Polkadot architecture consists of up to 100 parachains connected to and secured by a central Relay Chain. Parachains can interact and exchange data and assets with each other within the system, and can also connect to external networks such as Bitcoin and Ethereum using bridges. This flexibility addresses the problems of scalability, security and interoperability that have hampered blockchain development so far.
Polkadot was created with the belief that the internet of the future will have many different types of blockchains working together. For this reason, the only design criterion to be a parachain is the ability to communicate securely with the validators who ensure that the network runs correctly. This allows every parachain to be completely different and gives projects the freedom to build a parachain to suit their own needs. Parachains can be public or private, with their own governance, rules, functions, and tokens.
Just as many different services are provided across the internet, current projects aiming to be parachains cover a wide variety of applications, including but not limited to:
- Decentralized Finance (DeFi)
- Smart Contracts
- Identity Verification
- Oracles (Price Feeds)
- Internet of Things
Scalability and Speed
Parachains contribute to the scalability and speed of the Polkadot network. Because the chains are running in parallel, all processing transactions, the bottlenecks of single blockchains that process transactions sequentially are avoided. When fully operational with 100 parachains the system is expected to be able to process tens of thousands transactions per second.
Nested Relay Chains are currently being researched- These would allow the addition of more parachains, enabling the network to scale even further in the future.
A parachain lease allows a project to operate within Polkadot as a parachain for up to 24 months. Parachain lease slots are obtained by auction and require the teams to bond a significant amount of DOT (the native token of the Polkadot Network) or KSM (the native token of the Kusama Network) for the duration of the lease.
At the end of the lease period the bonded DOT/KSM are returned. The project may then choose to bid again for another slot, or run as a parathread (see below).
Some projects in the ecosystem have organized crowdloans to gather the stake for the auction bid. In this way, holders of DOT or KSM can choose to back their favourite projects. Compensation for the loss of DOT/KSM staking rewards for the duration of the lease depends on the individual project and is expected to often be in the project’s native token.
Projects who fail to secure a parachain slot or who need connectivity less often can run as parathreads. Parathreads are like parachains that connect to Polkadot using a pay-as-you-go model. Projects may switch between being parachains and parathreads depending on their needs and on the availability of parachain slots on the Relay Chain.
Where are they now?
Rococo, the parachains testnet of the Polkadot ecosystem, was launched at the end of 2020. Several projects launched test parachains on Rococo in early 2021. Once these have been fully tested and stabilized, parachains will start running on Kusama, Polkadot’s canary network. When these have been established, governance will then initiate parachain auctions for Polkadot.