In one of the early Young Academy articles, blockchain was referred to as “the new internet” due to its disruptive innovation.
In little more than a year, the crypto and blockchain sector has seen a profusion of projects mainly related to Decentralized Finance. They have brought the most diverse solutions in technology, but also in governance and tokenomics.
Over the years, many projects have been defined as “Ethereum killers“, meaning they allegedly could take the place of Ethereum and offer alternative protocols for Smart Contracts and consensus.
This time, however, many believe there is a candidate truly worthy of the title. While the great Ethereum slowly proceeds to upgrade 2.0, a new similar project is born: Polkadot.
It’s no coincidence that the mind behind the project was part of the original team that founded Ethereum: Gavin Wood. The apple doesn’t fall far from the tree.
What is Polkadot?
Against this backdrop teeming with use cases and corresponding projects, Polkadot identifies the opportunity to leverage the vast potential out there by cooperating.
In fact, Polkadot was created as a “relay” blockchain that hosts “para-chains” in its network, i.e. other blockchains with specific use cases. In this way, it facilitates access to a wide range of blockchain-based services.
Polkadot not only succeeds in connecting completely different projects on a technical level, but also facilitates intercommunication and most importantly does so in a scalable manner.
Another issue solved by Polkadot is the need for forks in order to update the rules of a blockchain.
The programming language adopted by Polkadot (Substrate) and its scalable technology allow for flexible blockchain updates without forking the blockchain.
Polkadot in this way takes on the flexibility of any web application.
The Architecture of Polkadot
Let’s look at the structure that enables this scalable and communicative multi-blockchain ecosystem.
The Relay Chain
This is Polkadot’s main blockchain, which provides the operation and security system that secondary blockchains can rely on to execute their transactions in parallel.
Parachains and Parathreads
These are the secondary blockchains that leverage Polkadot’s infrastructure, so they can focus on optimising their service.
Parachains are blockchains that can have their own native token and choose to be permanently integrated on Polkadot.
They obtain their slot on the Relay Chain through a dedicated auction or through a governance proposal. In fact, the slots on Polkadot are not infinite, otherwise, the system would not be sustainable (for the current state of the art).
If a blockchain fails to win the auction, or the cost of the slot is not accessible, it can become a Polkadot Parathread, i.e. operate on the Relay Chain on a “pay-as-you-go” basis.
These are “bridges” between different networks, and on Polkadot, they were implemented to facilitate interoperability with external networks such as Bitcoin and Ethereum.
This is a foundational technology among blockchain and DLT technologies, but still has wide room for development as it has seen few use cases.
What guarantees safety and operation?
Polkadot is a network based on the NPoS (nominated proof-of-stake) system. There are two main groups of players involved in this mechanism: Validators and Nominators.
- Nominators stake their DOTs and nominate up to 16 Validators that they are willing to vouch for.
- Validators create new blocks and validate parachain blocks. Each validator gets the same reward.
The mechanism is called Nominated Proof-of-Stake precisely because it works as a proof-of-stake. The difference with the traditional PoS is that validators don’t get the right to validate the transactions based on the number of DOTs they stake, but thanks to their reliability according to Nominators.
There are two other figures in the Polkadot network who maintain the operation and security of the system.
- Collators maintain the Parachains by collecting their transactions and setting them for the Validators. They also enable communication with the Relay chain and other Parachains.
- Fishermen can be users, collators, or full nodes of the blockchain that also play a role as controllers, reporting bad behaviour to Validators.
The Polkadot (DOT) coin
The role of the native Polkadot cryptocurrency (DOT) is critical in this system, as it pertains to both the governance aspect and the NPoS system.
- Governance Function – owning DOT provides voting rights on decisions and developments regarding the protocol.
- Staking Function – DOT constitutes the collateral to be staked for all Polkadot functionalities that rely on the NPoS, such as the nomination of Validators.
- Bonding Function – DOT is also the currency with which the Parachains must pay the collateral to occupy a slot on the Relay Chain. This locking of DOT is called Bonding.
DOT’s price history also demonstrates the strength of the project: from January 1 to May 18, 2021, it grew about 322%.
Will Polkadot be the Ethereum Killer?
If the standard for evaluating Polkadot’s strength is Ethereum, let’s see what this new candidate has to offer.
To make a valid comparison over time, let’s consider Ethereum 2.0 as a benchmark, keeping in mind that it is still in Phase 0 (May 2021).
Ethereum 2.0 and Polkadot both use a model based on a main blockchain to which other second-tier blockchains are linked. Polkadot, however, has a few more tricks up its sleeve.
Scalability of updates and governance
The first major difference is that the governance processes and any updates to the Ethereum 2.0 protocol are off-chain.
This means that in order to update the foundational rules of Ethereum 2.0, it is necessary to implement a hard fork, i.e. a radical branching of the blockchain into a new blockchain with new rules. Polkadot, on the other hand, was built in such a way that even the most radical governance changes are flexibly integrated on the blockchain and implemented autonomously.
Validation Systems: PoS vs NPoS
The networks have two different validator selection mechanisms.
The NPoS system is an optimised version of PoS, as it allows Polkadot to provide better guarantees of availability and validity with fewer validators per blockchain.
Also from an ethical point of view, the NPoS system is preferable as it is not based on the Validators’ “wealth“, but rather on their reliability according to Nominators.
As of May 2021, Polkadot is in the last phase of its roadmap, namely the Parachains rollout. All other functionalities, such as NPoS, are live.
Ethereum on the other hand is still in phase 0 of its migration, i.e. in the launch phase of the Beacon Chain, which is the equivalent of the Relay Chain for Polkadot. Therefore, its PoS does not yet exist.
Polkadot researchers are already planning the next step in the evolution of the blockchain, which will be Polkadot 2.0.
Which one will arrive first at the next evolutionary stage?