Shubh Patni
Shubh Patni

Shubh Patni

Why I am Betting on Polkadot (DOT)

The crypto of the future

Shubh Patni's photo
Shubh Patni
·Jun 13, 2021·

7 min read

Why I am Betting on Polkadot (DOT)

Bitcoin and Ethereum are probably the most used cryptocurrencies but they still face the three major issues that plague all the existing decentralized networks: Scalability, Interoperability, and Sustainability. These problems are the reason you still can’t escape from the clutches of Twitter, Instagram, or centralized financial options or why crypto is not yet mainstream.

There is one platform that claims to be a decentralized clone of Twitter — BitClout. But I still have some doubts and concerns over this platform and I have written about it.

There are many blockchain projects working on these issues, and one of the most promising ones is Polkadot. Polkadot aims to be a third-generation cryptocurrency and a hub for blockchain technologies to build on top of it. This means that the next Facebook or Twitter or hedge fund may build on top of it.

A third-generation blockchain aims to solve problems such as scalability, interoperability, and sustainability.

In one of my previous articles, I discussed why Cardano will become a third-generation cryptocurrency. Why I am Betting on Cardano (ADA) The crypto of the futurelevelup.gitconnected.com

Let me present a similar case for Polkadot.

Note — I am not a financial advisor and the contents of this post should not be considered as financial advice, they are merely my opinions. Please make any investments at your own risk.

The Team and Development

Just as important as marketing is to take a shit coin project to the moon, a great team of developers is required to lift a project such as Polkadot. Dr. Gavin Wood, who co-founded Ethereum and created Solidity, Proof-of-Authority consensus, and Whisper, started Polkadot in 2016 along with Robert Habermeier and Peter Czaban.

Parity technologies and Web 3 Foundation are working on Polkadot and they have developed a framework called Substrate to ease the development of blockchains.

Substrate is a framework to allow developers to create their own blockchain without caring about intricate details such as scalability, interoperability, and governance issues. It runs in Web assembly and is implemented using Rust and JavaScript.

In Polkadot cofounder Robert Habermeier’s words, Substrate is, “a set of libraries for doing all the things that are really annoying about writing blockchains.”

Scalability

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Scalability is an essential component to make any blockchain network or even any startup successful. Scalability in decentralized networks consists of Transactions Per Second (TPS), network bandwidth, and data storage. For TPS, there is a common benchmark in the industry, of around 24000 TPS, set by VISA.

But blockchain networks of the future would not only work with daily transactions, they would also have to serve communication, stream content, and provide all sorts of online services which would require much higher TPS, storage, and bandwidth.

Internet has already solved scalability issues and thus will always be preferred by most of the population who are not paranoid about privacy.

Let’s look at how Polkadot solves scalability.

Polkadot has a multichain framework that supports independent blockchain networks called **Parachains. These parachains are coordinated by the main chain called the [Relay Chain**,](wiki.polkadot.network/docs/en/learn-archite..) which provides consensus to the entire platform through a set of validators.

Parachains are independent blockchain networks created using the substrate framework. These networks can have their own token, governance, and specific use cases to attract developers and projects for specific applications.

There will be around 100 parachain slots which will be auctioned and leased. As these parachains are their own specific blockchains for specific applications, they can run in parallel. These parachains will host several DApps on top of them; a parachain for DeFi will have DeFi projects, an NFT parachain will host games, digital assets, etc. This three layer architecture provides scalability.

But there are still a few problems.

  • First, there are limited parachain slots

  • Second, these slots are not economically feasible for everyone.

Enter Parathreads.

Parathreads enjoy the same technical and security benefits as parachains but have a different economic model. Parathreads have a fixed registration fee much lower than the cost of acquiring a parachain slot, but they must compete for the inclusion of each block through economical means, similar to how Ethereum currently works.

Interoperability

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The scalability issues in blockchain networks give rise to another problem: interoperability. How?

Well, as a blockchain network grows it attracts more developers and projects to it because of an increase in security and networking effects. But because there are limited resources in any network, the fee to operate in such a system increases, the prime example is the Ethereum gas fee. This means that there cannot be a ‘winner take all’ blockchain network.

