Crypto is a fast-emerging market. And about 4.2% of the world’s population owns cryptocurrency. However, the crypto world still faces scalability and speed issues. In early 2021, Polkadot took the crypto world by storm and emerged as a leading blockchain project. Moreover, the founders have built robust crypto on Ethereum’s vulnerabilities. The dot crypto solves significant issues faced by popular cryptocurrencies.
This blog gives an overview of Polkadot, what is dot crypto?, DOT token, how Polkadot crypto works, and its advantages.
Overview: Polkadot (DOT)
Polkadot(DOT) is a protocol that allows the exchange of data and value across incompatible networks. Moreover, it is a network that breaks the barriers of different blockchain structures for accessible communication. It is also known as dot coin or dot crypto. And the native cryptocurrency on Polkadot is the DOT token. Peter Czaban and Ethereum co-founder Gavin Wood are the co-founders of polka dot.
For example, consider two completely different cryptocurrencies – Bitcoin and Ethereum. How can their blockchains interact with each other? That’s what Polkadot does. It helps easy and secure communication between the two blockchain ecosystems without an intermediary. Further, communication happens through parallel chains(called “parachains”) and relay chains.
Earlier, industry experts and developers stated the three main problems obstructing the development of the blockchain industry were speed, scalability, and security. The decentralized Apps (dApps) built on Ethereum and Cardano couldn’t communicate. So, Polkadot addresses these problems to a great extent. In simple words, Polkadot is a bridge that interconnects two blockchain ecosystems. And its essential characteristics are scalability and speed.
Is Polkadot a token or coin?
Polkadot is a platform and crypto coin and is also known as Polkadot coin. Moreover, it is related to Ethereum, as one of its co-founders also found Ethereum. The Polkadot token is called the DOT token and has a varied set of functions in the network. Further, you can buy or sell DOT on several crypto exchanges.
What type of coin is Polkadot?
Polkadot is a Defi token(Decentralized Finance token). Decentralized Finance is financial applications based on blockchain. They are distributed in nature and provide the user with financial control to conduct transactions globally. Moreover, they are accessible to anyone with the internet. Another key feature of these Defi tokens is a smart contract – that helps anyone to write programs and execute transaction rules; these transactions happen on specific conditions.
The Dot Token
The Polkadot token is called the DOT token.
The DOT token has two primary functions:
- Polkadot staking: Dot token helps validate transactions and issue new DOT.
- Governance: The DOT token helps the users voice their opinions in various decisions and protocol upgrades.
What is staking on Polkadot?
Polkadot works on the Proof-of-Stake consensus mechanism. And there are numerous ways to stake with the token; choose a method depending on your experience, time, and money.
The following are the four ways to stake on dot crypto:
- Join a nomination pool
- Nominating directly
- Opening a nomination pool
- Running a validator
The stakeholders assume either of the following roles:
Validators
Validators are an essential part of the protocol. And they perform a significant chunk of the work. How can you be a validator? Being a validator requires technical know-how to run a node (a computer in the network) with little or no downtime, and also you need to stake a considerable amount of your DOT.
So, what do you get in return? You can verify the transaction and add a customized transaction block to the central relay chain as a validator. Also, you earn a new DOT and a reduction in the transaction fees.
Nominators
As a nominator, you can participate in staking indirectly. In this role, you can assign your DOT to a trustworthy validator. And after the validator’s transaction, you can gain a part of the DOT earned by your validators. So, ensure that the validators you choose follow the rules of the protocol.
Collators
Collators have less responsibility as compared to validators and nominators. They oversee the parachain transactions and submit them to the relay chain validators.
Fishermen
Fishermen police the network. They report bad behavior in the network. Further, you can earn DOT rewards by assuming any of the above roles.
How does Polkadot work?
Polkadot uses the Proof-of-Stake consensus mechanism. First, to understand the working of the Polkadot, you must comprehend its architecture. The Polkadot architecture consists of 4 essential elements:
- Parachains( or”Parallel chains” ): The parachains are the primary building blockchains of the network.
- Relay chain: The parachains are, in turn, connected to the relay chains –that manage the consensus, cross-interoperability, and shared security.
- Parathread: They are similar to parachains but implement the pay-as-you-go model.
