Polkadot (DOT)

Polkadot is a protocol that allows blockchains that have different structures and purposes to interoperate within and outside the Polkadot network.

Projects within the Polkadot ecosystem can take advantage of shared security, faster transaction processing times, and bridges that connect with external networks such as Bitcoin and Ethereum.

How does Polkadot work?

Polkadot’s ecosystem consists of individual blockchains called parachains (parallel chains).

Unlike single blockchains that process transactions sequentially, parachains process transactions concurrently. This parallel processing boosts the network’s efficiency.

Each parachain has collators responsible for gathering transactions and presenting them to validators.

Once transactions are verified, validators finalize a parachain block which they then submit to the Relay Chain that connects ALL parachains within the Polkadot network.

Parachain blocks from validators are pooled to create a Relay Chain block candidate.

A transaction is finalized when validators – using a NPoS (nominated proof-of-stake) mechanism – reach a consensus over the next Relay Chain block.

Polkadot

Polkadot’s Relay Chain can currently provide security for up to 100 parachains and 10,000 parathreads.

Developers are working on executing “nested relay chains,” though, which would link thousands of relay chains using bridges.

What Makes Polkadot Unique?

Polkadot attempts to tackle some of the biggest challenges facing blockchain technology today:

  • Interoperability: Imagine a world where isolated blockchains, like Ethereum and Bitcoin, can freely exchange information and value. Polkadot makes this possible by creating a more interconnected and collaborative blockchain ecosystem. This interoperability is crucial for developing decentralized finance (DeFi) and Web 3.0 applications, as it allows different platforms to work together seamlessly.
  • Scalability: Many popular blockchains, such as Bitcoin and Ethereum, struggle to handle a large number of transactions quickly and efficiently. This leads to slow transaction speeds and high fees. Polkadot solves this by using a unique structure that allows many transactions to be processed in parallel, resulting in faster speeds and lower fees.
  • Security: Polkadot enhances security by allowing different blockchains to share a common security mechanism. This means that even new or smaller blockchains on Polkadot can benefit from the robust security of the entire network.
  • Upgradeability: Polkadot has a unique governance system that allows for smooth upgrades and changes to its underlying technology without the need for disruptive “hard forks” that can split the network. This ensures a more stable and adaptable platform for the future.

Recent Developments

Polkadot has introduced several updates to enhance its functionality and scalability:

  1. Polkadot 2.0: Announced in 2023, this upgrade focuses on improving scalability through features like asynchronous backing, agile coretime, and elastic scaling. Developers can now acquire blockspace based on demand, enabling more efficient resource utilization.
  2. Join-Accumulate Machine (JAM): Proposed by co-founder Gavin Wood, JAM replaces the traditional Relay Chain with a modular, minimalistic design. This new framework creates a permissionless object environment similar to Ethereum’s smart contract ecosystem.
  3. Agile Coretime: This system replaces the previous auction model for acquiring blockspace, allowing developers to scale their coretime usage dynamically.
  4. Mid-2025 (expected): Rollout of the ‘Plaza Upgrade,’ allowing developers to write and deploy smart contracts directly onto Polkadot without building a parachain.
  5. Ongoing development: Expansion of XCM (Cross-Consensus Messaging) and DAO primitives, multi-asset sub-treasuries, and a new consensus mechanism called Sassafras.

What is the DOT token?

DOT, Polkadot’s native token, has three main purposes:

  1. Governance: DOT holders have the power to vote on proposals and make decisions about the future of the Polkadot network. This gives them a direct say in how the platform evolves and ensures that the network remains decentralized and community-driven.
  2. Staking: DOT holders can stake their tokens to help secure the network and earn rewards in return. This incentivizes users to participate in maintaining the network’s stability and security. Staking rewards vary but can provide a passive income stream for DOT holders.
  3. Bonding: DOT is used to connect parachains to the Relay Chain. This process ensures that only legitimate and valuable projects become part of the Polkadot ecosystem.

DOT Units

DOT can be divided into smaller units:

  • Planck: The smallest unit of DOT.
  • Microdot (µDOT): 1 µDOT equals 10,000 Planck.
  • Millidot (mDOT): 1 mDOT equals 1,000,000 Planck.

Agile Coretime for Developers

Polkadot’s Agile Coretime allows developers to purchase only the amount of blockspace they need on the Relay Chain. This makes it more cost-effective and accessible for a wider range of projects, from small startups to large enterprises.

Team background

Polkadot was conceptualized by Dr. Gavin Wood, co-founder of Ethereum and creator of the programming language Solidity.

He started working on a “sharded version of Ethereum” and published the first draft of Polkadot’s whitepaper in October 2016.

Wood and Peter Czaban founded the Web3 Foundation in 2017 to raise funds and develop Polkadot. Czaban was Parity Technologies’ Software Engineer and Web3 Foundation’s current Chief Technology Officer.

The third co-founder, Robert Habermeier, was Parity’s Core Developer and is the Technology Director for Web3 Foundation.

These days, Polkadot is being developed by researchers from Inria Paris and ETH Zurich, developers from Parity Technologies, and capital partners from crypto-funds such as Polychain Capital.

Björn Wagner is now the CEO of Parity Technologies, taking over from Gavin Wood. Wagner has been leading Parity’s focus on high-impact partnerships to advance engagement and adoption.

Token Metrics:

As of January 2025, here are the updated token metrics for Polkadot (DOT):

  • Holder Addresses: Approximately 185,000 on Binance Smart Chain.
  • Circulating Supply: 1,481,865,316.54 DOT.
  • Staked Supply: 767,142,264.31 DOT, representing 51.77% of the eligible supply.
  • Inflation Rate: Fixed annual inflation of 120 million DOT, approximately 8% of the current supply.
  • Maximum Supply: Unlimited.

Notable Projects on Polkadot Network:

  • Acala: A decentralized finance hub offering multi-collateralized stablecoins and staking derivatives.
  • Moonbeam: A smart contract platform providing Ethereum compatibility.
  • Efinity: A cross-chain NFT protocol enabling seamless token transfers.
  • Kusama: An experimental development environment serving as a testing ground for Polkadot.
  • SubQuery: A decentralized data indexing solution for querying blockchain data.

Notable Historical Events:

  • Nov. 6, 2017: $90M worth of ETH (around 66% of Polkadot’s proceeds from the first token sale of $145M in Oct. 2017) in Parity multisig wallet was frozen.
  • May 27, 2020: Polkadot’s first mainnet launched with Proof-of-Authority (PoA) consensus on six validators owned by Web3 Foundation.
  • June 18, 2020: Transition to Phase 2 Nominated Proof-of-Stake (PoS) system, allowing DOT holders to claim validator slots and staking rewards.
  • July 2020: Enabled functionality to open up governance to the community.
  • August 21, 2020: DOT underwent a redenomination, increasing the number of tokens held by each holder by 100 (known as Denomination Day).
  • November 11-18, 2021: First batch of Parachain Auctions began.
  • December 17, 2021: First winning parachains onboarded to Polkadot.
  • May 2024: Asynchronous Backing launched, improving block processing efficiency.
  • September 2024: Agile Coretime introduced, enabling on-demand blockspace purchases.
  • January/February 2025 (expected): Full launch of Polkadot 2.0 with elastic scaling.