With the cryptocurrency industry booming as much as now in 2021, everyone wants to stay updated and know as much as they can to decide if investing is an option and, if so, which cryptocurrency of all is the best one to choose.
Well, if you are just starting in this world, we want to let you know it isn’t late, and you are kind of right in time, considering that many options are being opened for beginners and those who have never invested before.
However, you ought to be careful with how much you spend on a cryptocurrency and know each one released to determine the next big Bitcoin in the market.
This is what took us to Polkadot, and we’re sure you are trying to figure out whether it is worth your time and money or if it is a hard “pass” in terms of investment and alternatives.
Keeping up with all these currencies is exhausting, but we are here to lend you a hand and make sure you are focused on this one for now.
Don’t worry; we will answer the most common questions and make sure you are able to decide if you will bet on it or not.
Let’s Keep It Simple: What Is Polkadot (DOT)?
For starters, you must know that cryptocurrencies involve more than a simple coin but rather networks and blockchains that work with the specific currency created.
With this in mind, we can start by saying that Polkadot is a cryptocurrency project which seeks to power the decentralized future of the internet (Web 3.0).
It can be interoperable with all other blockchains, both inside and outside cryptocurrency, and allows for smart contracts to be created as well as new tokens and blockchains.
Information exchange between blockchains is possible, unlike most cryptocurrencies in the industry and networks. The system is also upgradeable (no hard forks), while Polkadot’s native currency, DOT, manages the protocol.
Gavin Wood, the co-founder of Ethereum, created the Polkadot network in 2017, and the Web3 Foundation in Switzerland is developing the entire project while aiming to create a decentralized internet.
Decentralized platforms allow users to control their privacy and personal information rather than large corporations.
Now, focusing on the currency in particular, the network’s digital token, the DOT cryptocurrency, is used for bonding, governance, and staking.
Staking refers to the act of receiving cryptocurrency in return for holding funds in a digital wallet that supports the operation of the blockchain.
Bonding is the act of locking in tokens for a specific period.
The Polkadot community uses tokens to govern the network and vote on any changes. Unlike cryptocurrencies such as Bitcoin (BTC), DOT can be upgraded to fix bugs or introduce new features without requiring a “hard fork” or spinoff, making it easier to adapt.
In phases, the first block of the Relay Chain was launched in May 2020. The Polkadot currency, DOT, was then rolled out.
In less than a year, DOT has become the sixth-largest cryptocurrency by market capitalization with a valuation of nearly $33 billion and a circulating supply of 920.8 million, according to coinmarketcap.com.
Essentially, Polkadot focuses on financial applications that need bank-level stability and security.
Origins of Polkadot (DOT) + Founder
Polkadot’s history begins with Ethereum. Specifically, with Gavin Wood, who has a Ph.D. Software Engineering.
Wood has more than 20 years of experience as a software developer, both within and outside the crypto space.
He coded the first functional version of Ethereum and even authored Ethereum’s, Yellow Paper. However, Dr. Wood is most well-known for creating Solidity, a coding language that allows you to create smart contracts on Ethereum.
Although he contributed incredibly to Ethereum and was part of the main team for its development, he resigned his position as Ethereum’s core developer and CTO in January 2016 without giving particular reasons.
However, many speculate that he was frustrated with how slow the progress of Ethereum 2.0 was and decided to aim for a project he felt more comfortable with.
As a result, Dr. Wood began developing a new cryptocurrency that would “deliver on the promises which Ethereum could not.” In the end, this led to what we know as DOT today, and the first draft of the Polkadot whitepaper was finished by the end of 2016.
Then, in 2017, the Web3 Foundation was established by Wood and Parity’s Peter Czaban, which is a non-profit organization that supports the research and development of Polkadot and oversees its fundraising efforts.
The Switzerland-based Web3 Foundation hosted Polkadot’s first token sale in October 2017, using a Spend-All Second Price Dutch Auction to distribute the funds.
In just two weeks, Polkadot was sold for $145 million. This included 50% of the initial 10,000,000 DOT (old) supply.
Dr. Wood and Jutta Stoner founded Parity Technologies. They are well-known for maintaining the Parity Ether client and Substrate, which is the development framework for Polkadot.
On November 6, 2017, someone froze the funds in the Parity multi-sig contract, which compromised over $90 million worth ETH. This was approximately 66% of the token sale proceeds.