- Bridges: They connect the parachains to the outside world of other cryptocurrencies, like Bitcoin and Ethereum.
So, the Polkadot architecture includes a network of parachains and parathreads connected to relay chains, bridges that connect to the other crypto networks. Further, Substrate is Polkadot’s developmental framework that helps developers to build their blockchain structures and connect them to the relay chain.
The parachains exploit the relay chains’ speed and interoperability for transactions. The parachains have to lease slots to participate in the network. Moreover, the maximum limit for the slots is 100 in the network. Bridges help in interoperability and enable swapping different coins and tokens without a central exchange.
What is polkadot used for?
So, after understanding what is Polkadot crypto? Let’s understand its utility. Polkadot crypto is unique among the other cryptocurrencies, given its scalability, pooled security, and interoperability among multiple networks.
Furthermore, the following are the advantages of the Polkadot:
1. Build a decentralized web
Polkadot is the fundamental technology that powers decentralized apps(dApps). One of the fundamental advantages of Polkadot is the exchange of data and information in networks without a bank or any other third party.
2. Interoperability among networks
The fundamental advantage of Polkadot is interoperability among parachains and other networks. Further, interoperability helps the exchange of data and value among diverse blockchains. The Polkadot architecture allows private and public chains to connect with a central relay chain. Further, Polkadot helps transfer funds from one digital wallet to another utilizing public and private cryptography.
3. Build customized blockchains
Polkadot’s Substrate framework allows developers to build customized parachains using plugins. Later, connect these parachains to a centralized relay chain for speed and interoperability. Bridges help to interact with other crypto networks such as Ethereum and Bitcoin. Thus, allowing the Polkadot network to grow.
4. User-driven Governance
Polkadot supports user-driven governance, as all the stakeholders can voice their opinions. Network developments are coordinated on-chain and executed anonymously without dividing the network. Hence, the developments in the network are community-driven and future-proof.
5. Scalable Economic Transactions
Polkadot provides stable economic scalability thanks to the standard set of validators for multiple transactions. Also, interoperability helps to spread transactions across multiple networks and ensures transaction scalability.
6. High Security
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7. Energy Efficiency
Polkadot’s para chains consume a small fraction of energy considering the efficiency of the Proof-of-stake protocol. Reportedly, Polkadot has the lowest carbon footprint amongst the proof-of-stake protocols.
How does polkadot make money?
Polkadot gains value on crypto exchanges. Moreover, the supply and demand chain influences the currency’s value. The market’s perception triggers its value at that time. The following factors influence the profits from Polkadot or any other cryptos:
- Buy Low, Sell High
The classic investment approach – “Buy low, sell high”- also works for cryptos. So, the investors can gain profits when they buy and hold the coins.
- Mining
Crypto mining is a way of creating new coins. Moreover, you earn profit through mining if you invest in the right tools and participate in bitcoin mining pools.
- Increasing Utility
When more avenues open for cryptos, their utility increases. For example, if institutions invest and accept it as a form of payment, its value increases.
- Media Coverage
Last, media coverage also influences the value of cryptos. Further, the correlation between media and cryptocurrency value is a vicious cycle.
However, cryptos are highly volatile.
Polkadot is one of the leading staking platforms. Crypto owners can earn passive income by staking. Staying involves using your cryptocurrencies to verify transactions on the blockchain protocol. Polkadot is popular among investors as it is pretty interactive. Moreover, developers can connect their customized blockchains to the Polkadot system. While more blockchain developers utilize Polkadot technology, it garners the interest of investors.
The dot USD charts suggest the dot coin price as of now is $5.18. You can purchase crypto from various crypto exchanges such as Binance and Coinbase. However, the polka dot coinbase and dot binance value differ because the price of crypto depends on the traders.
Conclusion
Polkadot has many projects in the pipeline. However, the parachains in the Polkadot architecture are able to do a lot of processing. The parachains can process 1,000 transactions per second compared to 7 for Bitcoin and 30 for Ethereum. Polkadot is the next face of cryptocurrency.
Although Polkadot is gaining a considerable part of Bitcoin and Ethereum market share, rather than referring to them as “Ethereum killer,” its significance lies in complementing other cryptocurrencies rather than competing against them.
