What is Polkadot?
Jan 26, 2021 - 6 min read
Polkadot is a blockchain protocol that enables different blockchains to run independently within one network, protected by a shared security system. Founded by Gavin Wood, co-founder and former CTO of Ethereum, the genesis block of Polkadot was launched in May 2020.
The Relay Chain provides security for sharded blockchains running in parallel (parachains). Transactions from the parachains are confirmed on the Relay Chain using a system of validators.
Parachains are customized blockchains that can be run according to their own rules and regulations. As they are heterogenous, they can be designed to meet a variety of different functions, from decentralized finance (DeFi) to use cases that need to be optimized for high transaction throughput or privacy gaming and may be public or private. The system allows the parachains to interoperate, meaning they can communicate with each other and exchange data or tokens.
Parathreads are similar to parachains, but only occasionally establish a link to the relay chain making it possible to have “pay-as-you-go” security.
Bridges allow Polkadot to interoperate with external networks, such as Bitcoin and Ethereum.
Nominated Proof of Stake (NPoS)
Polkadot is a nominated proof-of-stake (NPoS) system.
NPoS allows all native token (DOT) holders to participate in securing the network by staking their tokens. This can be done in two ways:
- By running nodes as a validator, confirming transactions on the parachains, adding new blocks to the Relay Chain and participating in consensus
- By nominating, i.e., allocating tokens to back elected validators.
The system allows an unlimited number of nominators to back the validators. This functions as a security measure to prevent “whales” (owners of a disproportionate number of tokens) from dominating the system, as the stake behind the validators is greater than any single holding.
While validators and nominators on Polkadot are rewarded with DOT tokens, errors or malicious behaviour results in fines, known as “slashing”. This functions as an economic incentive for properly run and maintained validators, as nominators therefore seek validators with a good reputation.
Polkadot has a sophisticated system of on-chain governance in which all DOT holders have a say in how the network is run. Changes to the system are made by submitting proposals, which are then voted on.
DOT holders can submit proposals or vote on existing proposals.
The Council represents passive DOT holders and has two major roles: proposing referendums and vetoing any referendums considered to be a danger to the system. The council is an on-chain entity with each member represented by an on-chain account. Any DOT holder can register to be considered for the Council. Members are then chosen by an algorithm from the available pool of nominations. A council term lasts 7 days.
The Technical Committee is voted in by the Council and is composed of members of teams who have actively contributed to building Polkadot. The Technical Committee has the power to fast-track changes or upgrades in case of emergency.
Approved changes and upgrades can be made without forking the system, by changing the runtime. This allows Polkadot to easily address problems and quickly adapt to developments in blockchain technology.
Scalability and Speed
The Relay Chain is currently planned to provide security for up to 100 parachains and up to 10,000 parathreads. Additionally, nested Relay Chains are currently being researched, which will allow the network to scale even further.
DOT and its functionality
The native token of the Polkadot network, DOT has several functions which make it useful. DOTs may be used for governance, operating the Polkadot network and bonding parachains to the Polkadot relay chain.
As a token for governance, DOT allows holders to help determine the development of the protocol, including the addition or removal of parachains, changes to network fees and voting on major changes to the network.
DOTs are staked as part of the system of validators and nominators used to find consensus on the Polkadot network.
When a new parachain is to be added to the network, DOTs are locked or bonded. This allocation remains bonded as long as the parachain is part of the network and is later released when the parachain leaves the network.
Where is Polkadot now?
The network is fully decentralized since June 2020 and staking is active. Staking on Polkadot has also started to become popular. Early parachains are currently running on the testnet Rococo. The first parachains will be launched on Kusama, Polkadot’s “canary network”, before moving onto Polkadot, and are anticipated in early 2021.