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Polkadot Cryptocurrency: Structure and Working

  • Ayush Singh Rawat
  • Oct 17, 2021
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Bitcoin has reached a new all-time high price, regulatory negotiations with the potential to have a significant influence on the sector, and more institutional buy-in from major corporations. 


Meanwhile, interest in cryptocurrency has soared this year, making it a popular topic not only among investors but also in popular culture, owing to everyone from long-time investors like Elon Musk to that kid from high school on Facebook.


Let's talk about one such cryptocurrency, that is, Polkadot. In this post, we'll learn more about Polkadot's operation, its significance in the crypto industry, and the projects that use it.



Understanding Polkadot


Polkadot is a network that connects all other networks by connecting dots. It's known as a multi-chain network since it can connect networks together, unlike Bitcoin, which runs on its own.


Its ultimate goal is to serve as a foundation for any blockchains that choose to participate, similar to how HTML allows websites, browsers, and servers to communicate with one another. 


The aim is to take care of the time-consuming and expensive cryptocurrency mining operations (such as transaction validation and security protocols) so that developers may concentrate on developing dapp and smart contract functionality.


Polkadot, which debuted in 2020, is one of the newest, with a variety of unique technical elements to help it achieve its lofty objective.


To begin, Polkadot is built to work with two different types of blockchains. A primary network, known as a relay chain, with permanent transactions, and user-created networks, known as parachains.


Parachains may be tailored for a variety of purposes and fed into the main blockchain, ensuring that parachain transactions are secure in the same way that main chain transactions are.


(Related blog: Blockchain mining)


The Polkadot team claims that by utilising this approach, transactions may be maintained safe and accurate while only consuming the computational resources necessary to run the main chain. Users, on the other hand, have the advantage of being able to design a large number of parachains for a variety of purposes.


This architecture, according to the Polkadot team, will allow users to conduct transactions more discreetly and effectively, resulting in blockchains that do not reveal user data to the public network or handle a higher number of transactions.


Polkadot has collected over $200 million from investors in two DOT coin auctions, making it one of the most well-funded blockchain ventures in history.




Polkadot was created by the Web3 Foundation, which is run by Gavin Wood, a co-founder of Ethereum. This project arose from the requirement for a platform that could operate many chains in a decentralised and parallel manner while also adapting to network advances.


As a result, this open-source project has been created. It enables blockchain networks to communicate with one another.


Polkadot coin structure

The image is presenting the structure of polkadot in relation to relaychain, parachain, and bridgechain

Polkadot structure

  1. Relay Chain: The relay chain that unites all of these individual Polkadot chains is the base Polkadot chain. As a result, they may fix interoperability concerns across these linking chains naturally.

  2. Parachain: The parallelized chains that flow across the Polkadot network are referred to as this. These aid systems scale by parallelizing operations.

  3. Bridge Chain: This chain links blockchains that do not employ Polkadot's governance mechanisms.


How does Polkadot work?


The Polkadot platform relies on a relay chain that employs a proof-of-stake consensus method. The DOT token offers validators voting power, allowing them to participate in project decisions and development. 


Furthermore, the DOT token may be used to connect and incentivize validators to behave honestly in the network when they have a financial stake in the verification process's validity.(Here)


This enables anybody betting on DOT to block the token in a contract in order to perform one or more of the functions required for it to function:


  • Validating roles: They check the data in the parachain blocks for accuracy. They also take part in the network's consensus process and vote on suggested modifications.

  • Nominating roles: They safeguard the relay chain by appointing trustworthy validators and delegating the DOT tokens they have staked to the validators. They cast their ballots in this manner.

  • Collecting roles: Nodes that keep a comprehensive record for each parachain and contribute data about the parachains' transactions to blocks in order to add them to the relay chain.

  • Fishing roles: They monitor the Polkadot network and report any inappropriate behaviour to the validators.


(Also read: Altcoin - Meaning,Types and Examples)


DOT token


DOT, Polkadot's native token, is the official network token, same as ETH and BTC are for Ethereum and Bitcoin, respectively.


The following are the objectives of the token:


  • Governance: The protocol is completely controlled by token holders. Functions such as deciding fee structures, protocol modifications, and parachain additions or deletions can be handled by the holders. The protocol's participation function will be hardcoded. 

  • Operations: The Polkadot coin protocol will not work properly unless the consensus mechanism is properly maintained. To avoid being penalised for poor performance, DOT token holders must be active participants.

  • Bonding: Validators must bond (stake) DOT tokens to the new parachains in order to be eligible for active participation incentives.


(Suggested read: Bitcoin vs Bitcoin cash)



Advantages of Polkadot

" advantages of polkadot" are a) polkadot can talk to other networks. b) polkadot's parachains reduce congestion c) it has gained almost 800% since its launch. d) one of polkadot's founders also co-founded ethereum. e) it has a fast growing pool of developers.

Advantages of Polkadot


  1. Polkadot can talk to other networks


Ethereum (ETH) is the cryptocurrency industry's largest programmable blockchain at the moment. Over 80% of decentralised applications (Dapps) are created on its network, according to State of the Dapps. 


Unfortunately, the Ethereum network hasn't been able to keep up with the cryptocurrency's rapid expansion. The system is sluggish, crowded, and costly until it can upgrade to Ethereum 2.0 (Eth2). Furthermore, it is incompatible with other networks.


Polkadot is not just more scalable and quicker, but it's also built to work with other networks. Developers would be able to create apps that utilised both the Ethereum and Bitcoin blockchains, for example.


  1. Polkadot's parachains reduce congestion


We talked about speed and traffic previously. Polkadot solves these issues with parachains. Rather than putting all of the apps on the same network, each one has its own small blockchain (or parachain) that links to the main chain.


In reality, this implies that if demand for one application spikes, it won't influence the performance of other Polkadot blockchain apps. Consider it in the same manner that side roads divert traffic away from a crowded thoroughfare.


(Must read: Bitcoin vs dogecoin)


  1. It has gained almost 800% since its launch


DOT was first traded at $2.76 per coin when it was introduced in August 2020. CoinMarketCap valued it at $33.58 at the time of writing, representing an 800 percent rise in just over a year as referenced by the source.


It reached an all-time high of $49.69 on May 15 before plummeting by more than half in the latest crypto price fall. If you're thinking about buying Polkadot, examine if you think the currency has long-term value. 


It has the potential to make significant gains in the coming year, but it also has the potential to fall much more. You can weather any short-term losses by investing for the long term.


  1. One of Polkadot's founders also co-founded Ethereum


Although Vitalik Buterin was the brains of Ethereum, the project was launched by a group of people. Dr. Gavin Wood, who was Ethereum's Chief Technology Officer before co-founding Polkadot, was one of them.


Robert Habermeier and Peter Czaban, the other two co-founders, both have strong crypto credentials and experiences in encryption and distributed technologies.


  1. It has a fast-growing pool of developers


As the bitcoin industry is so young, comparing projects and understanding the basics may be challenging. Market capitalizations can be deceiving. Coins employ a variety of validation methods and address a variety of issues, yet there is relatively little historical data available.


The management staff is one thing to consider. Another factor to consider is how many developers are working on the project. Polkadot's development community nearly quadrupled from 197 individuals in 2019 to 388 people in 2020, according to a recent study from Electric Capital. This is still a small percentage of the total number of Ethereum developers, but it shows Polkadot's popularity and growth.

To conclude our discussion, I must say, Polkadot is gaining traction as a project that intends to decentralise the web by linking blockchains and allowing them to communicate, allowing new applications such as (DeFi) services to emerge.

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