Polkadot (DOT) 101 and Why It Lives in My Subconscious Mind
With the announcement of parachains, $DOT hitting a new ATH of $50 in early November, and my recent dream about the price hitting $70, it’s a good time to be talking and learning about Polkadot!
I bought Polkadot about a year ago, but I just fully came to understand the underlying technology behind it. So I want to help others understand the complex, technical concepts that enable Polkadot to be a highly scalable, decentralized, secure, and fully interoperable blockchain.
Without further ado, let’s get into it…..
The vision
In 2017, Polkadot emerged with a core mission to be the “blockchain of blockchains.’’ Gavin Wood, the co-founder of Polkadot, left Ethereum to create a multichain ecosystem where independent blockchains that operate differently from one another can coexist because he wanted to steer away from “chain maximalism,” or the belief that there is one chain to rule them all.
Without a project like Polkadot that allows for different blockchains to communicate with one another, value cannot be transferred across blockchains such as Bitcoin and Ethereum, as blockchains operate in silos. As a result, the liquidity in existing systems is isolated, leaving a big part of the ecosystem largely untapped.
Parachains and Heterogenous sharding
Polkadot removes the scalability bottleneck that Bitcoin and Ethereum face through building a multi-chain system with heterogeneous sharding. In Polkadot’s heterogeneous sharding model, shards or independent blockchains called “parachains” are connected to the main chain called the “relay chain”, as shown in Figure 5. Heterogenous sharding, as illustrated in Figure 1, is like a multi-lane highway that processes transactions in parallel instead of sequentially, reducing the time needed for a huge amount of traffic to pass through. Further, heterogeneous sharding allows each lane on the multilane highway to be designed differently, for each parachain on Polkadot can be customized to its specific use case rather than being forced to conform to the one-size-fits-all model. In other words, each parachain or decentralized application (DApp) connected to Polkadot can have its unique parameters such as block times, transaction fees, governance mechanism and mining rewards [3]. With more chains and specializations, there will be more opportunities for innovation.
As a result of this design structure, Polkadot can process over 1000 transactions per second compared to 7 transactions for Bitcoin and around 30 for Ethereum [4]. While the current number of parachains slots available is limited to 100 for security purposes and slots are sold through an auction process, Wood claims that one thousand slots may be possible in the future, and Polkadot could process a million transactions per second [5].
Pooled security
Security is of the utmost importance when it comes to processing transactions. Traditionally, sovereign blockchains like Bitcoin and Ethereum have their own mining community that provides a lot of computational power to make sure all transactions are valid. But these isolated securities make securing a blockchain difficult because you would have to compete over limited resources to find and incentivize miners to secure the blockchain [7]. Polkadot’s pooled security solves this problem by allowing all the parachains connected to its relay chain to leverage the overall security of the network. Not only is pooled security more powerful than small, isolated proof of work chains because attackers must target the combined security of all chains instead of just one chain, but pooled security also saves developers time and resources on implementing their own security [8]. Figure 2 provides a visual comparison of isolated proof-of-work securities and Polkadot’s pooled security.
Nominated proof-of-stake protocol (NPoS)
Polkadot’s specialized nominated proof-of-stake protocol (NPoS) makes it more robust, efficient, and secure than Bitcoin’s proof-of-work (PoW) and Ethereum’s proof-of-stake (PoS) consensus mechanism. Polkadot’s NPoS is made up of four types of nodes called validators, nominators, collators, and fishermen. As illustrated in Figure 4, each node in the system serves a different purpose and is economically incentivized to be watchdogs for the system and keep the system secure from attacks. Nominators or token holders can participate in the system by staking or locking up their DOT tokens to earn rewards and selecting trustworthy validators. Validators are the most powerful in terms of consensus roles, for they process transactions for all parachains and collaborate with other validators to reach a consensus. Validators are responsible for building a good reputation and held accountable for maintaining good performance by also staking their DOT in the system as a promise to behave properly. If a validator misbehaves, a part of their stake as well as the stakes of the nominators will be slashed as a penalty, depending on the severity of the misconduct. To get slashed on Polkadot means that you could lose all your DOT tokens. Collators are nodes that are in charge of gathering transactions on the parachains and sending them to the validators to be added to the relay chain. Fishermen monitor the network for misconduct and collect a percentage of any bad actors’ staked bonds [10].
