021.
