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DOT: The bridge builder for the Internet of tomorrow

DOT: The bridge builder for the Internet of tomorrow

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Eleven years after Bitcoin's genesis, the world is still waiting for the blockchain revolution: word of its quality as a store of value has long since got around in non-crypto circles. But the big killer apps based on blockchain are still a long time coming. This is partly because Ethereum is still the basis of most decentralized applications (dApps). The second largest crypto network by market capitalization launched in 2015 as the first blockchain capable of running programs. Can Polkadot (DOT) bring blockchain technology to mainstream?

Teething problems that Ethereum gnaws at to this day, including: Above all, the lack of scalability has repeatedly proven to be a bottleneck for the success of decentralized apps based on Ethereum. The decentralized financial services (DeFi) branch that flourished this year is a dramatic demonstration of the overuse of Ethereum. The network charges have risen to a record level due to the high demand. If you have to pay high double-digit dollar amounts in gas fees to exchange ether for one of the currently popular DeFi tokens, small investors in particular quickly lose their interest in DeFi.

Ethereum 2.0 is supposed to help. Phase 0 could start this year. However, according to Ethereum co-founder Vitalik Buterin, a few more winters should pass before Eth2 is fully functional.

Gavin Wood, another co-founder of Ethereum and former CTO of the Ethereum Foundation, recognized early on that Ethereum 2.0 is making slow progress. And so he launched a new project to put the vision of a decentralized “Web 3.0” into practice: Polkadot.

Relay chain, parachains and bridges: this is how Polkadot works

In contrast to Bitcoin or Ethereum (1.0), Polkadot does not rely on a single blockchain, but on several that run hierarchically above or next to each other: The Polkadot protocol is entirely dedicated to interoperability - the cross-blockchain interaction of different networks.

The heart of Polkadot is the relay chain. It is the glue that holds all the networks connected to Polkadot together. The relay chain has interfaces (“slots”) that other networks can use to “dock” to Polkadot. So-called parachains are used here. These are specialized blockchains (or other data infrastructures) that focus on a single area of ??application (e.g. IoT, financial services, insurance or gaming).

The bridges are a special case of parachains. As the name suggests, these are bridges that link the Polkadot network with other large blockchains - above all Bitcoin and Ethereum. This creates new opportunities to bring Bitcoin units to Ethereum in tokenized form. In this way, Bitcoiners can let their BTC "work for themselves" in the Ethereum-based DeFi space, for example.

While Ethereum 2.0 and Polkadot share some fleeting similarities, we believe that their end goal is radically different and that rather than competing with each other, the two protocols are likely to co-exist in a mutually beneficial relationship for the foreseeable future
Polkadot white paper

Substrates: the blockchain construction kit

With Substrate, Polkadot also offers developers a kind of "blockchain construction kit" that enables them to assemble a new blockchain from different modules and connect it to Polkadot. Substrate provides ready-made components, for example for node implementations, cryptography, network consensus and data storage. Developers can thus set up their own blockchain relatively easily without having to make concessions on network security: All parachains - even those that are not based on substrates - are secured via the consensus mechanism of the relay chain.

TPS that get Visa wet eyes

What Ethereum now has to laboriously create in retrospect is already in place at Polkadot from the start: Consensus-finding via Proof of Stake. While with Bitcoin (and so far also with Ethereum) the process of confirming blocks is not only slow but also extremely energy-hungry, Proof of Stake promises a significantly higher transaction throughput. And that with a much lower energy consumption.

In combination with the Parachains, Polkadot should be able to process over 166,000 transactions per second (TPS). Chief developer Gavin Wood expects up to one million TPS in perspective. For comparison: Bitcoin has an average of 3 to 5 TPS, Ethereum also only has 12 to 15 TPS. Even credit card providers look old in comparison: Visa can provide up to 65,000 TPS, according to information on the company's website. Of course, the 166,666 TPS are theoretical maximum values ??that have yet to be achieved in practice.

DOT: One token, three tasks

The platform's own DOT token is used in three areas. In the area of ??network governance, DOT owners can use their tokens to participate in elections and referendums on protocol changes. Each DOT holder is also entitled to make their own suggestions.

DOT is also required for the operation of the network. Holders can use DOT tokens to nominate the validators of transaction blocks in order to get a chance to receive a share of the block reward.

Finally, DOT tokens are required for connecting a parachain. As long as a parachain is connected to the relay chain, a certain number of DOTs must be stored.

Investment case polkadot

In a sea of ??tens of thousands of crypto projects, Polkadot is one of the more substantial candidates. With the mainnet launch at the end of May, the network, which was previously under the control of the Web3 Foundation, took an important step towards decentralization. With its blockchain-agnostic approach, Polkadot is also ideally positioned to become a central player in the burgeoning economy of distributed networks. So far there are few direct competitors: In addition to WanChain, Cosmos in particular should be mentioned here.

When it comes to the expertise of the developers, Polkadot doesn't have to hide. The Web3 Foundation, which Gavin Wood founded especially for the development of Polkadot, employs researchers from ETH Zurich and developers from Parity Technologies.

The governance had its acid test in July: The DOT holders voted for a change in the denomination of the DOT. Since 23 August (“D-Day”), this has been made up of 10 billion smallest units (“Planck”), 100 times less than before. One DOT became 100 DOT (NEW), and the rate fell accordingly from 300 to 3 - 4 US dollars. The new DOT was not spared from the sale that began in mid-September. A short-lived soaring ended at $ 6.44. In the following months, DOT traded in the range of $ 4 to $ 6. The outbreak occurred at the end of December - to the north. At the time of going to press, DOT is trading at $ 7.26 - a strong signal for the end of the year.

Polkdadot (DOT): Pros and Cons

That speaks for an investment in Polkadot (DOT)

Interoperative as a promising use case
Gavin Wood as one of the competent blockchain developers
Use as possible merit

That speaks against an investment in Polkadot (DOT)

Proof of stake can - despite appropriate precautions - end in plutocracy
Inflation rate of 10 percent: Hodln less profitable than staking
Ethereum 2.0 as a potential competitor

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