Although Polkadot is advertised as the next Ethereum killer, this is not the case. Let’s dive deep into this network and check its future potential for 2021.
There are many misconceptions about Polkadot. Many think that just like in the spirit of 2017, it’s just another “Ethereum Killer” meant to fail. However the reality is quite different. Polkadot is a multi-chain ecosystem designed with the help of Gavin Wood ( the creator of Ethereum’s programming language ) and it’s meant to solve many problems that smart contract blockchains are struggling with these days. It has multiple parallel running blockchains, a proof of stake consensus mechanism and a very interesting testnet ( Kusama ) that’s already living a life of its own. It’s a fascinating piece of digital machinery to say the least. Let’s grab our screwdrivers, a wrench and a pair of pliers and dig right in.
What is Polkadot
Many people are huge fans of Ethereum and other smart contract blockchains. Why shouldn’t they be? There is so much cool tech that’s already built on them. We have smart contracts, NFT’s, games and even other cryptocurrencies, just to name a few. Unfortunately overloading a network such as Ethereum with so many cool applications, is even worse than pulling an elephant through a garden hose. The whole damn network will clog up and there will be visible cracks and rips visible in the form of ballooning gas fees and slow transaction time. This is off course because the elephant ( all the working software ) is working on only 1 network ( the garden hose ). This is where Polkadot shines.
Created in 2016 by none other than, Dr. Gavin Wood ( the creator of Ethereum’s programming language; Solidity ), this completely new “ecosystem” is a whole different beast. It tackles the 2 main problems of smart contract blockchains of today. Scalability and Interoperability. Slow and bloated blockchains of today are having problems with communicating information across other slow and bloated networks that are operating in a separate environment from each other. Imagine an all you can eat bufet where every morbidly obese guest speaks only 1 international language, while no language in the restaurant is the same. This cacophony of inefficiency is what we have to deal with these days and it illustrates perfectly just how new the whole crypto space truly is.
Polkadot is actually a network that’s built from a collection of many different blockchains buzzing away at the same time. All of these blockchains can also communicate information with one another. This way an elephant can be divided into tiny morsels and blown through a network of many hoses at the speed of light. Not to mention that each of the hoses is connected to one another with an intricate system of digital valves and switches. How many elephants will be zapped through this network in the future is anyone’s guess. Still the tech is pretty damn cool.
Aside from the interoperability aspect, there’s a matter of governance. Any crypto veteran who survived one or 2 crypto cycles, will tell you that decentralisation is the name of the game. You simply cannot have 1 central authority sitting at the throne of any given financial network, shouting orders ( otherwise we’ll just stick to the current banking system ). Without a solid decentralized governance system, users cannot agree on important aspects of a blockchain, such as code changes ( that has led towards splits like Bitcoin Cash, Ethereum Classic and others ). This is why Polkadot was built with this protection in mind. The users of the network actually vote on important aspects of the whole system and every vote counts. Aside from this, the guys behind Polkadot have set up a Swiss non profit organization called the Web 3.0 foundation and are keeping the whole project financially greased up and rolling ahead. Let’s check out how it all works under the hood.
How Polkadot works
If you want to plant a seed and want to watch it grow, you need good soil. This is why Polkadot is working from the base layer called the Substrate. Aside from having a cool name, the Substrate ecosystem is also used by other developer teams, meaning that other new and upcoming blockchains will interoperate with the Polkadot ecosystem right out of the box. Pretty damn clever.
The seed that is growing on Substrate has sprouted and a single stem is already visible. The stem is the most important part, since all the branches will originate from it. The stem of Polkadot is called the Relay Chain. This is the big daddy network that will connect and secure all the other networks that are running on this ecosystem. So once again the stem is called; Relay Chain. It all sounds a bit confusing, but it’s actually pretty straightforward.
Now that our stem ( Relay Chain ) is growing strong, we start to see new branches forming. There will be many of these branches and hence forward they shall be called: Para Chains. These sovereign Para Chains are working together ( like you might have guessed ) parallel to each other. They will have different cryptocurrencies working on top of them and will be able to communicate with each other. So in summary we have the base layer ( Substrate ) that allows for the main network ( Relay Chain ) to grow from it. From this relay chain, the many different Parachains will grow and communicate with each other, allowing for maximum badassery of cross-compatibility and interoperability.
