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Polkadot Overview — The Power of Parachains

Polkadot Overview — The Power of Parachains

In this Polkadot overview, we will explore everything there is to know about Polkadot. Starting from Polkadot’s origin, to its technology, and even an understanding of the role its native currency, DOT, plays in its ecosystem. Polkadot was built to bring true interoperability to the blockchain world, something that most blockchains are still struggling to deliver.

The Polkadot network is also home to many new DeFi projects that show a lot of promise. Why did these projects choose to launch on the Polkadot network? Moreover, what is Polkadot offering that other blockchains aren’t? We will find out as we learn everything that is to do with Polkadot and its offerings in this Polkadot overview.

Polkadot Overview: The Origin of Polkadot  

Polkadot was launched on November 14, 2016. Gavin Wood, the co-founder of Ethereum, created the framework for the Polkadot Protocol. Polkadot was brought to life by the steady work put in by its co-founders — Gavin Wood, Thiel Fellow, Robert Habermeier, and Peter Czaban. Before we get into the Polkadot Overview, we must understand the demand that called for Polkadot. So, let’s see what the other blockchains failed to offer.

The Bitcoin blockchain was the first to arrive, it was a revolutionary technology. However, it was incredibly slow and posed a mighty challenge for upgrades. On the other hand, Ethereum was built to be better than Bitcoin. Although Ethereum offered much faster speeds, it still failed to offer true scalability. Gavin Wood wished to bring true interoperability, something that Ethereum set off to offer but couldn’t meet at its current version.

Since Ethereum 2.0 would take a while, Wood decided to launch a new protocol, a blockchain that will be everything Ethereum hoped to be. He built Polkadot to be what he expected the next version of Ethereum to be like. This is probably why Polkadot is sometimes called ‘The Ethereum Killer’.

Another drawback of the old blockchains is the ever-expanding gas fees. Transactions on the older blockchains have become more costly than when they first launched. Initially, older blockchains had a small number of users on their platforms, as popularity and demand grew, more and more users flocked to blockchains and DApps. This increased usage led to more transactions, more transactions led to congestion which caused slower transactions at greater costs. 

The thing about existing blockchains is that they are all built to fulfill a specific purpose. For instance, if a blockchain needs to fulfill a new purpose, it must go through an upgrade. Upgrades on old blockchains are no simple matter. Only a hard fork can allow this. These blockchains, once forked, cannot communicate with their older version, even though the technology is similar.

The greatest drawback of all is that none of these older blockchains can interact with one another. Most blockchains have a large number of DApps running within them, yet none of them have cross-chain interoperability. For instance, the Bitcoin blockchain cannot share data with the Ethereum blockchain. Polkadot aims to change this current state of isolation between blockchains.

This is how the Polkadot protocol came to be. Older blockchains had many issues, slow and expensive transactions, hard fork upgrades, and isolated blockchains. What is the point of finding new solutions if they cannot work together at optimal capacities? This Polkadot overview will show how the Polkadot protocol will fix these issues to bring all blockchains together.

Polkadot: The Technology

The Polkadot Protocol has brought a massive change to blockchain technology. Its technology and native cryptocurrency together allow the transfer of not just tokens, but also — data. Thus, creating a platform of true interoperability. Let’s dive into Polkadot’s technology so we can learn in detail everything there is to know about the Polkadot protocol in this Polkadot overview.

Polkadot was built with the mission of creating cross-chain interoperability. It provides a platform where all blockchains can communicate and share data. This covers public and private blockchains including all the DApps that run on them. Thus, a smart contract event on the Ethereum blockchain could trigger transactions on the Tron or Bitcoin blockchain.

The Polkadot protocol creates a trustless and decentralized system all running under a single Polkadot umbrella. It does so by using impressive technology that allows it to interlink multiple blockchains onto its protocol. These technologies include Relay Chains, Parachains, Parathreads, and Bridges. With technology like this on their network, it is no wonder that Polkadot is sometimes called the ‘Internet of Blockchains’.

