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Polkadot (cryptocurrency)

Polkadot (cryptocurrency)

Polkadot is a blockchain network built to enable Web3 and decentralized internet.

Overview

Polkadot is the developer of a blockchain network designed to simplify the exchange of digital assets with lower fees than other blockchain networks. The technology works to enable blockchains to communicate between each other, allows for upgradeability and interoperability amongst blockchains, and introduces a shared security model that allows developers to focus on technology. Polkadot’s network is capable of spreading transactions across multiple parallel blockchains to enable high throughput necessary to reach a similar transaction processing capacity of centralized payment processors.

As well, Polkadot is a network protocol that allows arbitrary data, not just assets or tokens, to be transferred across blockchains, to offer a multi-chain application environment where cross-chain registries and cross-chain computation are possible. This interoperability is intended to allow for scalability through the creation of a general environment for multiple state machines. Further, Polkadot is known as a layer-0 metaprotocol because it underlies and describes a format for a network of layer-1 blockchains. As a metaprotocol, it also offers autonomous and forkless updating of its own codebase through on-chain governance, based on the token holder community of Polkadot.

Open source

Polkadot was initially developed through a contractual agreement between Web3 Foundation and Parity Technologies, in which Parity Technologies was contracted to build the first implementations of the Polkadot protocol. Since then, Web3 Foundation continues to manage the Polkadot project, but it is an open-source project working to foster a decentralized open source community to continue to develop the project.

Web3 Foundation employs some researchers and community administrators for the development of the platform, including consensus mechanism and decentralized messaging expert. The Web3 Foundation has stated it uses a substantial amount of the proceeds from the sale of the DOT token to finance the development of Web3 technologies, which includes Polkadot. To continue developing the project, the Web3 Foundation has a software development agreement with Parity Technologies. Under this agreement, Parity Technologies conducts research and development on the Polkadot platform.

Technology
Graphic representation of Polkadot's technology.

Polkadot is a network protocol that allows arbitrary data, and token, to be transferred across blockchains. It is built to be a scalable, interopable, and secure network that can further enable Web3. The network is a multi-chain environment where cross-chain registries and cross-chain computation are intended to be enabled. Further, Polkadot is built to transfer data across public, open, permissionless blockchains and across private, permissioned blockchains. This is to allow users to build applications that can take permissioned data and use it on a public blockchain.

To do this, Polkadot unites a network of heterogeneous blockchains called parachains and parathreads. These connect to and are secured through Polkadot’s Relay Chain and can connect to external networks through bridges. The protocol is also designed to be energy efficient. To do this, Polkadot uses a Nominated Proof-of-Stake (NPoS) model that is intended to use a fraction of the energy of a conventional proof-of-work mechanism, with Polkadot suggesting the model has the lowest carbon footprint among analyzed proof-of-stake protocols.

Parachains

The parachains are sovereign blockchains that can have their own tokens and optimized functionality for specific use cases. Parachains are able to connect to Polkadot’s Relay Chain to work through the network. To connect, parachains are able to pay the transaction fees as they go or lease a slot for continuous connectivity.

Parachains could be thought of as similar as the cores of a computer’s processor, with each core capable of running one process at a time. These parachains (and parathreads) are responsible for most of the computation across the Polkadot network, with the network choosing specific parachain or parathread implementations to handle specific use cases. Polkadot places no constraints on what the parachains can do, other than having to be able to prove they can be validated, which in turn verifies the state transition of the parachain.

Parathreads

Similar to parachains, parathreads are sovereign blockchains that opt for a pay-as-you-go model, which offers a more economical connection model for those blockchains that do not need continuous connectivity to the network.

Relay Chain

The Relay Chain is responsible for the network’s security, consensus, and cross-chain interoperability. The Relay Chain is the central chain of Polkadot and is composed of a relatively small number of transaction types that include ways to interact with the governance mechanism, parachain auctions, and participating in Nominated Proof of Stake (NPoS). The Relay Chain has minimal functionality, on purpose, with the main responsibility for coordinating the system as a whole. Any specific work, such as smart contracts or NFTs, are handled by the parachains.

Bridges

A blockchain bridge is a connection that allows for arbitrary data transfer between different networks. The bridge allows different chains to be interoperable, while the bridge as well can exist as a standalone chain with different protocols, rules, and governance models. In Polkadot’s network, the bridges connect to the Relay Chains and are secured through the Polkadot consensus mechanism. These bridges are integral to Polkadot’s interoperable architecture as they provide cross-chain interoperability, while also offering secure communications channel for chains in isolation.

