Created by Gavin Wood, cofounder of Ethereum, Polkadot is a cryptocurrency that raised $144.3 million in October 2017. This money has been found thanks to an Initial Coin Offering (ICO) which is the equivalent of a crowdfunding for cryptocurrencies.
Polkadot : to unify all the blockchains
Polkadot is a multi-chain software or a cross-chain network whose aim is to connect multiple specialized blockchains into a single unified network.
Before Polkadot, all the other blockchains were operating independently and in isolation. There is no communication between blockchains, neither is sharing of data nor is transactions between them. Value sharing is impossible.
Now for the first time, Polkadot provides cross-chain interoperability. Polkadot will allow any blockchain, public or private, whether with permission and permission less, oracles and decentralized applications to communicate with each other and connect in a trustless and decentralized connection. An example could be a Smart Contract event triggering a Bitcoin payment.
Polkadot can be called the internet of blockchains. It is called so because of its ability to provide an interoperable network connecting all the blockchains. Polkadot achieves this by having three layers on its system. The Relay Chain being the core layer of the system takes the role of overlooking all network transactions. It ensures data standardization for every system to understand.
Parachains are individual blockchains connected in parallel. They allow multiple chains to run simultaneously to enable scalability and increase transaction speed. Parachains can be sold, buyer cryptocurrency companies then modify them to fit their needs.
Polkadots uses Bridges to connect to established blockchains like Bitcoin. Bridges write a Break-in and Break-out Smartcontracts that allows communication of blockchains with the Polkadot network.
DOT : the Token
DOT is the network Token and plays three roles on the network.
It is used for governance in the Polkadot network. DOT holders vote on the network governance for upgrades and network fees. Votes are weighted by the token amount one owns.
DOT’s other use is staking. Holders can stake their tokens as validators and nominators. Validators take part in the making or production of new blocks. Nominators’ presence is to back up the validators. Both parties provide essential security functions and receive DOTS in reward.
The DOT Token is additionally for bonding. As mentioned before, Parachains can be purchased. DOTS have to be bond to tie DOT Tokens to the relay chain to create a Parachain. Out-dated or non-useful Parachains are eliminated by removing the bonded token.
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This article is not investment advice. Do your own research before investing in the cryptocurrency market.