DeFi
September 28, 2022
What is Token Burn and it's effects on price
An A-Z guide on token burning and how it is largely impacting the cryptocurrency industry.
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DOT is one of those networks that has made a huge name for itself in the last few years and that is with good reason. Some advantages that DOT offers over other blockchain networks are worth leaving the old ones and shifting to this.
Although, when people talk about DOT or the Polkadot network, they wonder what the terms like multi-chain networks or parachain mean. This article discusses these things about DOT and also tells you what DOT is, how the network is secured along with the advantages and disadvantages of the blockchain.
Polkadot is basically a multichain protocol that is open-sourced. It connects a network of specialized blockchains along with keeping it secure and allowing cross-chain transfer of data and assets to happen. This network allows different blockchains to become interoperable with each other.
Polkadot was designed with keeping in mind that a foundation should be given for a decentralized internet of blockchain networks which you would also know as Web3. It is a layer-0 meta protocol as it has a defined format of layer 1 network called the para chains.
Polkadot can autonomously and forklessly update its codebase and that can be done by the on-chain governance in the way the holders of the tokens in the community want it. This network is controlled by the users and it helps in simplifying the process of creating applications and other services.
DOT is the native token of Polkadot and it has 3 set purposes which are:
1. Staking for operations and security
2. Facilitating network governance
3. Bonding tokens to connect parachains
The Polkadot has 4 core components and these components are:
1. Relay Chain: Relay chain is the heart of Polkadot and it helps create the consensus mechanism and interoperability. It is also the shared security across the different blockchain networks.
2. Parachains: These are independent chains that can have their own tokens and which can be optimized for their specific uses as well.
3. Parathreads: Parathreads are akin to Parachains but they are more flexible when it comes to the connectivity.
4. Bridges: The Polkadot bridges help in connecting various networks by using Parachains and Parathreads to do so.
Polkadot is a Swiss foundation whose goal is to provide an open-source and user-friendly decentralized web solution to the users. Polkadot mainly has 3 founders and all have quite a presence in the crypto world as they are connected to the users not just with Polkadot but with other networks as well.
Dr. Gavin Wood, Robert Habermeier and Peter Czaban are the founders of Polkadot and you might have heard of Dr. Wood as he has a huge influence in the community because he is also the co-founder of Ethereum along with being the Parity Technologies founder and creator of the smart contract coding language Solidity. People also say that he coined the term Web3 first.
Robert Habermeier is a Thiel Fellow and he has researched blockchains, cryptography, etc, extensively. Peter Czaban is the former Technology Director of Web3 Foundation and he has huge experience in the highly specialized fintech industries.
DOT is native token of the Polkadot Network and the holders of DOT token can get various benefits and authorities on its platform. Let’s take a look at some of the token stats as of 2022.
The Polkadot is referred to as a scalable heterogeneous multi-chain network. It offers a number of parachains upon which different applications can be hosted to serve their specific use cases. Whereas, in the case of other blockchains, it is just one blockchain providing certain generalized features upon which apps are built.
Scalability is a highlight feature of the Polkadot network. As it runs a number of parachains, each chain is independent of the other and hence scalable. Additionally, if required, the information can be shared between two parachains using interchain communication achieved by relay-chain.
Polkadot network is designed to support the larger Ethereum network and not compete with it. It can be interoperable with the Ethereum blockchain. That means, transactions initiated on Polkadot can be sent to Ethereum once verified by validators on its own chain.
As long as security and encryption of Polkadot is concerned, it has a solution for double spending to offer. The headers of parachains are sealed under the relay chain so that no mutation or manipulation is possible.
Moreover, not everyone can be a validator on Polkadot. The network uses a nominated proof-of-stake (NPoS) consensus mechanism where the validators are backed by the nominators with the tokens staked by them. Thus, making it expensive for anyone to be a part of the consensus mechanism.
As you already know, the relay chain is the heart of the Polkadot network. All the validators are present on the mainchain/relay-chain and not on each parachain. The transactions on each para chain are validated by the validators staked at the relay chain.
Hence Polkadot manages to maintain the same security standards across all the parachains. However, each chain can still be governed as per its requirement keeping it independent in all other aspects.
Like all the blockchain networks out there, Polkadot comes with its own pros and cons. Let's have a look at what these advantages are first.
1. Flexibility: The Polkadot network offers flexibility to its developers that help them select any specific components that suit their needs of the application-specific chain.
2. Shared Security Model: This network offers a shared security model that enables the developers to launch chains and applications without worrying about attracting enough miners or validators to make their own chain secure.
3. Bridges: As we mentioned before, the bridges in Polkadot allow you to connect to other networks by making use of their Parachains and Parathreads.
Now that you know a few advantages of the Polkadot network, let us look at some of the cons of this network that will help you decide whether you should use this network or not.
1. Competition: Polkadot has fierce competition with other networks like Tezos, Cardano, Cosmos, etc, who offer some similar general purpose solutions like Proof-of-Stake and smart contracting.
2. Vulnerability: Polkadot is vulnerable to hackers as has been proved twice when the hackers drained millions of dollars' worth of assets before it was stopped.
3. Limited Parachains: This network only has a limited amount of parachains and the slots get sold via auctions. This could lead to price out of several smaller use cases.
Polkadot is a very popular blockchain network and when it comes with the features like parachains and parathreads that help in bridging across other networks, it just makes it irresistible to not be used. By reading over all the pros and cons of this network, we are sure you would now understand this network a lot more than before.
If you still have doubts regarding this network or any of its functionalities, then feel free to contact us and ask about these doubts. We will be sure to reach out to you. Do read our other articles regarding cryptocurrencies and the blockchains networks specifically.
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