Parity and Polkadot have petitioned the Ethereum community for help in returning the funds. However, the situation is still not resolved. Polkadot Foundation and Parity have both been able to recover the funds.
Luckily, the project still had enough funds to reach the desired results and goals established.
According to reports, the Web3 Foundation raised additional capital in order to replace the funds lost during a private token sale in 2019.
Polkadot attempted to sell 500,000 DOT tokens (old tokens) at a valuation of $1.2 billion and a price per token of $120. The foundation didn’t disclose details about the raise, but it was reported that the sale closed on June 19, 2019, and was successful for the company.
To this date, the Web3 Foundation continues to use the proceeds from DOT sales to fund ecosystem initiatives and back projects building on Polkadot.
The Foundation Council governs the foundation, a governing body consisting of Dr. Gavin Wood (President and Founder), Dr. Aeron Buchanan (Vice President), and Reto Trinkler.
Diving Deep – Polkadot’s Process
Understanding how crypto and network work can be a bit difficult without technical terms. However, we know you will get a bit lost with all the words you might not be familiar with. Thus, we will do our best to keep it simple.
Going back to the definition, Polkadot can be described as an ecosystem of blockchains, and the core Polkadot blockchain is called the Relay Chain.
Parachains are blockchains that are connected with the Relay Chain, and they may have their own tokens and consensus mechanisms. They can even have their own governance structures.
The Relay Chain is constructed using Substrate, which is used to build Parachains that can connect to the Relay Chain. Any “external” blockchains such as Bitcoin or Ethereum require a bridge to connect to the Relay Chain.
Based on this basic info, you can create three types of blockchains using DOT’s network:
- The Relay Chain: Which is the main Polkadot network, where transactions are completed. The relay chain separates transactions that are added and those that are validated to achieve greater speed.
- Parachains: Those are custom blockchains that verify that transactions are correct using the relay chain’s computing resources.
- Bridges: The Polkadot network can be connected by bridges, and they interact with other blockchains. It is being worked on to create bridges with blockchains such as EOS, Cosmos, and Ethereum, allowing tokens to swap without needing a central exchange.
Our focus in this part is actually the Relay Chain of Polkadot.
To ensure the network is in agreement about the system’s state, the Polkadot Relay Chain uses a variation on proof-of-stake (PoS) consensus called nominated-proof-of-stake (NPoS).
With this, anyone who stakes DOT can lock the cryptocurrency in a contract that allows them to be placed in any of the roles below:
- Validators: They take care of validating data in the Parachin blocks. They can also vote on changes to the network and participate in consensus.
- Nominators: Select trustworthy validators to secure the Relay Chain. Validators are those who delegate staked tokens of DOT to the nominees and then allocate votes accordingly.
- Collators: Nodes that keep a history of each parachain, aggregate transaction data in blocks, and add them to the Relay Chain.
- Fishermen: They report any bad behavior to the Polkadot validators inside the network.
For What Do People Use Polkadot (DOT)?
Networks, blockchains, and cryptocurrencies are more than just another type of coin to spend.
In the case of Polkadot, it allows blockchain experimentation, which is quite similar to what Ethereum made possible when it comes to experimentations in the decentralized app.
Polkadot was designed to speed up innovation cycles, especially when it comes to experimenting with state transition functions.
When building a blockchain, there are many considerations. It’s evident from the variety of Web3 projects that no framework exists that covers all chains, and Polkadot can help everyone get to a common framework quicker.
Polkadot’s primary purpose is to enable interoperability among chains, regardless of their features or status as private or public.
Different chains can communicate arbitrary messages, including value, through interoperability. Meanwhile, interconnectivity can include privacy-oriented projects and forks as well as permissioned chains.
Polkadot permits all parties to “plug in” public and private chains to a shared connectivity layer.
Chains have the option to use Polkadot’s pooled security system or maintain their own validator sets.
Basically, it allows you to leverage the best features from one chain to another.
Most Asked Question: Say “Yes” to Investment?
Like every new cryptocurrency, you will have to take the risk and bet for its development and growth over the next few months and years.
If you ask us, we consider cryptocurrencies to be a bet in every possible way, considering that you never know if you will lose or earn more money the next day.
When we take this to DOT, it is hard to predict a new crypto’s future when the market is so volatile.
However, to make it simple and stop going around the bushes, let’s say it is a good idea to invest in DOT. After all, its price is at $25.75 at the moment of writing this, and with that in mind, it is quite accessible for anyone who wants to bet on it.
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