Polkadot is Ethereum Co-founder Gavin Wood’s bet against blockchain maximalism. Its rise in popularity and gains has been stunning since its launch in May 2020. Since then, it has become one of the top 10 cryptocurrencies by market cap, according to CoinGecko.
But what is Polkadot, and what impact is it making on the industry? Who is using it, and is the hype empty or well-founded? Simply put, Polkadot (DOT) is a blockchain network that:
- Connects blockchains to each other
- Enables users to easily build a blockchain with their Substrate framework
- Hosts blockchains, handling their security and transactions
- Bridges blockchains on Polkadot with other networks such as Ethereum and Bitcoin
Let’s look at each of these features in more detail.
Features of Polkadot
Connections: The Relay Chain
Having a blockchain is great, but for most projects, it will have limited applications unless it can actually reach out to the larger blockchain community. On its own, a blockchain project would need to develop significant infrastructure to safely and effectively do this, and many projects have failed because they weren’t able to provide those seamless connections required.
Polkadot operates as a “relay chain” – essentially a large blockchain whose key purpose is to connect other chains to itself and provide communication between them. Having the “hub and spoke” structure offers other benefits as well for the smaller blockchains attached to the relay chain.
Empowering Construction: Substrate
The Polkadot framework includes a very powerful tool called Substrate that makes building a blockchain from scratch significantly easier. It is designed to help teams build up the specific blockchain they want, and has the protocol connection points that attach to the relay chain features.
This has two key benefits: it allows teams to focus less on building the basic infrastructure for yet another blockchain project, and allows them to focus their energy on the added value of their project.
It also gives access to the blockchain world for teams with great ideas but without the expertise needed to build a network from the ground up. This type of dual-enabling technology is powerful and has already been cited as a major reason teams are choosing Polkadot for their projects.
Security and Speed: Host Platform
Once blockchain projects, called parachains, because Polkadot processes transactions from all chains in parallel, are on the relay chain and operating, they get to enjoy one of the biggest benefits: using Polkadot’s established security and fast and scalable transaction speeds.
Not having to create their own top-tier security with full audits, and being able to avoid the high gas fees of other networks allow teams to leverage even more of their time and energy to the core value of their chain.
Connecting to the World: Bridges
Polkadot is naturally designed to act as a relay between the parachains on its network. However, it also has bridges to Ethereum and Bitcoin networks, meaning that parachains are able to access and interact with a vast network of systems, and no longer have to choose which network has the best connections for them. In this way, Polkadot isn’t in a winner-take-all competition with top networks like Ethereum, but instead is competing for users while collaborating and adding value to those on both sides.
In a first, Polkadot has announced their ability to conduct upgrades within the chain itself, preventing risks of a hard fork for significant updates. This reduces the risk of the community splitting in two, a massive amount of administrative cleanup, and unwanted token volatility.
Polkadot: The Risks Behind
There are a lot of things to like about Polkadot, and it’s easy after seeing the features of why the platform has garnered a lot of attention. However, it’s also important to explore the risks of Polkadot’s model and address some of the key concerns.
The biggest risk to Polkadot is that of many platforms: competition. While Polkadot is providing some true innovation in its approach, its core value is a Proof of Stake, general-purpose, platform that creates connections between other chains.
There are a number of other platforms that do the same, each with their own unique twists on how they get the job done. In addition to the two juggernauts, competing platforms include Polygon, Avalanche and Cosmos.
As with Ethereum, Polkadot has the capability to bridge with any of these other networks should it choose to decide it’s worth the effort, so it is protected from its own members being isolated from an attractive network of blockchains. Still, blockchain competition is intense right now and the market has yet to find saturation.
The platform has suffered major setbacks, especially during a 2017 hack, that hurt its financial position and its reputation. While it has certainly worked to fix the vulnerabilities and is likely more aggressively testing its code than other platforms thanks to these scars, it’s never great to see confidence shaken in a platform when over $150M is affected.
Finally, one of the relay chain architecture’s more interesting quirks is also a potential risk. The fact that in order to join Polkadot’s relay chain, blockchains have to bid for the space in a “slot auction”, where the winning bid is paid in DOT and is held for the duration of their participation.
The next year will shine more light on this process and what consequences it might have to smaller projects without the funds to compete for a slot.
Risk Mitigation with Kusama
“Warning: this is an experimental network. EXPECT CHAOS.”
The above is in the documentation included with Kusama, Polkadot’s canary network (think – “canary in the coal mine”). In order to provide active risk mitigation for themselves and their users’ projects, Polkadot created a near clone of itself as a way to test new ideas, check for quality or unseen issues, and essentially crash test projects before they go live on Polkadot.
This has been very well received, and given that joining has been through limited slot auctions, even those projects who want to join will have to wait for the next auction (and win it) to join Polkadot.
Kusama offers a low-stakes way to fully work out any kinks in a project’s code and allows Polkadot to try new code itself without affecting any of its parachains. According to the Kusama team, R&D stands for Risk & Danger. This is the best way to try out crazy ideas, hone them into workable solutions, then bring them online as truly innovative leaps.
Meet Some Leading Projects on Polkadot
While Polkadot’s infrastructure is impressive, the various projects built and attached offer an interesting look into the quality of the platform as a whole. Some focus on enabling Polkadot’s core capabilities, and others simply use the parachain to offer their own product or service. A selection of top Polkadot network projects include:
- Karura Network (Acala) is focused on creating and deploying DeFi smart contracts for various users. By doing so it has created a DeFi hub that enables cross-blockchain liquidity and applications.
- Moonriver (Moonbeam) is an Ethereum-compatible smart contract parachain that connects Ethereum-based projects to Polkadot, focusing on allowing minimal smart contract reconfigurations or the need for using new development tools to interact across chains.
- Khala (Phala) Network focuses on privacy-preserving cloud computing services. It is based on the TEE-Blockchain Hybrid Architecture, and it provides users with a solid balance between computing power, cloud-based flexibility, and blockchain-based security.
- Bifrost was built as a DeFi hub, hosting applications that allow users to access a variety of DeFi features while offering a number of different staking rewards and liquidity options.
- Shiden (Plasm) is another smart contract platform, designed to support the Dapps on Kusama/Polkadot. It was built with speed and scalability in mind, focusing its services on the L2 chains.
As the excitement around Polkadot grows with its slot auctions coming online and the full capabilities of the network getting attention from investors and projects alike, it is easy to get caught up in the hype and wonder what this unique platform will look like a year or two from now.
While the platform is not without a few risks and possible downsides, it has been backed by a stellar team, has been joined by leading partner projects, and, so far, has been delivering on what it has advertised.