Shared Security

Parachains connected to Polkadot’s Relay Chain share in the security of the Relay chain and the larger network. This means Polkadot has a shared state between the Relay Chain and connected parachains, and in the case of a Relay Chain reverting, the parachains are also reverted, to ensure the validity of the system can persist and that no individual part of the network is corruptible. The shared state also ensures that the trust assumptions of parachains are those of the Relay Chain validator and no other. Because the validator set on the Relay Chain is expected to be secure, parachains are expected to benefit from the arrangement.

Consensus Roles
Nominators

The nominators are responsible for securing the Relay Chain by selecting trustworthy validators and staking DOTs. Their stake is bonded to the validators to help them get into the active validator set, which produces blocks for the chain. In return, nominators received a portion of the staking rewards from the nominated validator.

Validators

Validators secure the Relay Chain by staking DOTs, validating proofs from collators, and participating in the consensus with other validators. The validators are selected by nominators. They are responsible for producing blocks on the Relay Chain and validating proofs from collators, and in return they receive staking rewards.

Collators

The collators maintain shards by collecting shard transactions from users and by producing proofs for validators. Collators are full nodes on both the parachain and the Relay Chain, and they collect parachain transactions to produce state transition proofs for the validators. Collators are also able to send and receive messages from other parachains using XCMP.

Fishermen

Fishermen monitor the network in order to find and report bad behavior to validators. The fisherman role can be fulfilled by collators and any parachain full node.

Governance

Polkadot uses a governance mechanism that is intended to evolve over time at the behest of assembled stakeholders. This is to ensure the majority of the stake can command the network. To do this, the network brings together various mechanisms, including an amorphous state-transition function stored on-chain and defined in a platform-neutral intermediate language and several on-chain voting mechanisms, including referenda and super-majority thresholds.

To make any changes in the network, the governance mechanisms use active token holders and the council to administrate a network upgrade decision. Any proposal can be proposed by the public token holders or the council before it goes through a referendum to let all holders make the decision. The decisions or votes by holders are weighted by stake.

Council

The council represents passive stakeholders; it is an on-chain entity comprising several actors represented by an on-chain account. The council controls the treasury and can be primarily called upon for three tasks of governance: proposing sensible referenda, cancelling potentially dangerous or malicious referenda, and electing the technical committee. If the council decides to propose a referendum, a strict majority of members is required to agree with the referenda, and no member can have exercised a veto. Each member can exercise a veto only once for any single proposal. In the case that the council has a motion with a 60 percent super-majority, but without unanimous support, it will move to a public referendum under a neutral, majority-carrying voting scheme.

Technical committee

The technical committee is made up of teams actively building Polkadot. This committee can propose emergency referenda, together with the council, for fast-tracked voting and implementation. These emergency referenda tend to be used for emergency bug fixes or rapid implementations of new features into runtime.

The technical committee was introduced in the Kusama rollout as one of the three chambers of Kusama governance. Teams can be added or removed from the technical committee based on a simple majority vote of the council.

Hybrid consensus

Polkadot’s network uses two protocols for their consensus protocol. These are GRANDPA (GHOST-based Recursive ANcestor Deriving Prefix Agreement) and BABE (Blind Assignment for Blockchain Extension). Both mechanisms are used because they split up the finality gadget from the block production mechanism. This is intended to get the benefits of probabilistic finality and provable finality in Polkadot. It also works to avoid the corresponding drawbacks for each mechanism. This means Polkadot can use the mechanisms to have blocks rapidly produced, and a slower finality mechanism to run in a separate process to finalize blocks without slowing transaction processes or stalling.

BABE

Blind Assignment for Blockchain Extension (BABE) is the block production mechanism used by Polkadot. This runs between validator nodes and determines the authors of new blocks. BABE assigns block production slots validators according to stake, and also makes use of Polkadot’s randomness cycle. This cycle means validators in Polkadot participate in a lottery in every slot that tells them whether they are the block producer candidate for the slot or not. Slots are discrete units of time, generally six seconds in length. Because of the randomness mechanism, multiple validators can be candidates for the same slot, however, at other times, a slot could be empty, resulting in inconsistent block time.

SASSAFRAS

Semi Anonymous Sortition of Staked Assignees For Fixed-time Rhythmic Assignment of Slots (SASSAFRAS) is an extension of BABE and acts as a constant-time block production protocol. This approach attempts to address some of the shortcomings of BABE, ensuring that one block is produced with time-constant intervals, and utilizes zk-SNARKS to construct a ring-VRF.

GRANDPA

GHOST-based Recursive Ancestor Deriving Prefix Agreement is the finality gadget for Polkadot, similar to Ethereum’s Casper FFG, and is designed to give stronger and quicker guarantees to the finality of blocks. This means that the finality of blocks cannot be reverted after some process of Byzantine agreements has taken place, and the notion of irreversible consensus is known as provable finality. In the paper on GRANDPA, the consensus is phrased as such:

We say oracle A in a protocol is eventually consistent if it returns the same value to all participants after some unspecified time.
History

In 2016, while working on an Ethereum specification for sharding, Gavin Wood began working on a whitepaper describing a heterogeneous multi-chain framework that would become the Polkadot protocol. The original whitepaper was published in October of that year, but the project would not start until 2017 when it raised funds through an initial coin offering.

