Polkadot Price

Introduction to Polkadot

Polkadot is an open-source project run by the Swiss-based Web3 Foundation (W3F) that connects multiple specialized blockchains into one unified network. 

The protocol comprises a main Relay Chain that coordinates the network’s security and consensus and numerous user-created parallel chains, called “parachains,” with different features and use cases.

It also supports bridges that enable interoperability between blockchains by allowing data to be transferred across previously incompatible networks like Bitcoin (BTC) and Ethereum (ETH). 

Polkadot’s founder styled it as an upgraded iteration of Ethereum. It functions at a more fundamental level than conventional blockchains, and it’s often referred to as a layer-0 blockchain because it acts as a foundational layer for other crypto projects to grow upon.

What is Polkadot (DOT)?

Polkadot (DOT) is the native token of the Polkadot network. It has several uses on the network, including making payments, settling transactions, allowing holders to participate in network governance, and as a reward incentive.

DOT tokens are also locked up as part of the bonding process that allows new chains to connect to the Polkadot network. New projects looking to launch a parachain on Polkadot usually participate in a parachain auction where they bid for a slot using Polkadot tokens. Once approved, the winning bid’s tokens are locked up for up to two years.

Furthermore, to approve a new block on Polkadot, validators must put up a certain amount of Polkadot tokens as collateral.

DOT underwent a redenomination process on August 21, 2020, which altered its smallest unit of account, known as the “Planck.” Prior to the redenomination, one Polkadot token (DOT) was denominated to 12 decimal points, meaning one Planck was equal to 1×10⁻¹² of a DOT. After the redenomination, one Planck became equal to 1×10⁻¹⁰of a DOT, which is ten decimal points.

The token has no maximum supply and a yearly inflation factor of 10% built into it. This inflationary model incentivizes DOT holders to stake their tokens to avoid a drop in their value.    

Who are the founders of Polkadot?

Polkadot is the brainchild of Ethereum co-creators Gavin Wood, Peter Czaban, and Robert Habermeier. 

Wood is a former CTO and core developer of Ethereum, where he helped create Ethereum’s Solidity smart contract programming language. 

Czaban is W3F’s technical director, and he’s helming the development of the next generation of distributed technologies. 

On his part, Habermeier is a Thiel Fellow with a research and development background in blockchain, distributed systems, and cryptography.

A brief history of Polkadot

Polkadot has an interesting history, closely tied to Ethereum. As stated above, its founder, Gavin Wood, used to be a big shot at Ethereum, serving as the CTO and core developer. But in 2016, Wood decided to venture into building a more sharded blockchain, and that’s when he released the whitepaper for Polkadot.

Before fully diving into Polkadot, Wood co-founded the EthCore Blockchain Technology Company while still at Ethereum. This company later transformed into Parity Technologies and became essential in developing crucial blockchain infrastructure tech, like the Substrate development framework and the Polkadot network itself.

To support the research and development of Polkadot and oversee its fundraising efforts, Wood also co-founded W3F, a non-profit organization established in 2017.

But while still in its infancy, the foundation faced a significant setback when a hacker exploited a vulnerability in Parity’s multi-sig wallet code. It resulted in the theft of 153K ETH, worth about $33 million then. It was a tough blow, but the team persevered.

In October 2017, the team hosted Polkadot’s initial coin offering (ICO), which was a massive success. In just under two weeks, they raised $145 million, making it one of the largest ICOs of its time.

However, their excitement was short-lived, as another hack hit Parity soon after the token sale. This time, the ICO smart contracts were hacked, and $150 million of the funds raised were frozen. It was a devastating event that unavoidably slowed down Polkadot’s early development.

But the team didn’t give up. Through a private sale, W3F raised enough funds to keep its development goals on track, and by 2019, they had overcome the hurdles and were back in business, pushing Polkadot forward.

