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What is Polkadot? Is Polkadot a Good Investment?

By January 15, 2021June 18th, 20245 minute read

What is Polkadot?

Polkadot is a next-generation blockchain protocol that aims to bring multiple blockchains together into a single network. Polkadot was launched to create a webspace that gives control to individual users instead of internet monopolies. Simply put, the protocol seeks to develop a global network of computers charged with operating a basic blockchain over which individuals can launch their very 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, also happens to be 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’s even the need for a whole new blockchain protocol 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 prove to 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:

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  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 users on the network in agreement about the way 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: 

  1. Validators – As a validator, a user can validate transactions performed on the chain, participate in consensus, and propose and vote on suggestions about the network’s workings.
  2. Nominators – Nominators can secure the Relay Chain by selecting validators they trust. Nominators assign their own staked DOT tokens to the validator, thus giving away their votes to them.
  3. Collectors – These are basically 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. 
  4. Fishermen – And finally, fishermen watch over the Polkadot network and report any suspicious conduct to the validators.
  1. Parachains:

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

Each parachain will be maintained by the collator responsible for producing blocks on the chain. There are supposed to be only a limited number of parachains in the Polkadot network; however, the number might increase in the future.

  1. Bridges:

Bridges are a special sort of parachain that will connect other blockchains with those running within the Polkadot ecosystem. There are talks of building bridges so that 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?

  1. Scalability and Increased Speed:

While almost all blockchains belonging to generations 1 and 2 have had issues with processing transactions quick 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 parallelly with the Relay Chain and validators do the rest, the overall network’s speed is increased by a considerable margin. 

  1. 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 for enabling payments for the entire ecosystem by creating a stablecoin. 

  1. Working Together:

The best thing about the Polkadot parachains is that they are able to 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 communicate with another that provides access to real-world data (also known as an oracle chain) such as stock prices and more. 

  1. Governance:

The Polkadot network allows its community of users to govern the network 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 in the very near future. Governance itself is something that will be bettered over time with community suggestions; this makes Polkadot a pretty flexible network indeed.  

  1. 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, even causing 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 keeping in mind the need for it to be gradually perfected with frequent updates. 

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 definitely attract many new, interesting projects and prompt fresh use cases of decentralized networks and cryptocurrencies. The DOT token’s fairly high ranks within the market also elevate Polkadot’s reputation. Therefore, it’s quite safe to say Polkadot is a much better investment than most contemporaries and even some of its predecessors. 

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Frequently Asked Questions

What Is The Meaning Of Crypto?

A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.

Is Cryptocurrency Safe To Invest In?

Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.

Is Crypto Legal In India?

Cryptocurrencies are legal in India, and anyone can purchase, sell, and exchange them. It is currently uncontrolled, as India lacks a regulatory structure to oversee its operations. Per the Ministry of Corporate Affairs, companies must now record their crypto trading/investments within the financial year. In cases where a person receiving the gains is an Indian tax resident, or the cryptocurrency is regarded as domiciled in India, cryptocurrency transactions have been taxable in India

What Is Virtual Currency?

Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.

How To Invest In Cryptocurrency In India?

There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is the process of verifying and adding transactions between users to the blockchain public ledger. Purchasing cryptocurrency in India is a straightforward procedure where investors simply participate by registering with a crypto exchange such as WazirX. After registering for an account, citizens can trade multiple cryptocurrencies, store cryptocurrency in wallets, and more.

What Is The Safest Cryptocurrency To Invest In?

Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.

Is Mining Cryptocurrency Legal?

Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.

Is Ethereum Safe To Invest?

The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.

Who Invented Cryptocurrency?

Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.

How Many Cryptocurrencies Are There?

There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.

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.
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