Once you understand this system, it’s also important to keep in mind that Polkadot will have what’s called “Bridges” that will allow it to work together with Bitcoin, Ethereum and other crypto currency networks. That aspect alone makes Polkadot insanely important as it is. For example Monero’s survival depends on the similar bridges and subsequent connections to the decentralized exchanges.
When we talk about Polkadot, always think about the elephant and the garden hose. Pretty often Ethereum and Bitcoin can ( and do ) become clogged up with transactions and this causes friction, delays and many frustrated customer service reps ( who have to explain why such and such transaction is not yet visible in their system ). In short, it’s an administrative and technical nightmare for pretty much all the network participants.
Polkadot solves this problem by simply crunching the numbers across several parallel running blockchains, instead of just one ( like Ethereum and Bitcoin do ). When transactions are zapping across different garden hoses, the possibility of a clogged up system is as good as eliminated. This way the network is nice and “scalable”. Meaning it can handle large volumes of data and calculations. This is very nice and dandy when working with complicated items like Smart contracts and DAPPS ( Decentralised applications ). In fact sharded blockchain architecture is so damn efficient, that Ethereum 2.0 is also moving to this system in order to alleviate so many current problems. So how do we secure something as complicated as Polkadit?
Securing Polkadot – Consensus mechanism
If your head is still spinning from the mechanics of Polkadot’s blockchain architecture, you might be wondering how this whole cacophony of tech can be kept secure, ensuring all the cogs in the machine are lubed up and working properly. Besides, unless all the network participants aren’t playing by the rules, it’s pretty damn pointless to have such a network in the first place. This is why Polkadot utilises an ingenious way of verifications that can even rival the good old proof of work systems that Bitcoin is famous for.
Let’s take a look at the 4 horsemen of the Polkapocalypse that ensure a bulletproof security of the network. They are the Validators, Collators, Nominators and the Fishermen. Don’t worry it’s not all that complicated, so let’s take a look at each one of them separately.
Just like the US voters choose their representatives, the nominators do the same. Anyone with a heartbeat can be a nominator by simply staking their DOT token and choosing a validator that will in fact “validate” the transactions and ensure the network is nicely secured. Although this process is not grandma-friendly at all, it still can be done relatively hassle free using the native Polkadot JS portal. The nominators usually go through this difficult process in order to collect a handsome bounty of staking rewards for providing their DOT token to the whole ecosystem. Let’s move to the validators.
A validator is a node ( meaning; a computer or a whole array of computers working together ). No more no less. Just like the knights of the round table, all validators have to agree that any given transaction is correct. This is the same mechanism that proof of work nodes deal with in Bitcoin. Interesting to know, is that the validators ( in this case the people who actually own and run these computers ) also have to stake their DOT tokens in order to become a solid validator. They are also penalised for any potential down time, since it negatively impacts the whole Polkadot network. There are 1000 Validators in total at the moment. Moving on to collators.
The collators gather up the sharded data from all of these parachains and just like an annoying manager, push the whole pile of this digital paperwork onto the validators ( remember the elephant that we divided into pieces in order to send this unfortunate beast across the network of garden hoses? The sharded data means just that. ) So the collators essentially make sure that all the data is available and ready to be crunched and confirmed in the network as “something that actually took place”, might it be a transaction from 1 Polkadot address to another, or a complicated series of number crunching while using some form of a smart contract, just like on the Ethereum network.
Last but not least, there are the fishermen. Think of them as those annoying kids who always rat everyone out to the teacher. They are needed to report bad behavior and make sure that all the players in the system are respecting the rules and not trying to pull any unsavory activity ( such as trying to pass false information to the network in order to award themselves a large sum of DOT tokens or do something even worse ) Any full node or a collator can have the role of a fisherman. Meaning anyone who’s participating in the security of the Polkadot ecosystem.
If your brain is boiling by this point, don’t worry. It’s not exactly easy to understand for even a tech savvy person. The most important thing to keep in mind is that this complicated system will ensure that the whole Polkadot network can handle HUGE amounts of data and transactions. The size of this sandbox is literally enormous and it welcomes new developers daily. Before all this cool tech can be unleashed upon the world, those developers have a chance to test everything out. Let’s see how this is done.