This Polkadot Overview will see how these technologies work together to create a harmonic ‘Internet of Blockchains’. Let’s start with the Relay Chains. This is the core layer of the Polkadot network. It acts as the bookkeeper that overlooks every transaction made on the network. All transactions are finalized here. To keep the network in play, the Relay Chain uses a consensus called Nominated-Proof-of-Stake (NPoS).

To maximize speed, the Relay Chain splits new transactions by separating the act of validating these transactions. This process allows the network to crunch over 1,000 transfers per second. This record was set during Polkadot’s 2020 testing. Furthermore, the Relay Chain acts as a communication hub between all Parachains. Validators in this track provide security for the entire network by accepting blocks from all Parachains.

So far in this Polkadot Overview, we have come across the word ‘Parachains’ quite a few times. Let’s learn what a Parachain is exactly. Parachains are individual blockchains that run on top of the Relay Chain. These independent blockchains run simultaneously to increase transaction speeds and enhance scalability. Each Parachain can be bought and customized by crypto companies. These parallelly linked parachains can match their buyer’s every demand.

Each Parachain will have its one specific purpose on the Polkadot network. Every Parachain is maintained by the collator. It will be in charge of producing chain blocks. The Parachains too will enjoy the same security model from the Relay Chain. Hence, they are both safe from 51% attacks or other such hacks. The network is also home to Parathreads. These are similar to Parachains. Except, Parachains are bought and Parathreads are rented.

The other technology on the Polkadot Protocol is — Bridges. This feature works to connect the Polkadot network to other already established blockchains like Bitcoin and Ethereum. The technology does this by writing something called ‘break in’ and ‘break out’ smart contracts. This allows other external blockchains to communicate with Polkadot and therefore, with one another as well.    

Polkadot: DOT’s Duties

Now that we have understood Polkadot’s revolutionary technology, we can finally delve into its native cryptocurrency — DOT. It is time for this Polkadot Overview to reveal DOT’s role in the Polkadot technology setup.

As the network’s native cryptocurrency, DOT plays 3 main roles. This includes — Governance, Staking, and Bonding. Let’s see what functions each of these roles cover on the Polkadot network in this Polkadot Overview.

All DOT token holders receive the right to vote. They will contribute to making valuable and crucial decisions for the network. These decisions will determine things such as any upcoming upgrades and changes on the network. The votes are counted by the number of tokens set, along with the agreed-upon period that the tokens are locked to the votes.

On the other hand, some DOT token holders can use DOT to stake them. Through this measure, users on the Polkadot network can stake DOT to become validators and nominators. Both roles play a key part to keep the Polkadot technology running smoothly. While validators, in particular, will take part in the minting of blocks, nominators will back the validators. Their roles are integral to running Polkadot’s security functions. For their services, both validators and nominators will receive DOT as a reward incentive.    

Finally, the third role played by DOT on the Polkadot network is Bonding. If one wishes to get on the Polkadot network by buying a Parachain, then one needs to secure the purchase by bonding DOT to the Parachain. This gives them control over the Parachain. In turn, the DOT tokens tie the new Parachain to the Relay Chain, thus fully integrating the parachain into the Polkadot network. 

Since Polkadot’s Rococo testnet launch, the platform has seen much growth on its network. More and more developers found their way to Polkadot to begin building parachains on Rococo. This, in turn, boosted the DOT price. Presently, the Polkadot price is at a strong position in the crypto market and remains to be at a steady rank. According to CoinMarketCap, the price of DOT is $24.25 at the time of writing.

Polkadot Network: Home to DeFi Projects

With the power of Parachains calling out to new project developers, crypto enthusiasts, and blockchain visionaries. The Polkadot platform has become home to a variety of new DeFi projects. Next on this Polkadot Overview, we will see which DeFi projects show the most promise and are generating great interest among the crypto community this 2021.

Acala Network

Founded in October 2019, the Acala Network brands itself as the DeFi hub of Polkadot. Above all, it is an Ethereum-compatible platform. Specifically, it allows financial applications to use smart contracts, has built-in protocols with unique cross-chain solutions, and offers powerful security. Acala aims to bring serious value and utility to the Polkadot blockchain.