Polkadot launched its mainnet in May 2020. In January 2021, a major update called Polkadot Runtime Environment (PRE) saw the first parachain added to the network. Later in the same month, Polkadot rolled out another update. It added features like XCMP (Cross Chain Message Passing) and GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement), granting new capabilities and tools to its users. 

Then, in April 2021, Polkadot’s native token, DOT, was featured on major exchanges. The Polkadot network has been consistently growing and advancing ever since, providing a distinctive, decentralized approach to the crypto world.

What is Polkadot used for?

Primarily, Polkadot aims to act as the solution to the ongoing issue of blockchain interoperability: the capacity for diverse blockchains to communicate and exchange data fluidly. 

Picture it as a scalable, trustworthy bridge that intertwines separate blockchains into a cohesive network. Consequently, this allows for the secure and efficient swapping of data and assets, bolstering the efficacy and dynamism of the blockchain landscape.

What makes Polkadot unique?

Polkadot’s uniqueness lies in its sharded multichain architecture that allows multiple blockchains to operate and interconnect simultaneously.

Some of its distinctive features include the following:

• Interoperability: Individual blockchains work independently, but Polkadot is like a bridge that connects them together, allowing them to talk to each other, share information, and exchange assets.
• Scalability: Pokadot uses a smart sharding technique like a highway with multiple lanes. It allows the network to speed up transactions and handle more data.
• Shared security: Polkadot says it has a unique security system where rather than each chain on the network having its own security, they all get help from the central Relay Chain, a feature not commonly found in similar networks. It’s like having a strong guard who looks after all the connected blockchains, making the whole system safer and more robust.
• Governance: Polkadot’s governance model allows everyone to have a say. As long as they hold DOT tokens, anyone can participate in decision-making, including voting on changes and upgrades to the system.
• Upgradeable: The network is designed to upgrade without forking, meaning it can evolve over time, adding new features and improvements with minimal disruptions and little fear of fragmentation.  

How many Polkadot (DOT) tokens are there in circulation?

As of November 21, 2024, there are $1,440,100,167 DOT tokens in circulation. However, this number is liable to change as Polkadot has an inflationary mechanism that increases the number of tokens in circulation by 10% annually.

How Is the Polkadot network secured?

According to the project, Polkadot is secured through an intricate, multi-tiered system. The first security layer is a variation of the proof-of-stake (PoS) consensus mechanism called nominated proof-of-stake (NPoS). It’s like a voting system where DOT holders can stake their tokens to nominate trustworthy validators to create new blocks and secure the network. Validators are like the guardians of the network who authenticate transactions and ensure everything is running smoothly. 

To keep the validators honest, Polkadot uses a mechanism called “slashing,” a process where a portion or all of a validator’s stake is destroyed if they are found to be acting maliciously. This punishment system motivates validators to play by the rules and maintain the network’s integrity.

The next security layer is the Relay Chain. It acts as the network’s security hub, protecting all the connected parachains and ensuring the collective strength of the entire network guards against potential threats.

Polkadot also leverages its dedicated community of developers and researchers to look out for potential bugs and vulnerabilities on the network. This constant vigilance helps ensure security remains solid and up-to-date.

How Polkadot works

As previously mentioned, Polkadot comprises two types of chains: Relay Chain and parachains. The Relay Chain is Polkadot’s primary chain, and it manages the network’s overall security, consensus, and cross-chain interoperability. 

On the other hand, parachains are custom blockchains that function independently, with their own tokens, governance systems, products, and use cases. However, they leverage the Relay Chain’s computing power to confirm transactions. 

They also use XCMP to communicate with each other and the Relay Chain. The system allows all data and assets to be transferred across chains and is the cornerstone of Polkadot’s interoperability.

Polkadot has around 100 slots for parachains, which are leased out to projects through a competitive bidding system that utilizes the DOT token. A few parachains may also be allocated to projects through a vote. Such parachains are regarded as “common good” assets for the network.

The network also features components known as parathreads. They are similar to parachains but have more flexible connectivity built on a pay-as-you-go model, allowing blockchains to connect to Polkadot only when needed.

FAQs