Secondly, each blockchain platform such as Cardano, Polkadot, Ethereum, and others have their own philosophy which can be seen through their own implementation of consensus algorithm, economic incentives, and governance. So, developers would choose a network that aligns with their values.

Thus blockchain networks must be interoperable to communicate with each other and the centralized world to transfer all kinds of data.

Let’s see how Polkadot solves this problem.

In Polkadot, there are two types of bridges. Substrate-based bridges facilitate bi-directional communication between prarachain, parathreads, and other blockchains built using the substrate. Parity technologies are heading the development of this bridge.

The Web3 Foundation is giving grants to projects to build cross-chain bridges for Polkadot. **Interlay is working on a trustless bridge from Bitcoin to Polkadot which would open up DeFi opportunities for Bitcoin in Polkadot ecosystem. [Snowfork](snowfork.com) is working on a bridge for Ethereum to facilitate the cross-chain transfer of assets and data, from ERC-20 tokens to smart contracts. There are other projects such as [ChainX](chainx.org), [Bifrost](thebifrost.io), [Darwinia](darwinia.network), and [Centrifuge](centrifuge.io/)**, working on their own bridges for all kinds of solutions.

There are a few other cryptocurrency projects trying to connect the decentralized and centralized world. A major one is Chainlink. Centralized and Decentralized Systems Finally Get ‘Chained’ What is Chainlink and how it differs from other crypto-currencieslevelup.gitconnected.com

Sustainability

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The last piece of the puzzle is Sustainability. How do you make a blockchain network self-sufficient, beyond a certain group of developers and founders?

For a decentralized network, sustainability is way more important than you think. People use these systems to escape from centralized dictatorship thus a well-designed governance model, economic incentives, and security is essential.

For security, Polkadot has nominators, validators, collators, fishermen, and all sorts of protocols. Let’s discuss them in brief.

**Nominators **elect validators to secure the relay chain. Let’s say you have some DOT tokens and you want to put them for work, but you don’t want to set up a node. You can pick a few validators and stake your DOT. The rewards/penalties will be shared by you and the validator.

**Validators secure the relay chain and provide consensus by **validating proofs provided by collators. There can be a maximum of 1000 validators and you need 1.7 M DOTS ($34 M) to become a validator.

**Collators **maintain a full-node for the Relay chain and their specific parachain. They collect the parachain transactions and create a block candidate. These are basically miners who process each transaction.

**Fishermen **look for bad actors and invalid state transitions. They report on any misconduct by the parachain and receive tokens if proven correct, but risk losing their stake if proven wrong.

Governance in Polkadot is very complicated, so I’ll try to keep it as simple as possible.

Polkadot has a council which governs the network, and every change must go through them. There can be 24 council members and each needs around 11 million DOTS ($220 million)

Anyone can propose a solution to the committee, but there are several roadblocks. The proposer must put a few DOTs as bond and if the proposal is rejected, all those who voted yes, would lose their bond to treasury. Any council member can veto the proposal, thus you lost the DOTs. In case it passes, if the technical committee deems it as harmful to network, you guessed it, your DOTs are gone.

These governance issues plague a lot of POS chains and Polkadot is no different. I don’t like the governance model of Polkadot, and it obviously favors the rich. This will make the chain more centralized and riskier. Regardless, I think Polkadot has an amazing team and clever ideas which can make the network successful.

You can check out my free curated list of resources on Gumroad to learn more about cryptocurrencies, or visit my socials.

Resources and References

Polkadot, Substrate and Ethereum Ever since the release of the Polkadot paper three years ago, we knew that bridging with the Ethereum ecosystem to help…medium.com Governance · Polkadot Wiki Polkadot uses a sophisticated governance mechanism that allows it to evolve gracefully over time at the ultimate behest…wiki.polkadot.network Polkadot Bridges — Connecting the Polkadot Ecosystem with External Networks Web 3.0, the next generation of the internet, has been envisioned as a fully functional and user-friendly web where our…medium.com Polkadot Network Any type of data across any type of blockchain Polkadot is a network protocol that allows arbitrary data-not just…polkadot.network

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