A Deep Dive into Polkadot

What Is Polkadot?

Polkadot is a next-generation blockchain and layer-0 protocol that unites multiple specialized blockchains into a unified, scalable network. Polkadot was designed as part of a broad vision for a fair, secure and resilient web that protects user interests by design (Web 3.0).

Why Polkadot?

Polkadot is designed to allow individuals to take back ownership of their digital information from powerful third-parties by enabling a web where our data is safely secured from central authorities and internet monopolies. By providing the foundation for a flourishing ecosystem of layer-1 blockchains, Polkadot enables new business models, services, organizations — and even entire societies and economies — to take shape and thrive into the future. In short, Polkadot aims to take the revolutionary promise of blockchain technology to the next level, providing a way for different purpose-built blockchains to connect within a scalable ecosystem and unlocking secure cross-chain communication.

In simple terms, Polkadot is a “blockchain of blockchains,” allowing many different types of chains to work and interact securely together within the same ecosystem.

A Brief History

Polkadot was conceived from the whitepaper (aka Polkadot Paper) published in 2016 by Dr. Gavin Wood, co-founder and former CTO of Ethereum, and creator of its Solidity programming language. In 2017, Dr. Wood co-founded Web3 Foundation for the purpose of research and development of decentralized web technologies, including Polkadot. He and former Ethereum head of security Jutta Steiner also co-founded Parity Technologies, which has carried out the bulk of development work on Polkadot’s core technology as outlined in the whitepaper.

The rollout process for parachains — the specialized layer-1 blockchains that make Polkadot a multichain network — began in December 2020 with the launch of the Rococo parachain testnet. Rococo is designed to test the parachain consensus process as well as parachains built by the community and their interaction with each other. Parachains are expected to roll out on Kusama and Polkadot in Spring 2021.

Polkadot Architecture

Polkadot is a heterogeneous multichain network, meaning it connects various blockchains designed for specific purposes together into a single ecosystem. These diverse layer-1 blockchains are known as parachains for the way that they process transactions in parallel, and are connected together via the Polkadot Relay Chain.

The Relay Chain

The Relay Chain is the central chain of Polkadot, built using Substrate, Parity’s framework for developing custom blockchains. It forms the heart of Polkadot, and is responsible for the network’s shared security, consensus and cross-chain interoperability. The Relay Chain has a relatively small number of transaction types that include ways to interact with the governance mechanism and participate in consensus. It is designed to have minimal functionality; its main responsibility is to secure and coordinate the system as a whole. All Polkadot validators are staked on the Relay Chain in the native token (DOT) and confirm transactions coming from the connected parachains. 

Parachains

Polkadot parachains are independent layer-1 blockchains that run in parallel to each other connected to the Relay Chain. Each parachain can have its own design, token economy, functionality and governance. By connecting to Polkadot, parachains share the security of the entire network, meaning they do not have to bootstrap their own validator community, and are able to exchange not just tokens but any arbitrary data between chains.

Polkadot was created with the belief that, when it comes to blockchain architecture, one size does not fit all. Rather, all blockchains make tradeoffs to support different features and use cases. For example, one chain might optimize for identity management, while another might optimize for file storage. The ability for blockchains to have specialized designs means they can offer better services, while also improving efficiency and security by leaving out unnecessary code. 

Parathreads

Parathreads are parachains that connect to Polkadot using a pay-as-you-go model. They provide a lower barrier to entry for blockchains that may not need continuous connectivity to the network. Blockchains on Polkadot can switch between being parachains and parathreads depending on their needs and on the availability of parachain slots on the Relay Chain.

Bridges

Bridges are a special type of parachain that allow chains and apps on Polkadot to connect and communicate with external networks such as Ethereum and Bitcoin.

Consensus – Nominated Proof-of-Stake (NPoS)

Polkadot is a nominated proof-of-stake (NPoS) network, designed with the roles of validators and nominators to maximize chain security. 

Roles in Polkadot NPoS

Validators

Validators secure the Relay Chain by staking the native token (DOT). If elected to the active set, they validate proofs from collators on the parachains, participate in consensus with other validators, and produce blocks on the Relay Chain. In return, they receive staking rewards.

Nominators

Nominators also contribute to the security of the network by staking their DOT to back trustworthy validators, thereby helping them get into the active validator set. In return, nominators are generally rewarded with a portion of the staking rewards from that validator.

