Polkadot Explained

Polkadot is both a cryptocurrency and blockchain network. While Polkadot may be best known for DOT, the blockchain’s native currency, the Polkadot platform supports many different blockchain projects.

Let’s take a closer look at what Polkadot is and how the Polkadot blockchain works. Keep reading to find out what you need to know if you are considering investing in Polkadot.

What Is Polkadot?

Polkadot is a blockchain platform that supports a native cryptocurrency, other autonomous cryptocurrencies, and a variety of blockchain projects. Let’s dig into each of these components of the Polkadot network:

• DOT cryptocurrency: The DOT token is used to facilitate governance over the Polkadot network. It’s also used for staking (collateralizing crypto loans) and bonding, which is how blockchains interact.
• Other cryptocurrencies: In addition to DOT, the Polkadot platform hosts many more digital currencies. Other cryptocurrencies hosted on Polkadot include Chainlink, Kusama, Compound, Ankr, and 0x, with more than 100 currencies operating via the Polkadot network.
• Blockchain-based projects: Polkadot supports a wide range of projects, including those focused on decentralized finance (DeFi), non-fungible tokens (NFTs), smart contracts, the internet of things, and gaming.

Special Features of Polkadot

You can think of Polkadot as a blockchain of blockchains, and this feature is what distinguishes Polkadot from other blockchain networks. The Polkadot platform “connects the dots” by linking blockchains together.

Polkadot can facilitate the transfer of any type of data across any type of blockchain. The blockchain supports a multi-chain application environment that enables connection with other blockchains such as the Bitcoin network. The ability of the Polkadot network to transfer data, even between public and private blockchains, creates many possibilities for innovative applications.

How the Polkadot Blockchain Works

The Polkadot blockchain uses an operating protocol known as nominated proof of stake (NPoS). This method enables Polkadot community members who stake—agree to not trade or sell—their DOT to nominate other community members to assist with operating the Polkadot blockchain.

The Polkadot community includes several types of participants who each play different roles to operate the blockchain. These are the four main roles:

• Nominators: DOT holders who stake their currency and participate in the voting process to select new validators are called nominators.
• Validators: Polkadot network validators process and record transactions to add new blocks to the Polkadot blockchain.
• Collators: These Polkadot community members collect transactions from other sources and compile them for processing by validators.
• Fishermen: Those who monitor the network looking for bad behavior are called fishermen.

Polkadot supports the parallel processing of many transactions on the blockchain network. The Polkadot blockchain network is capable of parallel processing because it uses a combination of these four technologies:

• Relay chain: The relay chain is the primary Polkadot blockchain, and is used to facilitate cross-chain operations and maintain security throughout the network.
• Parachains: Parachains are semi-autonomous blockchains that can host their own cryptocurrency tokens and operate using their own functions and rules.
• Parathreads: Parathreads are also semi-autonomous. They are used for applications that are less resource-intensive and don’t need a constant connection to the Polkadot network.
• Bridges: Bridges are the connections between parachains, parathreads, and other blockchain networks like Ethereum.

How To Invest In Polkadot 

You can invest in Polkadot by buying its native currency DOT. Here’s how to purchase and store DOT:

Choose a cryptocurrency exchange

You can buy Polkadot using one of many cryptocurrency exchanges. Your options include Binance, Coinbase, and Kraken, among others. Pay attention to transaction fees, since every exchange assesses fees differently.

Place a buy order

Decide how much DOT you want to purchase, and initiate a buy order through the exchange. You can use the exchange’s website or mobile app to enter your order preferences. 

Double-check that you’ve entered the purchase order correctly—then press the buy button. Using the Kraken exchange, for example, your Polkadot transaction should be completed within two minutes.

Keep your DOT safe

Any of the major cryptocurrency exchanges can store cryptocurrency for you. You also have the option of transferring your DOT to your own software or hardware wallet. Polkadot is compatible with some of the top hardware and software wallets currently available in the market.

Notable Polkadot Happenings

The Polkadot network launched with its first block, known as the genesis block, on May 26, 2020. The network adopted the nominated proof of stake operating method less than a month later, on June 18, 2020.

While the Polkadot blockchain was launched and initially controlled by the Web3 Foundation, the blockchain development organization in July 2020, transitioned full control of the Polkadot network to DOT token holders. The DOT token on Aug. 21, 2020, underwent a redenomination, resulting in every existing DOT being exchanged for 100 new DOT tokens.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.