Gavin Wood founded Polkadot with Robert Habermeier and Peter Czaban, and the project was supported by Wood’s associated organizations, namely Web3 Foundation, of which he is the president, and Parity Technologies. Gavin Wood is also known for creating the smart contract coding language Solidity and has been credited with creating the term Web3. Robert Habermeier is a Thiel Fellow and blockchain researcher and developer. Peter Czaban is a former Technology Director of the Web3 Foundation and has worked across the financial technology industry.

Out of this, Polkadot was developed, initially through Web3 Foundation’s contracting of Parity Technologies to develop the first implementations of Polkadot. However, the Polkadot project is an open-source project with anyone able to contribute to the development of the platform. In addition to the open-source community, Web3 Foundation employs researchers and community administrators to further develop the platform.

After the company’s successful 2017 ICO, and after unfortunate events that led to the company losing half the raised funds, Polkadot continued. These unfortunate events were linked to the vulnerability found in the Parity wallet, developed by Parity Technologies, which affected Polkadot’s assets.

The company conducted two private sales, in 2019 and 2020, to raise further funds after the loss. As well, In August 2020, the DOT token was redenominated by a factor of 100, and holders of the DOT token received 100 new tokens for they held. This meant for a person who purchased DOT at the initial $30 price in 2017, they now held 100 DOT tokens priced at $6, for a total value of $600.

Timeline

September 26, 2022
Polkadot Roadmap update:Asynchronous Backing,Parathreads / Next-Generation Scheduling,XCMv3,FRAME: WeightsV2,Governance Overhaul,Collectives Parachain,Bridge Hub,Nomination Pools & Fast Unstake,Staking Dashboard,Disputes Slashing.
March 11, 2022
Polkadot is top crypto held by venture capitalists and hedge funds in Q4 2021.
February 17, 2022
Polkadot (DOT) could become one of the top crypto assets of 2022, according to Coin Bureau.
December 16, 2021
The Clover Finance project won the auction for the fifth slot of the Polkadot blockchain. In its support, users blocked 9.75 million dots with a total value of $266 million.
August 6, 2020
Polkadot announces the launch of the parachain testnet.
July 27, 2020
Polkadot raises a $43,700,000 initial Coin Offering from CoinFund and James Sowers.
October 15, 2017
Polkadot raises a $250,000,000 initial Coin Offering from Andreas Schwartz, Apoorv Gupta, Boost VC, Distributed Global, Fabric Ventures, Fundamental Labs, George Burke, IOSG Ventures, Nirvana Capital, Pantera Capital and Polychain Capital.

Patents

Further Resources

Title
Author
Link
Type
Date

'Ethereum Killer' Polkadot: What's So Great About It, And Why Buy It?

Kenneth Rapoza

Web

February 21, 2021

6 Things to Know Before You Buy Polkadot

Emma Newbery

Web

July 6, 2021

An Introduction to Polkadot and Parachains

Paul Kohlhaas

Article, Guide

Feb 7, 2017

Blockchain technology may offer a way to re-decentralise the internet

The Economist

Web

June 28, 2018

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News

Title
Author
Date
Publisher
Description
October 12, 2021
The Economic Times
Bitcoin climbed above $57,000 for the first time since May as speculators bet that the largest cryptocurrency will retest the record highs reached earlier this year.
October 10, 2021
The Economic Times
In a massive turn of events, the US Federal Reserve stated that they do not plan to ban cryptocurrencies. It gives faith that some of the policy makers in the US really do see the incredible potential that cryptocurrency and blockchain technologies will have in the not-so-distant future.
Guest Author
October 7, 2021
Crunchbase News
Regulators are increasingly circling crypto, leading the sector's biggest players to take steps to reign in policies that represent a more extreme deviation from standard practice in the mainstream markets, writes Reuben Jackson, a blockchain security consultant.
September 23, 2021
The Economic Times
Barring stablecoins that are pegged to the dollar, all of the top 10 cryptocurrencies traded higher at 900 hours (IST). Polkadot climbed as much as 15 per cent, whereas Solana followed closely with over 14 per cent gain.
JD Alois
July 29, 2021
Crowdfund Insider
Click HERE to find out ⭐ Supported by the European Investment Fund, Fabric Ventures Raises $130 Million for DeFi, Digital Asset Fund. | Crowdfund Insider: Global Fintech News, including Crowdfunding, Blockchain and more.
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References

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