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What Is Polkadot?
Many people are calling Polkadot an "Ethereum Killer," because they believe that DOT has a chance of overthrowing ETH as the main crypto network.
Polkadot is a heterogenous multi-blockchain with interchange and translation architecture that enable side-chains to connect with blockchains. Simple, right? In English this means that Polkadot has one main blockchain, called the relay chain, which can currently support 100 so-called parachains that can communicate with each other, the main-chain, and other public chains, like BTC and ETH for example.
The advantage of having more than one blockchain is that they can process multiple transactions simultaneously. In a traditional blockchain the transactions are done one by one, but Polkadot processes them in each individual parachain so they can be done in parallel. This makes the network's structure highly efficient.
Another advantage is that updates can be tested on a single parachain before implementing them to the rest of the relay chain. There even exists a chain just for that called "Kusama."
Every parachain, or shard, is maintained by its own collators, who collect the transactions on the shard and use them to create proofs. The proofs are validated by Validators, who maintain the relay chain. That’s how the shards communicate with the relay chain.
Why is Polkadot a Thing?
Polkadot is unique in the sense that it allows projects to create their very own blockchains instead of using an existing platform, like Ethereum for example. For now, only 100 chains can operate around the relay chain. The community behind Polkadot selects which projects get a slot; they do this by "lending" their DOT tokens to potential projects.
Polkadot can be a bet against tribalism in the crypto world. Whenever a hardfork is created to a cryptocurrency, it splits not only the chain but also the community, both developers and users. When the ETH fork happened, it split the entire community into Ethereum and Ethereum Classic. Polkadot claims that updates and improvements can be done without hardforking; this should keep the community united.
According to the founder Gavin Wood, who is also a co-founder of Ethereum, DOT is not supposed to be a competitor to ETH but instead a complementary tool for the entire crypto world, meaning the goal is to co-exist with and further improve existing platforms.
The DOT Token
The DOT token is Polkadot's native crypto currency. It was launched last year for an initial price of $2.94, which is also its all-time low because it grew aggressively since then and its currently worth roughly $37,91.
Polkadot uses a proof-of-stake consensus, so the network is being kept alive by staking DOT tokens. HODLers can stake their DOTs to vote on changes of the protocol and vote on which projects should get a slot of the parachains. Projects will only be implemented if they can get enough DOT tokens for that.
Currently there are around 1 billion DOT tokens in circulation. Unlike Bitcoin, the DOT token has no max supply and there is currently a 10% yearly inflation. Most of the new tokens that get created every year are given to stake holders; this is supposed to encourage the community to use their tokens to vote and secure the network. So as long as you keep your holdings staked, you will not be negatively affected by the inflation.
This could be very good for the DOT price because it makes people lock their coins and move them from exchanges, so panic selling won't happen that easily.
Now there aren't many projects on the network but if it keeps growing and gaining attention the demand for its native token could rise immensely.
A Place for Polkadot
At the moment Polkadot is a small network without many projects on it, yet it already has its place in the crypto world thanks to its innovative feature to connect to external blockchains.
Nobody can say with certainty that it will keep growing agressively, but we can say that platforms like it are in demand, especially now with ridiculous transaction fees on Ethereum. Polkadot could offer a much-needed solution.
The more projects Polkadot has, the higher the demand for the DOT token, so it could be a good investment in the long term, that is if you stake your investment.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.