Cross-chain composability
Another crucial characteristic of Polkadot that is important for enabling the future of decentralized finance and distinguishes it from the slew of “Ethereum killers’’ competing for faster transaction times, less commuting, and lower fees is its cross-chain communication capabilities that makes interoperability possible. Since blockchain economies are distinct, the ecosystem’s liquidity is diluted and users might find their funds stuck on one network. Bridges on Polkadot, as shown on Figure 5, are designed to connect with other blockchains like Ethereum and Bitcoin. With such interoperoperability or the ability to communicate with other blockchains, users will be able to move their funds to any network that yields the most value and transfer of assets to external networks like Ethereum and Bitcoin is possible without relying on centralized service providers [13].
Substrate Framework and Upgradability
Finally, another core feature of Polkadot that makes it ideal for developing DApps is its Substrate framework that enables developers to build blockchains quickly and easily. Bitcoin and Ethereum’s lack of core upgradability and code base limitations makes it time consuming for developers to build a blockchain or decentralized application, because developers would have to build the consensus mechanism, network layer, node application, user interface, security, and many other elements from scratch. Even if you choose to clone an existing blockchain solution, you still risk running the danger of duplicating its flaws and forks. To solve this problem, Gavin Wood and Parity Technology pioneered Substrate, an open-source platform that lets developers easily create fully customizable blockchains without having to deal with the complexities of each functionality [14]. Substrate maximizes technical freedom and minimizes effort for developers through providing the core components of an efficient and high-performing blockchain system such as database, networking, transaction queue, library of runtime modules, and consensus [15]. Developers are free to swap out any of the components shown in Figure 5 to customize their blockchain to fit their needs.
Moreover, because Polkadot is based on Substrate, security vulnerabilities may be solved quickly, as Substrate allows for automatic forkless upgrades that improve the underlying technology while keeping the network’s community united [17]. The automatic forkless update eliminates the fundamental difficulty that traditional blockchains face when a hard fork is required to upgrade the blockchain technology. Hard forks are known to separate communities and are harmful because they split the network’s hashing power, lowering security and processing capacity [18]. While Polkadot and its parachains are built on Substrate, Substrate is also a technology that can also be used outside of the Polkadot ecosystem. Hence, Polkadot is an attractive network for developers to connect their blockchain to because substrate-based chains connect seamlessly to Polkadot and gives them access to Polkadot’s system of parallel transactions, shared security, and cross-chain transfers.
Looking forward
Currently, there are many projects that are currently doing more or less of the same as Polkadot to bridge blockchains. However, I’m certain that Polkadot has a long way to go, as it is only the beginning of its parachain auctions.
In the meantime, I want to encourage you to learn about the underlying technology behind the assets you’re buying into, as it will help you play the long game!
References
[1] K. L., “The blockchain scalability problem & the race for visa-like transaction speed,” Medium, 23-Jul-2019. [Online]. Available: https://towardsdatascience.com/the-blockchain-scalability-problem-the-race-for-visa-like-transaction-speed-5cce48f9d44. [Accessed: 24 October 2021].
[2] Wood, G., 2021. Betting Against Blockchain Maximalism, with Dr. Gavin Wood of Polkadot. [podcast] Outlier Ventures. Available at: <https://outlierventures.io/podcasts/betting-against-blockchain-maximalism-with-dr-gavin-wood-of-polkadot/> [Accessed 24 October 2021].
[3] Wood, G., 2021. Betting Against Blockchain Maximalism, with Dr. Gavin Wood of Polkadot. [podcast] Outlier Ventures. Available at: <https://outlierventures.io/podcasts/betting-against-blockchain-maximalism-with-dr-gavin-wood-of-polkadot/> [Accessed 24 October 2021].
[4] “What is polkadot (dot)?,” Coinbase. [Online]. Available: https://www.coinbase.com/learn/crypto-basics/what-is-polkadot?__cf_chl_captcha_tk__=pmd_WcA9se_3UCaSW5zR3hMMxq_.i1KSzpnCDO8GB2.IWhY-1635100226-0-gqNtZGzNA1CjcnBszQj9. [Accessed: 24-Oct-2021].