Kusama testnet. The canary in the coal mine
In the Ethereum ecosystem, the army of chain smoking programmers can live out their caffeine-infused projects using many different testnets. There are Goerli, Rinkeby and other testnets that are always standing by for these programming creatures of the night. This way any code that the programmers churn out is battle tested without screwing anything up in the process. Using Ethereum’s mainnet for these projects can quickly become extremely expensive due to ballooning GAS fees.
Polkadot’s testnet ( Kusama ) also started life in a similar way, but it quickly became something more. If you remember the parachains ( those garden hoses ), you cannot actually OWN a parachain for your project. You have to LEASE it from Polkadot. There are parachain auctions and things will actually be heating up when push comes to shove.
This is why Kusama has started a life of its own, morphing from just a test net into a permanent residence for many new Polkadot projects. Currently Kusama has conquered a respectable 38th place in the cryptocurrency food chain and is sitting at a generous 304 usd per coin, proudly being a victim of its own success.
If we analyse the whole Polkadot ecosystem, we can start to comprehend just how insanely HUGE this project is. There are plenty of new players who want to build on this amazing ecosystem. All of them will have to arm themselves to the teeth in order to compete in the gladiator-like parachain auctions. Every month new and ambitious players enter the space and all of them will be fighting for their precious parachain real estate in order to dazzle the world with amazing new tech. This is exactly why Kusama will be so damn important alongside Polkadot. But is everything in fact so nice and dandy in the world of the pink coin? Off course not. Let’s check out the potential underwater stones of Polkadot that we should be aware of.
What needs to be solved in Polkadot?
Being completely shiny and new, doesn’t mean there are no issues with it. Every prudent investor needs to know about both sides of the coin ( pun intended )
For starters, Polkadot is trying to bite off a huge and ambitious piece of a pie that ( at this moment ) actually doesn’t have any competition yet. Only Cosmos comes close to Polkadots tech. This poses a serious problem that at the moment is plaguing Ethereum. The whole Polkadot team will have to stock up on coffee, cigarettes and red bull in order to pull it off. So far they are on track, yet a prudent investor must always watch for any developments.
Second issue is that Polkadot can actually become a victim of its own success. Imagine if we see a bustling ecosystem of multiple parachains, we are bound to see cracks in the armor. There is a risk of delays with time stamping, the ever rising costs of the parachain auctions, lack of ecosystem participants who can ensure that everyone in Polkadot is playing by the rules and much more.
Last and most important point to keep in mind is that the whole ecosystem is insanely complex ( I bet you had to reread a few previous paragraphs explaining the tech, didn’t you? ). In the world of blockchain tech and cryptocurrency it’s not always the early bird who will get the worm. It’s also a matter of making the tech simple, user friendly and easy enough for your grandma to figure out. When you explore the current labyrinth that is the Polkadot JS ecosystem, you will quickly discover that even a whole day is not enough to wrap your head around it properly. Of course we understand that currently what we are looking at is an array of tubes, switches and wires all making up a single jet engine. The plane ( with its lavish seats and inhouse entertainment systems is not even built yet! ). The Polkadot team has a long way to go in order to make their brainchild as simple and reliable as an AK-47. This all begs the question …
Is Polkadot a good investment?
In short; Absolutely! At this moment Polkadot ( AND Kusama ) actually make a nice chunk of our famous conservative grandma-friendly crypto portfolio and that for a damn good reason. We are at the pinnacle of innovation. Yes only the jet engine is visible now. But this happens to be a jet engine from the SR-71 Blackbird. The fastest and most sophisticated plane ever built. It will take time to see the wings and fuselage and it will take even more time to stand in awe of its maiden flight, yet being an early investor, it will be extremely rewarding. Someday in the future you’ll tell your kids that you bought Polkadot for less than 100 usd and it will melt faces.
Currently we are slowly but surely transitioning into the world of web 3.0 whereby web based applications will reign supreme. Smartphones are about to become even smarter. They will literally unplug you from your bank account and will do much more. At the moment we can’t flip the bird to our bankers just yet, however we can position ourselves well in advance in order to welcome this innovation into our long term portfolio.
Yes there is a long way ahead for Polkadot and we are unlikely to see any physical manifestation of this tech by the end of this 4 year cycle. Therefore Polkadot is at the same level of “hodlability” as Bitcoin, Ethereum and Monero and even though DOT is already a huge coin, it still has a ton of tricks up its sleeve.