Polkadot is a project that is currently receiving a lot of attention. The reason for this is that the start of the project has been postponed several times. Gavin Woods announced the Polkadot white paper at the end of 2016. Woods is, among others, the Ethereum Virtual Machine (EVM) and was CTO of the Ethereum Foundation. He is also co-founder and director of Parity Technologies, which develops Polkadot, among other projects (for Ethereum, among others).
Polkadot held a successful ICO on Ethereum in October 2017. The company generated revenues of around 130 million euros. However, as a result of the parity hack, 2/3 of the balances were frozen. A programming error caused the hack in the Parity Wallet (also from Parity Technologies). Here you can find out the technical background of the hack. In spite of the severe loss, it was decided to continue working on the project. The start of Polkadot was already announced for Q 3/4 2019 but had to be postponed.
One of Polkadot’s core goals is to act as a kind of decentralized center for all possible blockchains. The blockchains should be able to exchange messages with each other (Interblockchainkommunikation / IBC). The focus is to provide technology that makes it easy to integrate old DLTs, current DLTs, and future DLTs. With this architecture, one would like to be able to scale in principle.
This is achieved by so-called Parachains, which can be added and removed. Parachains are public or private blockchains, as well as other data sources. The data is taken from the para chain via special nodes, the so-called collators, and Polkadot. The principle is similar to that of decentralized oracles. Parachains are activated by staking DOT tokens to the corresponding slots or deactivated by unstacking them.
The main chain or relay chain of Polkadot supports smart contracts. It is based on a kind of delegated proof of stack, called NPS (Nominated Proof of Stake) in Polkadot. There are nominators and validators in this system. The validators play an active role in the system and control the collator information. They are selected with the Stake of the nominators. If a validator behaves maliciously, the nominator loses its stake. Validators control each other. So if one validator differs from the opinion of the others, the punishment could be imposed.
Polkadot’s inflation in the first year is 10% at a 50% staking rate, so if 50% of the DOT is staked (so if 50% of the DOT holders earn 10% of inflation, that’s 20% for them). This inflation benefits the validators and nominators or the Polkadot treasury (depending on the staking rate or the staked DOT). Collators earn through the incentive systems of their specific para chain and not through the Polkadot network.
The distribution dependent on the staking rate Inflation of Polkadot
The Polkadot treasury is used by the community to fund projects. This is done through proposals and votes.
There are other actors in the Polkadot consensus system, so-called fishermen. These fishermen are responsible for a moderate amount of DOT. Their task is to control the production of the parachains. If they notice irregularities and can prove them, they are paid for them. If you report correct behavior as wrong, you risk your stake.
A substrate is a framework from Parity Technologies for creating blockchains and cryptocurrencies. A blockchain created with Substrate natively supports Polkadot or can be easily integrated as a para chain.
The Polkadot Stakers control the network. A characteristic of Polkadot is that Stakers become more powerful the longer their DOT is clocked. This ensures that long term holders, or people who believe in a long term future for Polkadot, have more influence.
There is a council at Polkadot. The DOT takers elect the members of this council. The Technical Committee forms the system’s workers, i.e., programmers, developers, etc. who are responsible for Polkadot’s technical development. The council members determine this committee. The council also proposes changes for the network. The stakeholders then vote on these referenda. If a referendum goes through, it will be implemented, implemented, etc.
The election cycles at Polkadot are set at 28 days. Every 28 days, new members are elected or voted for referendums or code is implemented. There are also emergency updates or emergency votes that do not follow the 28-day cycle.
Polkadot certainly has potential. The simple integration of parachains into the network is a unique selling point. Gavin Woods is one of the smartest people in the blockchain business, and a strong team manages the project. How the whole thing develops remains to be seen. The direct competitor here is Cosmos. But other projects are working on inter blockchain communication as well.
If you want to invest in the long term, you can’t ignore the relatively high inflation. If you participate in the consensus system as a nominator or validator, this is not important, because you even earn more than inflation. If you just leave the tokens lying around, their value could be diluted.
Especially now, when the project started, investors should be careful. Most of the time, prices go down after such events because reality cannot meet the investors (buy the rumor sell the news). But as always, nobody has a glass ball in their hand.
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