[5] G. Wood [@Gavofyork], Latest benchmarks indicate
@polkadotnetwork, even without parachains or multithreading, will still push a sustained rate in excess of 1,000 tx/s. With parachains and multithreading then maybe 1,000,000 tx/s, 100% secure, upgradable and decentralised, Twitter, April.30,2020. [Online]. Available: https://twitter.com/gavofyork/status/1255859146127179782?s=20, Accessed on: Oct.23, 2021.
[6] F. Kafabisch, “A brief summary of everything substrate and polkadot,” Medium, 18-Mar-2019. [Online]. Available: https://medium.com/polkadot-network/a-brief-summary-of-everything-substrate-and-polkadot-f1f21071499d. [Accessed: 24-Oct-2021].
[7] P. Czaban. “04 — Polkadot Network — PETER CZABAN — Pooled Security,” Sep-20–2017. Available: https://www.youtube.com/watch?v=iHAeRa170c0.[Accessed Oct 30, 201]
[8] Polkadot [@Polkadot], Securing a blockchain is difficult. Projects have to find and incentivize miners, competing over limited resources. Small, proof of work chains are being overwhelmed with 51% attacks by powerful mining operators ½, Twitter, July.18,2018. [Online]. Available: https://twitter.com/Polkadot/status/1016997988110041088, Accessed on: Oct.31, 2021.
[9] Polkadot [@Polkadot], Securing a blockchain is difficult. Projects have to find and incentivize miners, competing over limited resources. Small, proof of work chains are being overwhelmed with 51% attacks by powerful mining operators ½, Twitter, July.18,2018. [Online]. Available: https://twitter.com/Polkadot/status/1016997988110041088, Accessed on: Oct.23, 2021.
[10] “Polkadot consensus · Polkadot Wiki,” · Polkadot Wiki. [Online]. Available: https://wiki.polkadot.network/docs/learn-consensus. [Accessed: 30-Oct-2021].
[11] G. Wood, “POLKADOT: Vision for a heterogeneous MULTI-CHAIN framework,” https://polkadot.network/. [Online]. Available: https://polkadot.network/PolkaDotPaper.pdf. [Accessed: 30-Oct-2021].
[12] “Discover polkadot- an interoperable blockchain,” LeewayHertz, 21-Oct-2021. [Online]. Available: https://www.leewayhertz.com/what-is-polkadot-network/. [Accessed: 30-Oct-2021].
[13] A. Boudjemaa, “Cross-chain interoperability : Enabling the future of defi,” Hacker Noon, 18-Sep-2020. [Online]. Available: https://hackernoon.com/cross-chain-interoperability-enabling-the-future-of-defi-7et3wgr. [Accessed: 24-Oct-2021].
[14] S. Tabrizi, “Hello, substrate!,” Parity Technologies Blog, 22-Nov-2019. [Online]. Available: https://www.parity.io/blog/hello-substrate/. [Accessed: 30-Oct-2021].
[15] J. Fransham, “What is substrate?,” Parity Technologies Blog, 09-Jul-2018. [Online]. Available: https://www.parity.io/blog/what-is-substrate/. [Accessed: 30-Oct-2021].
[16] “How to use substrate to create Parachains in Polkadot,” Blockchain Simplified, 19-Oct-2020. [Online]. Available: https://blockchainsimplified.com/blog/how-to-use-substrate-to-create-parachains-in-polkadot/. [Accessed: 29-Oct-2021].
[17] J. Wo, “No more Forks: A case for the polkadot approach to blockchain upgrades,” Nasdaq, 09-Sep-2021. [Online]. Available: https://www.nasdaq.com/articles/no-more-forks%3A-a-case-for-the-polkadot-approach-to-blockchain-upgrades-2021-09-09. [Accessed: 29-Oct-2021].
[18] J. B. Freeman, “Hard and soft forks: A detailed and simplified explanation of how blockchains evolve,” Freeman Law, 17-Jul-2021. [Online]. Available: https://freemanlaw.com/hard-and-soft-forks-a-detailed-and-simplified-explanation-of-how-blockchains-evolve/. [Accessed: 29-Oct-2021].