Collators

Collators collect parachain transactions and produce proofs for the validators on the Relay Chain. They can also send and receive messages from other parachains using cross-chain message passing (XCMP).

Fishermen

Fishermen monitor the network and report bad behavior to validators. Any parachain full node can perform the fisherman role.

Scalability

Blockchains in isolation can only process a limited amount of traffic. As a sharded multichain network, Polkadot can process many transactions on several chains in parallel, eliminating the bottlenecks that occurred on legacy networks that processed transactions one by one. This parallel processing power significantly improves scalability and creates the right conditions for increased adoption and future growth.

Each Relay Chain is expected to be able to secure around 100 parachains and 10,000 parathreads. The network has the potential to scale even further in the future using a model called “nested Relay Chains,” which is currently in the research phase.

Speed

Once all parachain optimizations have been completed, and given 100 parachain slots running in parallel, the system is expected to be able to process around 1 million transactions per second. As parachains will be added gradually over time to the Polkadot Relay Chain, and parachain optimizations are still in the research and development phase, it is likely to take a few years after parachains first launch to ramp up to 1 million transactions per second. The nested Relay Chains model has the potential to take Polkadot’s transaction speed even further beyond this.

Cost

For high-traffic, high-throughput applications with a large number of users, deploying on Polkadot is expected to be more economical than building either a solo blockchain or building on top of an existing smart contract platform. 

To deploy a parachain, teams are required to lease a parachain slot by locking up an amount of DOT for the duration of their lease (teams can choose to lease a slot in six-month increments up to two years). As this full amount will be returned to the team at the end of their lease, the cost of leasing a parachain slot is best described as the opportunity cost of not having access to that DOT for the duration of the lease. Other minor costs include the necessity of running collator nodes on the parachain. The fact that parachain teams are not required to bootstrap their own validator network also represents a significant cost savings vs. launching a solo blockchain or deploying on a network without shared security. For smaller applications that don’t require continuous connectivity to Polkadot, deploying as a parathread will lower the barrier-to-entry vs. leasing a parachain slot. 

Polkadot gives teams the freedom and flexibility to design their own layer-1 blockchain from the ground up, and they are not forced to pass gas fees on to their end users, making Polkadot applications potentially more economical and user-friendly for users as well. 

The DOT Token

DOT, the native token of the Polkadot network, has three key functions. ‍

• It can be staked for the operation and security of the network;
• can be bonded to connect a chain to Polkadot as a parachain;
• gives holders a voice in the governance of the network.

DOT is inflationary, which means that unlike Bitcoin, there is no maximum number of DOT. The rate of inflation is not fixed: it is designed to be 10% in the first year. The DOT generated is used for validator rewards, with the remainder going to the Treasury. 

The smallest unit of account in the ecosystem is a Planck, equivalent to 0.0000000001 DOT.

The Polkadot Treasury

The treasury raises funds by channeling some of the validator rewards (from minting) and a fraction of the transaction fees and slashes (the fine paid by a validator who acts maliciously or incompetently). These funds are used to pay for the smooth running of the network and the wider ecosystem, and can be used to fund projects supported by the community through on-chain treasury funding proposals, which can be approved by the Polkadot Council.

Governance 

Polkadot Governance

Polkadot has a sophisticated system of governance in which all DOT holders can have a say.

DOT holders can register to be considered for the Polkadot Council, which currently consists of 13 members with a fixed term of seven days. The role of the Council is to represent passive stakeholders, submit important proposals and, in exceptional circumstances, cancel dangerous or malicious proposals (which may only be cancelled with a unanimous vote).

Proposals for changes to the network can be suggested either by an individual DOT holder or by the Council. Both need to be agreed by a stake-weighted referendum.

A Technical Committee exists with the sole purpose of detecting issues such as bugs in the code and to fast-track emergency upgrades or changes to the chain. This committee consists of teams that implemented or formally specified the protocol in Polkadot, and may be added or removed by a majority vote from the Council.

Parachain Governance

Communities on Polkadot govern their own network as they wish and hold a transparent stake in the future of Polkadot’s network governance as a whole. The parachain teams can customize and optimize their blockchain’s governance to their needs, experiment with new ideas or swap in pre-built modules for faster deployment. Blockchain governance models can even be perfected and upgraded as needs and conditions change.

