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Understanding Polkadot (DOT)
Polkadot is not a typical blockchain but rather a blockchain scaling solution that can allow blockchains to connect and grow. Polkadot, according to its Lightpaper, is “a next-generation blockchain protocol that unites an entire network of purpose-built blockchains, allowing them to operate seamlessly together at scale.” DOT is the native cryptocurrency of Polkadot.
Keep on reading to get your head around Polkadot—the “blockchain of blockchains”—and its cryptocurrency DOT.
What is Polkadot (DOT)?
Polkadot is a secondary scaling solution that is compatible with multiple blockchain networks, and DOT is the network’s digital currency. Polkadot’s whitepaper states that Polkadot is designed as a “test bed” for blockchain deployment, interaction, and development.
Polkadot seeks to connect blockchain networks in a way that is efficient, decentralized, and secure. Polkadot participants can establish or “compose” parachains, which can communicate and exchange value interoperably with autonomous blockchains. Parachains can also enable transactions in a blockchain to occur more efficiently. Polkadot’s Relay Chain is the main chain that connects and secures the network’s parachains.
Polkadot aims to support and cultivate an interoperable network of specialty blockchains. Polkadot can be called a sharded blockchain because it is composed of many specialized blockchains that use Polkadot to interact. These interactions are powered by DOT cryptocurrency.
How does Polkadot (DOT) work?
The Polkadot network is meant to be modular. Polkadot parachains use the main Relay Chain to operate in parallel, collectively forming the Polkadot network. As parachains continually enable cross-blockchain transactions and interactions, network participants pay transaction fees in DOT. Polkadot network operators can earn DOT rewards.
The Polkadot network is operated by four main types of participants—validators, collators, nominators, and fishermen. Let’s dig into each:
- Nominators: Polkadot nominators are responsible for nominating network participants—validators—to authenticate DOT transactions and secure the Polkadot network. Nominators are required to stake—agreeing not to sell or use—their DOT to participate. Nominators can earn DOT rewards for nominating successful validators.
- Validators: Validators operate the Polkadot network by validating groups of transactions and securing Polkadot’s Relay Chain. Polkadot validators use a proof-of-stake consensus mechanism, and are also required to stake their DOT.
- Collators: Collators assemble groups of transactions for validators to process. Transactions can come from many autonomous blockchains that may not use DOT.
- Fishermen: Fishermen monitor and report bad, malicious, or inaccurate behavior to validators. Fishermen can also be collators.
Polkadot uses a decentralized governance structure. The governance of Polkadot is collectively conducted by council members, technical committees, and token holders:
- Council members: These Polkadot participants are elected by passive stakeholders, and can propose new policies or veto malicious referenda.
- Technical committees: Developers are organized into teams that are actively working to build Polkadot. Technical committees can propose emergency referenda to accelerate voting on, and the implementation of, new features or upgrades.
- Token holders: DOT holders who stake their holdings ultimately maintain full control over the governance of Polkadot. Token holders, in proportion to their stakes, are responsible for electing council members and implementing upgrades and fixes.
Projects supported by Polkadot
Many Polkadot parachains are in development, with a smaller number already live. These parachain projects are already operational on Polkadot:
- Acala: Acala aims to be the decentralized finance hub of Polkadot that connects various blockchains for greater interoperability.
- Moonbeam: The Moonbeam parachain, which is compatible with Ethereum, integrates decentralized applications across blockchains.
- Parallel Finance: Parallel Finance bills itself as a decentralized money market protocol. The parachain enables borrowing and lending in the Polkadot ecosystem.
- Astar: The Astar Network connects the Polkadot ecosystem to Ethereum, Cosmos, and other blockchains.
- Clover: Clover Finance is a Polkadot project that focuses on scaling decentralized applications across multiple blockchain platforms.
Hundreds of projects are currently being developed on Polkadot—specialized blockchains with different focus areas. Some of these specialty focus areas include:
- Smart contracts
- Data curation and transfer
- File storage
- Decentralized finance
- Internet of things
A brief history of Polkadot
The Polkadot whitepaper was first released in 2016 by Dr. Gavin Wood, Ethereum’s co-founder. Dr. Wood in 2017 co-founded the Web3 Foundation, which supports the development of Polkadot and Polkadot’s testnet Kusama. Also in 2017, the first DOT tokens entered circulation when Polkadot completed its initial coin offering.
The Polkadot network was formally launched in 2020, in five different phases that each added additional functionalities. In August, 2020, DOT holders voted to “redenominate” the token from 10 million to 1 billion—a move akin to a stock split. The Polkadot network began supporting live parachains in December of 2021.
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