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Polkadot (DOT) Guide

Timer5 min read

Polkadot: a Layer-0 blockchain that focuses on the multi-chain future

  • Application-specific Layer-1 blockchains (or parachains) allow developers to build L1 chains designed explicitly around their application and value proposition. Each chain has Shared security and financial scalability, removing the need for bootstrapped security. Any L1 chain attached to Polkadot (as well as L2 chains built on top of them) can benefit from Polkadot's native interoperability and thus be able to communicate and exchange value and information with other parachains. As a result, all chains experienced increased interoperability and shared security.

  • 8.73k daily active addresses (7-day moving average)

  • 46k daily transactions (7-day moving average)

 

Key Figures

 

Protocol Mechanism

The most important part of the Polkadot network is the Relay Chain. Any chain ontop of the Relay Chain, called Parachains, can connect as long as a chain's logic can compile to Wasm and adheres to the Relay Chain API. 

Parachains construct and propose blocks to validators on the Relay Chain, where the blocks undergo rigorous availability and validity checks before being added to the finalized chain. As the Relay Chain provides the security guarantees, collators - full nodes of these parachains - don't have any security responsibilities, and thus do not require a robust incentive system. This is how the entire network stays up to date with the many transactions that take place.

In October 2023, asynchronous backing is a big step in realising performance and flexibility. Overall, this development represents a marked optimisation of Polkadot’s parachain consensus protocol. Unlike synchronous backing, which requires building blocks on the most recent Relay Chain block, asynchronous backing loosens this constraint — de-synchronizing Relay Chain growth from parachain growth — and allows collators to propose parachain blocks using older Relay Chain parents. This enables collators to create pipelines of multiple parachain blocks that haven’t yet been included in the Relay Chain, increasing efficiency and scalability. Collators can also propose parachain candidates off ancestors that haven’t been backed yet, blocks can be proposed every Relay Chain block.

 

History 

  • Kusama was founded in 2019 by Dr. Gavin Wood and is the pre-fix to Polkadot. As mentioned, Kusama is an independent, stand-alone network that was released as the early version of Polkadot with the same code. Both blockchains are based on NPoS, and are interoperable and fork-less but with different use cases. 

  • 2021 saw a successful year in the eyes of the developers with 16 Parachains running with around 31% of the total supply (3 million KSM (native Kusama token)) locked. As well as Polkadot auctioning five Parachain slots (for blockchains to ‘bond’ to the network) and, as a result, locking up approximately 106m DOT or 9% of total supply whilst increasing (x3) the number of Nominators to 22,000 and maximising the number of active Validators. Therefore, drastically improving the security and interoperability of both networks.

  • 2022 saw 74 parachains winning auction on Polkadot or Kusama, to support an ecosystem of over 300 applications according to the Foundation. Over 130 million DOT and nearly 300,000 KSM have been lent by the Polkadot community through crowd loans to support parachains’ auction bids, a massive show of confidence in the future of the Polkadot ecosystem. Centrifuge, a parachain leading the onboarding of real-world assets into on-chain DeFi, is leading the largest investment in bringing real-world assets on chain to date with a $220m fund. In 2022, Polkadot completed a total of 15 seamless, forkless upgrades, bringing the cumulative total as of 2022 to nearly 50.

  • In 2023, the Polkadot 1.0 version release represents the realisation of Polkadot's 2016 whitepaper. The Polkadot codebase is now functionally complete and has been fully handed over to the community with the launch of Polkadot OpenGov and the migration of all runtime code to a repository managed by the Technical Fellowship. This move introduces greater transparency and encourages community participation, fostering an environment conducive to collaborative growth and development. 

 

CoinShares’ Analysis

Polkadot's introduction of coretime rental revolutionises access to parachain slots, eliminating competitive auctions and lowering entry barriers for developers. Though it faces a lack of competitiveness in key sectors like DeFi, NFTs, and gaming, opportunities for growth lie in further developments such as agile core usage, enhancing cross-chain communication, and scaling through on-chain logic optimisation. However, a potential threat looms with investment apathy, possibly leading to underperformance and diminished traction across its ecosystem.

 

Strengths

  • Previously, securing a parachain slot was a competitive process through an auction mechanism. With coretime rental, there is no need for slot auctions anymore. Teams can purchase on-demand coretime or reserve bulk coretime as required. This greatly decreases the barrier-to-entry for software tinkerers and parachain teams.

     

Weaknesses 

  • It is not competitive in many of the major subsectors, including DeFi, NFT, and gaming. While good architectural upgrades are occurring, adoption has yet to be seen.

 

Opportunities  

  • Continued development such as agile core usage and coretime allocation will allow any application to access Polkadot's computation based on their needs without wasting valuable blockspace. Accords will improve cross-chain communication and the security guarantees of XCM messages. Finally, Polkadot will scale by moving on-chain logic into its system parachains, allowing it to have more bandwidth for the parachains protocol and accords.

 

Threats 

  • Investment apathy by retail and institutional investors could consequently cause the token to underperform this cycle, failing to generate any further interest in apps, developers, or investment, leading to unsticky feedback loops and sub-par traction going forward.