Easy Forkless Upgrades

Like all software, blockchains need upgrades to stay relevant and improve over time. However, upgrading conventional chains often leads to so-called hard forks, which create two separate transaction histories that can splinter a community in two and often take months of work. Polkadot enables forkless on-chain upgrades, allowing the network’s on-chain governance system to add new features and optimizations and to fix bugs in a more transparent and seamless way, maintaining network consensus and avoiding fragmentation. Parachains built with Parity’s Substrate blockchain framework also have access to forkless upgrades.— this means that, like conventional apps on our phones, parachains can be easily upgraded, allowing them to quickly adapt as the technology evolves.

Interoperability

Unlike older networks that operated largely as standalone environments, Polkadot offers interoperability and cross-chain communication. Networks and applications on Polkadot can share information and functionality without needing to rely on centralized service providers. This opens the door to innovative new services and allows users to transfer information between chains. For example, a chain providing financial services can communicate with another that provides access to real-world data (known as an oracle chain) such as stock market price feeds for tokenized equities trading.

The Polkadot Ecosystem

Over 300 projects have been or are currently being built for the Polkadot ecosystem, ranging from core technical infrastructure to applications for decentralized finance (DeFi), privacy-oriented data and digital identity systems (often called self-sovereign identity), social networking, IoT, gaming, robotics and supply chain logistics. Many of these are open source projects.

As a bleeding-edge technology, some of Polkadot's most impactful applications have yet to be imagined. Among the projects currently being developed are, for example, services that will enable applications in which a user's account and data are stored by encrypting them locally on their own devices rather than on a centralized server. This approach gives people full control over their own data in a user-friendly way (so that even people who aren't concerned with privacy or data rights will be able to benefit). We may also see community-owned platforms arise that offer services and exchange value in a decentralized way through on-chain treasuries and governance.

The Vision for the Future

As the underlying protocol for a thriving ecosystem of specialized, interconnected yet sovereign blockchains, Polkadot lays the framework for a new decentralized web. As such, Polkadot is designed to enable a future in which digital infrastructure protects our interests by design, trade networks and economies are more representative and efficient, where there’s greater access to open financial services, and we have reliable, open-source, peer-to-peer infrastructure for collaboration and communication.

Just as national constitutions represent a framework to curb the power of tyranny into the future, Polkadot represents an internet-native, borderless legal system that puts the freedom and sovereignty of individuals before the power of central authorities, wealthy corporations and despots. Polkadot is designed for a future of global decentralized coordination, enabling new economies that everyone can thrive in. Ultimately this will be determined by those who chose to build new solutions on top of Polkadot. As Polkadot founder Gavin Wood recently remarked, "You've heard the phrase the pen is mightier than the sword. Well, the keyboard is going to become even mightier than the pen pretty soon."

Polkadot Terms Glossary

Collators

Maintain a parachain on Polkadot by collecting parachain transactions and producing state transition proofs for the validators

DOT

The native token of the Polkadot network

Fishermen

Nodes on Polkadot that monitor the network for validators or collators who are behaving badly

Forkless upgrade

The process of upgrading a blockchain without the need to fork the chain

Heterogeneous multichain network

A network made up of several different types of blockchains

Layer-0 protocol

A protocol that describes and hosts other protocols on top of it. As a layer -0 protocol, Polkadot provides a novel format for expressing a diverse range of layer-1 blockchains, and can securely host and connect them together into a single scalable network.

Layer-1 blockchains

Individual base layer blockchains, containing specific runtime logic and consensus mechanisms adapted for the chain’s particular use case(s)

Nominated proof-of-stake

A proof-of-stake consensus mechanism where nominators back validators with their own stake as a show of faith in the good behavior of the validator

Nominators

Accounts on Polkadot that select a set of validators to nominate by bonding their tokens. Nominators receive some of the validators' rewards but are also liable for slashing if their nominated validators misbehave.

Parachains

Independent heterogeneous layer-1 blockchains that run in parallel to each other, connected to the Relay Chain in Polkadot.

Parathreads

Parachains that connect to Polkadot using a pay-as-you-go model.

Relay Chain

The central chain in Polkadot that secures the network, coordinates consensus and provides on-chain governance features.

Scalability

The ability of the system to increase or decrease in performance in response to processing demands.

Sharded network

Several blockchains connected together in a single network, allowing them to process transactions in parallel and exchange data between chains with security guarantees.

Validators

Validators on Polkadot secure the Relay Chain by staking DOT, validating proofs from collators on parachains and voting on consensus along with other validators.