What is Polkadot Crypto? DOT Coin
in Polkadot (DOT)
Polkadot is an exciting project which has two use cases. Just like Ethereum or Tezos, on Polkadot you can create smart contracts. In fact, Polkadot’s DeFi space is growing and there’s now several hundred million dollars locked up.
Although smart contracts are useful, there’s already a lot of smart contract platforms in the crypto ecosystem. That’s why Polkadot’s second use case, interoperability, is so interesting.
Polkadot is trying to create a bridge between blockchains, connecting various cryptocurrencies so that they become interoperable. Here’s a few examples of how this could work.
- A smart contract event on Ethereum triggers a payment on the Bitcoin network
- A cross-chain swap of XTZ for XRP using smart contracts, no centralized exchange is needed
- An oracle that feeds price data to dozens of different blockchains at the same time
These are just a few examples. You can also check out Polkadot’s website where, at the bottom of the page, they list some of the interoperability projects that are being built.
In addition to swapping tokens and triggering payments, Polkadot can also be used to relay data between blockchains. The project even allows public and private blockchains to be connected. Polkadot gives the following example,
“A school's private, permissioned academic records chain could send a proof to a degree-verification smart contract on a public chain.”
So this is some really cool technology, but why does it matter?In this article:
Why Polkadot Matters
The more interoperability there is between blockchains, the better. Let’s think about the internet, what makes it so amazing? It’s the fact that everything is connected and there’s a seamless flow of information. Imagine if that wasn’t the case.
How much worse would the internet be if you had to sign out of Google internet, and sign into Twitter internet just to use Twitter?
If the internet was fragmented between different websites, it wouldn’t be very useful or convenient.
Unfortunately, blockchains are sort of like a fragmented internet. They can’t communicate with each other. If you have a smart contract on Tezos and you want it to work with a smart contract on Ethereum, there’s no way to make that happen. At least, there wasn’t a way to make that happen until Polkadot.
This is why Polkadot is so valuable; it’s a bridge between blockchains. Polkadot has the potential to create a unified network of cryptocurrencies, similar to how the internet is a unified network of websites. By bringing blockchains together we can dramatically expand the value proposition of cryptocurrencies.
How Polkadot Scales
Scalability is the key feature which will allow Polkadot to reside at the center of an interconnected blockchain network. Although it hasn’t been proven in the real world yet, Polkadot claims that it will be able to scale from 100,000 all the way up to 1,000,000 TPS (Transactions Per Second). This scaling could be achieved using Parachains.
A Parachain is basically a parallel blockchain, also commonly known as a shard. The idea is that you can split Polkadot up into multiple chains that frequently communicate with each other. By having projects running on different parallel chains there is less congestion and much higher speeds are possible. Ethereum is planning on implementing a similar concept when they bring sharding online in 2021 or 2022.
What’s unique about Polkadot’s approach to scaling is that the parachains are for sale and can be bought by a cryptocurrency project. Once a project has bought a parachain they can customize it to suit their needs. Currently, there is a maximum upper limit of 100 parachains that can run on Polkadot. The Polkadot team estimates that it will take several years for all of these Parachains to be deployed.
Polkadot Coin: DOT
Similar to other smart contract protocols like Cardano and Tezos, Polkadot uses a Proof of Stake (POS) consensus mechanism. The native token used on the Polkadot network is called DOT and the token serves several purposes.
- Staking - Investors have to hold DOT in order to stake on Polkadot. As of publication the staking reward is 3.74%. Information about the current staking reward is available here
- Bonding - In the previous section we mentioned that parachains can be bought. In order to buy a parachain a user has to “bond” DOT in order to control the parachain
- Governance - DOT token holders have governance privileges over the platform. For example, they can vote to approve upgrades or even change network fees
On top of these advanced features, DOT is just the standard token used to transact value in the Polkadot network, just as ETH transacts value on the Ethereum network.
Polkadot on the Rise
Polkadot is an exciting project because, if successful, it will revolutionize the cryptocurrency ecosystem. Bitcoin connected to Ethereum connected to Carando; the possibilities are endless. This interoperability will create opportunities that nobody has even considered yet.
If you’d like to learn more about Polkadot there’s lots of detailed information available on their Wiki page. Polkadot is definitely a project to follow closely, especially as they partner with even more protocols and bring in a whole new level of interoperability to the cryptocurrency ecosystem.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.