by Alan on 2021-02-14 filed under Crypto for Beginners
Polkadot is a relative newcomer to the cryptocurrency world. Rising in popularity in 2020 and 2021, it is part of a growing market of blockchains in the running to adapt and blend into the world of crypto.
Polkadot although new, brings a number of features which will potentially expand the capability of users and creators exponentially in the coming years. In this Polkadot 101 we are going to cover what Polkadot is and how you can use it to further your aspirations in the crypto world.
What is Polkadot?
Polkadot allows users to operate two different types of blockchains. The first and central being the relay chain. This blockchain is where all the transactions made are permanent. The relay chain cleverly separates the newer transactions added to the system from validating the existing and processed ones, allowing for better efficiency and speed within the system as a whole.
The secondary function of Polkadot is the Parachains. These are created in a bespoke manner by users which piggyback off the main relay chain, allowing the relay chain to check over all their transactions and finalize them.
There is a third addition to Polkadot which is currently in the works, these are bridges. Bridges connect Polkadot to other blockchain systems such as Ethereum, Bitcoin and Cosmos. This exciting development would essentially allow users to trade without the use of centralized exchange platforms.
Those with stakes already in Polkadot have the opportunity to operate within certain roles to ensure that the system is running well.
- Collectors – They essentially collect blocks to be added to the relay chain
- Fishermen – The sheriffs of the Polkadot realm, they actively monitor the network and report foul play when they find it.
- Nominators – Users in this role select Validators and can use their stakes to vote through Validators
- Validators – Validators vote on changes as well as validate the data that passes through the block chain.
A Layman’s History of Polkadot
You may be surprised to hear that Polkadot was the idea of Ethereum co-founder Gavin Wood. This new idea came to Wood in 2016 whilst working on Ethereum 2.0 to solidify. He got the idea to create a far simpler version of the earlier Ethereum and by the end of 2016 has created the first Polkadot White Paper.
After a hacker liberated $33 million with Ether (Ethereum) from three separate digital wallets within Polkadot, it was time for Wood to move forward and implement some new changes to the system. In 2017 the first Polkadot token raised 485,331 ETH.
How Do You Get Polkadot?
So, there are three different ways in which you can buy Polkadot. In this section we will break down the three methods in a simple Polkadot tutorial.
We will start with the most common, centralized markets are places in which you can buy stocks, such as Cosmos, Bitcoin and Ethereum. The advantage of these is that they are widely used by a majority of traders, however, larger companies will charge you a trading fee and will claim some of the profits.
If you are wanting more control on how you trade without the oppressive shadow of the centralized trading platforms, the decentralized markets operate a peer-to-peer trading system. This allows you to stay in control of your funds and currency, with no one but the buyer and seller involved in the transaction. An example of such a trading platform is Ethereum. Buyer beware, it's very easy to be a victim of fraud in a decentralized exchange.
Most cryptocurrency buyers will have some form of digital wallet in which they store their online, digital currency for safekeeping. Some of these wallets will allow you to go a step further and actually buy directly using a credit or debit card or even using Android or Apple pay.
What Are the Benefits of Polkadot?
Polkadot introduces a number of features which threaten bigger blockchain setups such as Ethereum. They operate a flexibility for their users which would, in some cases, threaten the somewhat rigid framework of other blockchains. This allows their users to build their own chains, without limitations.
The scalability of Polkadot is quite impressive, allowing users to build a blockchain of their own to suit their requirements, as well as adding bridges to make inter-chain trading far easier.
On the topic of bridges, the new era of interoperability is without doubt one of the biggest assets that the Polkadot system offers. It gives the users the ability to add bridges which will allow them to trade with other blockchain systems such as Ethereum and Bitcoin, without the limitations of being forced to stay on a single platform.
The system is policed very well, with entities such as Fishermen operating all around the world to root out foul play. The security is steadfast will all finalized through the main hub or the relay chain.
Why the Sudden Rise in Popularity?
With the rise of decentralized finance or DeFi in recent years, the opportunities for those choosing to invest in a wider range of options is an appealing one.
Polkadot is dedicated to reducing the time it takes investors to make transactions, as well as increasing the communication between both public and private blockchains. This allows ease of trading without the limitations imposed by centralized systems and marketplaces.
The Polkadot system is unique in that, unlike Ethereum, it doesn’t require a hard forking to update they system. The system organically progresses and evolved without having to change the core system from which it’s built.
Risks of Buying Polkadot
With Ethereum already bedded in with a view to staying in the top spot, the risk of buying into Polkadot is that it is one of many types of the blockchains operating in the same sector with similar goals.
It is a system in its infancy and as a result of an earlier hack in 2017, the platform took a hit of $33 million. This of course doesn’t mean you should rule it out, as some years have passed since this incident. However, it is important to bear in mind that nothing on the internet is impenetrable and security measures should be put in place to protect your hard-earned tokens.
We have gone through the benefits and advisories in this guide to Polkadot of purchasing and investing in Polkadot. The results are still out on whether this new system will proceed full steam ahead or will fade into the background of good ideas with failed execution. That being said, the overall running of the system is positive, and it is proving to be an extremely popular investment choice for those willing to make the leap.
Centralized trading is an outdated concept, with the development of systems like Polkadot, it is now easier than ever to find ways of trading and investing. The flexibility of the new system allows its users to confidently strike out on their own to design new and create blockchains to enhance their trading capabilities.
One thing is for sure, the blockchain community around Polkadot is a positive one, driving it and developing it for ease of use and improved security. The interoperability of Polkadot removes the walls surrounding private blockchains, allowing users to trade without restrictions between various blockchains.
Polkadot is an exciting concept and is sure to bring about some fantastic changes in the world of cryptocurrency in the coming years.
Disclosure: I/we have no position in Polkadot and no plans to initiate one in the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Big Time Crypto).
Additional disclosure: Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of cryptocurrency. Investors are advised to review all documents and press releases to see if the cryptocurrency fits their own investment qualifications.