To do so it enables two core protocols. First, is a decentralized stablecoin protocol — Honzon. This allows users to mint a crypto-collateralized USD stablecoin — AUSD. The second is a tokenized staking liquidity protocol called HOMA. This allows usage of a tokenized version of staked DOT called L-DOT in DeFi protocols on the Polkadot Network. Acala’s token is ACA.

Phala Network

Founded at the end of 2018, Phala Network is a Polkadot project with a parachain that already has a token in the market. In a nutshell, Phala Network is a privacy-preserving decentralized database with smart contract functionality. It uses Trusted Execution Environment (TEEs) to preserve user privacy. The Phala Network is home to three core protocols.

The first is Web3 Analytics, a decentralized alternative to Google Analytics. This protocol gives users the power of controlling their data. Users can now choose to only share their data with sites and services they interact with, privately. The second is pDiem, a protocol that adds privacy and interoperability to transactions on Facebook’s upcoming cryptocurrency project — Diem. The third protocol is its dark pool and dark wallet pair on Kusama. This allows users to trade assets on the Kusama blockchain with total privacy. Phala’s token is PHA.

Litentry

Founded in April 2019, Litentry is a cross-chain identity aggregation protocol. This gives Litentry users leverage in governance. They can build up a credit score used to borrow with less collateral in a private and trustless manner. Litentry too has three core protocols.

The first is the Litentry Registrar protocol which enables verifying unique on-chain identities in a trustless manner. The second is the Litentry Runtime protocol. This allows users to link accounts cross-chain into a single identity. The third is the Litentry Authenticator mobile app. This will make it possible for users to use one-chain identities for off-chain purposes. Litentry’s native token is LIT.   

Centrifuge

The Centrifuge project originated in Berlin. It combines the benefits of fintech and DeFi by tokenizing both real assets and non-replacement assets such as invoices, mortgages, royalties, and more. Centrifuge Chain is the central blockchain that exists on the Polkadot network. It uses the Proof-of-Stake algorithm.

Most enterprises are taken by the project as it offers the interesting proposition of allowing users to add liquidity to their illiquid assets. With this, users can gain access to more capital, whilst excluding the dull and costly process of securitization. The project has hinted at further exciting news in the future and the community is very eager to find out what this could be. Centrifuge’s native token is CFG.

Akropolis

This project is powered by Polkadot. Akropolis builds community economies. It is one of the most inventive cross-chain DeFi protocols so far. The decentralized protocol enables under-collateralized lending and borrowing. This is a groundbreaking development for the DeFi lending protocols as most existing ones function on over-collateralization for taking loans.

Moreover, developers on the platform can design decentralized autonomous organizations (DAOs). Additionally, the Akropolis Sparta protocol allows users to earn rewards for risks in the form of liquidity for under-collateralized loans. Users can also easily automate yield to earn and save with low risk. 

Kusama

Arguably the most popular Polkadot-based project, Kusama plays the role of an experimental research and development network. Developers use Kusama as a testing ground to test-run their ideas and development plans within the platform.

Kusama uses essentially the same codebase as Polkadot. Thus, making it the best platform to test a new protocol before it enters the Polkadot network. Having a test run on the Kusama allows developers to catch and fix errors and other issues that may be prevailing on the codebase.  

The Final Word

So, we have seen Polkadot’s journey so far. From the origin to the advantages of Polkadot, we’ve covered everything the network has to offer. Moreover, going ahead, Polkadot aims to use technology to align it with human interest. Therefore, they wish to support human-centric technology to boost technology in areas that affect our daily lives. In conclusion, the Polkadot network is here to stay. It envisions a better world with the use of technology. Polkadot is not here to question things like blockchain vs parachain. In fact, we have learned, from this Polkadot overview, that Polkadot aims to connect it all.

Disclaimer: The views and opinions expressed in this article are solely the author’s and do not necessarily reflect the views of CoinQuora. No information in this article should be interpreted as investment advice. CoinQuora encourages all users to do their own research before investing in cryptocurrencies.

An eager wordsmith who conveys her thoughts and fascinations through words and storytelling. Besides lurking on new and emerging technology forums, she’s always updated when it comes to blockchain.