Like many cryptos developed after Bitcoin, Polkadot functions as a token that can be traded on trusted crypto exchanges and as a decentralized protocol.

The Polkadot protocol facilitates secure communication between unrelated blockchains, enabling value or data transfers between networks like Ethereum and Bitcoin without intermediaries. It also aims for high speed and scalability by employing numerous parallel blockchains, or “parachains,” to distribute processing demands away from the main blockchain.

In this blog, let’s learn about this next-gen blockchain protocol and how it works.

What is Polkadot?

Polkadot is a next-gen blockchain protocol that aims to bring multiple blockchains together into a single network. It was launched to create a webspace that gives control to each user instead of internet monopolies. To put it simply, the protocol seeks to develop a worldwide network of computers charged with operating a basic blockchain over which individuals can launch their own blockchains. 

One of the prominent figures behind the creation of Polkadot is Dr. Gavin Wood, one of the founders of Ethereum and the author of the Solidity smart contract programming language. The co-founder of Polkadot, Robert Habermeier, is also a distinctive member of the Rust programming language community. Polkadot builds on the premises of its predecessor blockchain networks, such as Ethereum and Cardano.

Now, you might wonder what the need for a whole new blockchain protocol is, even when we already have platforms like Ethereum out there offering a bunch of services. To answer your question, the creators behind Polkadot believe no single blockchain can serve all purposes with equal efficiency and scalability. However, the Polkadot network brings a wide number of blockchains together, each of which can offer a different service. Therefore, in theory, Polkadot can be the best host for any project you might have in mind or any kind of service you require.

So, How Does Polkadot Work?

The most crucial parts of the Polkadot protocol are the Relay Chain, Parachains, and Bridges. 

Let’s take a detailed look at each of these:

#1 Relay Chain:

The Relay Chain is the main Polkadot blockchain, where transactions are validated. To give Polkadot a quicker approach than its contemporaries, the Relay Chain separates the addition of new transactions and the act of validating those same transactions.

To keep all network users in agreement about how the protocol is run, the Polkadot Relay Chain uses a variation on the Proof-of-Stake (PoS) consensus, known as Nominated-Proof-of-Stake (NPoS). This allows any user staking DOT (the Polkadot network’s native token) to act as one or more of the following on the network:

• Validators—A user can act as a validator to validate transactions performed on the chain, participate in consensus, and propose and vote on suggestions about the network’s workings.
• Nominators—Nominators can secure the Relay Chain by selecting validators they trust. They assign their staked DOT tokens to the validators, thus giving them their votes.
• Collectors—These are nodes that keep the history of all transactions executed on each parachain (more on that later) and put data regarding parachain transactions into blocks to be validated and added to the Relay Chain.
• Fishermen – Finally, fishermen watch over the Polkadot network and report suspicious conduct to the validators.

#2 Parachains:

Parachains are independent blockchains running on top of the Relay Chain. Each will serve a specific purpose on the Polkadot network and use the Relay Chain’s resources to confirm the accuracy of the transactions made on top of it.

The collator responsible for producing blocks on each parachain will maintain it. The Polkadot network is supposed to have a limited number of parachains; however, the number might increase.

#3 Bridges:

Bridges are a special parachain that connects other blockchains with those within the Polkadot ecosystem. There are talks about building bridges so the Polkadot protocol can interact with well-established blockchains like EOS, Cosmos, Ethereum, and Bitcoin. This would allow the seamless transfer of tokens between Polkadot and outside networks without the need for a centralized exchange.

What Advantages Does Polkadot Bring Over Other Blockchains?

• Scalability and Increased Speed:

While almost all blockchains belonging to generations 1 and 2 have had issues processing transactions quickly enough to compete with fiat payment methods like credit cards, Polkadot already has a clear advantage over them regarding the swiftness of transactions. Since the parachains run and produce blocks parallel to the relay chain, and validators do the rest, the overall network’s speed is increased by a considerable margin.

• Specialization:

Polkadot wouldn’t have to develop a single chain to provide all kinds of services since parachains allow the Polkadot network to employ different, specialized blockchains to serve different purposes. For instance, one can serve as file storage. At the same time, another chain can provide decentralized identity management, and yet another can be used to enable payments for the entire ecosystem by creating a stablecoin. 

• Working Together:

The best thing about the Polkadot parachains is that they can cooperate by communicating with each other. Along with enabling different token transfers, the parachains can exchange messages and ask for information. For instance, a parachain providing financial services can easily communicate with another that provides access to real-world data (also known as an oracle chain), such as stock prices and more. 

• Governance:

The Polkadot network allows its community of users to govern it in a completely decentralized manner. While the process of handing over complete governance to users is still underway, it’s a given that its community will wholly run Polkadot soon. Governance itself will be bettered over time with community suggestions, making Polkadot a pretty flexible network.  

• Easy Upgrades:

With other blockchains, upgrading for security reasons, integrating community suggestions, or any other reason usually requires a hard fork. This can be quite difficult for the community members and even cause network splits like Bitcoin Cash. However, with Polkadot, the parachains and the main blockchain can update without any hard forks since the network was designed to be gradually perfected with frequent updates in mind.

Challenges Faced by Polkadot

• Complexity of Architecture

The complexity of Polkadot’s architecture can be intimidating for newcomers, potentially slowing broader adoption. Understanding and implementing its multi-chain framework requires a higher level of technical expertise than some simpler blockchain platforms.

• Scalability and Interoperability Testing

As a newer blockchain, Polkadot’s scalability and interoperability capabilities have not yet been fully tested on a large scale. This raises questions about the network’s long-term performance and security and its ability to handle a growing number of users and transactions.

Is Polkadot a Good Investment?

Polkadot holds the potential to bring major changes to the blockchain landscape. With its interoperability and scalability, Polkadot can contend directly against blockchain giants like Bitcoin and Ethereum. Polkadot will attract new, interesting projects and prompt fresh use cases of decentralized networks and cryptocurrencies. The DOT token ranks fairly higher within the market and elevates Polkadot’s reputation. Therefore, it’s fine to say Polkadot is a good investment.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.