Blockchain

How can Polkadot (DOT) become Blockchain 3.0?

One of the biggest problems with the blockchain is the lack of interoperability. In it, users of one blockchain cannot or are not allowed to carry out transactions and transfer data with another blockchain.

Just as ARPANET became the internet we know today with the advent of TCP / IP, some projects aim to be the connectivity technology that will make the entire blockchain ecosystem a seamless experience.

Polkadot is a prime example.

Gavin Wood is the platform’s best-known co-founder, also co-founder of Ethereum and author of the Yellow Paper (a more technical version of the white paper).

Since the project on 11.12. has officially launched its highly anticipated first parachain location auction (referred to as the parachain auction), now is a good time to find out what its goals are, what and how they can be achieved.

The current fundamentals of DOT (since November /2021) | Source: Footprint Analytics

DOT Price Chart by Day | Source: Footprint Analytics

About polkadot

Polkadot, born in 2015, is positioned as the next generation blockchain protocol that can connect multiple dedicated blockchain networks into a common network so that they can operate seamlessly on a large scale.

It is a blockchain that can consist of multiple chains and uses a scalable heterogeneous multi-chain system.

DOT aims to solve the problems of scalability, speed and cost by enabling the implementation of many personalized blockchains, interoperability and upgradeability between chains, as well as chain self-management. In addition to supporting token transfers, Polkadot also supports data exchange between different chains.

DOT  has 3 main network infrastructures:

– Relay Chain: Called the main chain of Polkadot, responsible for the security of sharing in the network, consensus and cross-chain interoperability, can be thought of as a socket with 100 slots.

– Parachain: Processing of data operations and transaction information, which is seen as many different devices connected to the socket. Parachain makes it possible to expand the blockchain and solve the blockchain’s performance problems.

– Bridge: Connects parachains, parathreads and enables communication with external networks such as Ethereum and Bitcoin.

Polkadot was created to solve the problem of the interoperability of separate value chains on Ethereum, similar to a cross-chain bridge.

Differentiate between polkadot and ethereum

Essentially, Blockchain 1.0 provides computing power for decentralized ledger creation, but there is no ecosystem, just bitcoin of this type.

Then came Blockchain 2.0 when Ethereum introduced programmable features and smart contracts. However, many problems such as congestion and high transaction fees have been encountered.

To solve these problems and explore new opportunities, Blockchain 3.0 projects, including Ethereum 2.0, Layer2 rollups, and many other ecosystems, are currently exploding.

Interoperability projects recognize that blockchain is not a zero-sum game and that connecting chains and growing projects are inevitable. Gavin Wood set up Polkadot to create an important core protocol that would make different blockchains interoperable while solving Ethereum’s network congestion problem.

How do DOT and Ethereum differ technically?

– Sharding: Ethereum 2.0 will have 64 sharding chains with the same conversion function (STF) by 2022, while Polkadot will use heterogeneous sharding or unique STF where each parachain can be adjusted and optimized on a case-by-case basis and running in parallel instead of time on all Shards.

– Upgrade: Ethereum 2.0 uses the usual hard fork process (i.e. old and new versions are not compatible), while DOT uses the super protocol Wasm (WebAssembly) and was the first blockchain to carry out the upgrade chain without a hard fork.

Governance Mechanism: Ethereum 1.0 is mainly based on off-chain governance while the development of the DOT Network is the decision of the DOT holders, with the overall scope being refined compared to Ethereum’s governance mechanism.

– Consensus Mechanism: To increase efficiency and save resources, Ethereum 1.0 uses the PoW mechanism and is currently switching to PoS for Ethereum 2.0, which requires a lot of computing power as well as resources, but is not a replacement. Polkadot uses the Nomination Proof of Stake (NPoS) mechanism to select validators from a smaller group, which is cheaper and more efficient than Ethereum.

The current Polkadot ecosystem

DOT price table | Source: Footprint Analytics

Polkadot was watching the DOT price trend and was very hot in early August when the Parachain position auctions kicked off, which required a large DOT commitment. This has fueled the expansion of the DOT ecosystem. According to Polkaproject statistics, there are currently more than 510 projects in categories such as infrastructure, wallets, stablecoins, DApps, etc.

Some of the most popular projects are Kusama, Acala, Moonriver, Phala Network, and Parallel Finance.

Kusama: USnetwork experiment from Polkadot

Kusama was known as the “Canary” or Experimental Network before Polkadot went live. It’s like an original version of Polkadot, unchecked and unapproved. Developed for Polkadot testing, Kusama approximates the real Polkadot environment to ensure the security of the Polkadot network.

Total value locked on Kusama | Source: Footprint Analytics

Kusama market capitalization | Source: Footprint Analytics

According to Footprint Analytics, Kusama’s total locked-in value (TVL) increased from $ 580,000 to $ 2.03 million on September 22, an increase of 250% in one day. TVL is currently over $ 3 million. The growth of Kusama is closely related to the development of the Polkadot ecosystem, where heterogeneous cross-chain information interactions are becoming more common.

Kusama serves as a test site where participants can create and deploy parachains within the Kusama network or test Polkadot’s governance, asset commitment and authentication capabilities.

It allows future participants in the Polkadot Network to practice in advance. New projects on Polkadot are often afraid of unknown risks, so you are welcome to experiment with the protocol and operating environment on the Kusama network.

Polkadot’s unique parachain position auction conditions

Polkadot’s DOT token price hit new highs after the official Parachain auction on November 12th.

Why auction parachain positions?

Parachain enables both the Bitcoin and Ethereum networks to link cross-chain information interactions via the relay chain so that anyone who wants to participate in the auction can access the parachains.

Polkadot’s current goal is to support 100 parachain positions and it will be some time before these parachains appear on the Polkadot mainnet.

Due to the limited number of parachains, only projects with a large number of DOTs can access the service in order to communicate with many other blockchains.

Note that Polkadot uses a candle auction method where the organizers open the auction for a period of time and the winner is the person with the highest bid just before the candle goes out. However, the random mechanism of this auction can result in low sales as the candle goes out shortly after the first bid.

Polkadot will lock the final winner’s money in a parachain position auction until the slot’s useful life and the money will be returned to that person, usually many years.

Advantages and disadvantages of Speckle

advantages

– centers for data interoperability between several blockchains with different properties.

– Increase efficiency, save resources and costs.

– There is a test network to test previous projects.

Weakness

– Long blocking period for funds in parachain auctions.

Shortage of stablecoins: The introduction of stablecoins is a key factor in the success of all blockchain ecosystems, including polkadot, that are created using collateral or regulated on chains.

Polkadot has been operating for 6 years since 2015 and the development of the ecosystem is slower than other blockchains like Solana.

The Polkadot ecosystem will also need more native and cross-chain projects to realize the vision of “running cross-chain projects seamlessly and efficiently on a large scale”.

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Annie

Championing positive change through finance, I've dedicated over eight years to sustainability and environmental journalism. My passion lies in uncovering companies that make a real difference in the world and guiding investors towards them. My expertise lies in navigating the world of sustainable investing, analyzing ESG (Environmental, Social, and Governance) criteria, and exploring the exciting field of impact investing. "Invest in a better future," I often say. That's the driving force behind my work at Coincu – to empower readers with knowledge and insights to make investment decisions that create a positive impact.

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