Polkadot: More Chains, Less Problems?
A Tale of the Most Powerful Blockchain to Never Exist (Yet)
Those of you who have read the Bible will likely remember what the image above represents, but for those of you who haven’t, a spoiler alert is in order:
Following the tragic events of the Great Flood, humanity decided to pull itself together and present a united front to avoid their idol, you know, wiping them out in a natural disaster.
Humanity’s spiritual restructuring was extremely impressive in this period - not only did they all migrate eastwards so that they could be in close proximity, they all managed to teach one another how to speak and understand a united language.
Using this newfound power, society wanted to find a way to better connect with God (the guy from the beginning who wiped out their descendants in a massive flood). Their best bet was the construction of a massive tower in Babylon that was to be designed to stretch all the way to the heavens so that they could meet their God.
Unfortunately, this story didn’t end so well for those seeking the kingdom. Observing their impressive efforts, God decided to fragment their language so that they can no longer cooperate and spread them out across the world. As the adage goes, “never meet your heroes”.
Despite its confusing and unhappy ending, the construction of the Tower of Babel remains one of the most impressive tales of high-speed cooperation. Although it may have some grounding in true structures, the story’s purpose is typically to explain the confounding reasons why humanity didn’t originate as a cooperative species capable of speaking one language and living in harmony.
In a way, Polkadot is building its own Tower of Babel, but with a very different purpose. While the mission is a bit more mundane - “restoring individual sovereignty over centralised control” doesn’t exactly have the same ring as “reaching the kingdom of God to meet the almighty” - the method might be just as elegant and effective.
Whilst not yet as popular as its counterparts Bitcoin and Ethereum (largely because Polkadot hasn’t launched yet in earnest), Polkadot’s unique ‘chain-of-chains’ structure has allowed it to bring the ‘languages’ of the blockchain world together on the one relay chain where they can communicate with one another, exponentially expanding the range of cooperative possibilities available.
Given the amazing variety of unique use cases and applications that revealed themselves amidst the launch of Ethereum and the first programmable blockchains, the pioneering of a new form of programmable ‘multi-chain’ in the near future is undoubtedly something to watch out for.
TL;DR
Polkadot is not like the other blockchains. Despite being dubbed an ‘Ethereum killer’, in reality Polkadot doesn’t meet the same specifications. Polkadot operates instead as a ‘chain-of-chains’, where specialised chains for different use cases compete for one of 100 spots on the network that allow them to take advantage of the network’s scalability, interoperability and security.
Despite having not launched in earnest yet, Polkadot has gained substantial traction. Internally developed experimental infrastructure including Substrate (a software development kit that makes building blockchains much easier than before) and Kusama (a real-world, non-testnet testing environment) has attracted developers to Polkadot in droves. This popularity among developing talent has in turn attracted the attention of institutional investors, who hold Polkadot more frequently than any other blockchain platform not named Ethereum or Bitcoin.
Polkadot is designed to be the best bet on a multichain future, but competition is coming. Despite being the first to really put the multi-chain thesis to the test, Ethereum’s v2 is built on the same premise, and the network effects it has developed within the crypto community could prove a threat to Polkadot’s incumbency.
Polkadot wants you to use crypto without even knowing it. Although it has solidified its reputation as a favourite for ambitious developers, Polkadot’s ultimate aim is to have enterprise and leisure users alike use dApps built on Polkadot without even knowing it in the same way that Web2 users don’t know what database their social media platforms run on.
Background
Like seemingly all of the great success stories in the world of crypto, Polkadot’s begins with someone who would find their unique skill-set serendipitously aligning with the tidal shift in thinking around digital currencies and the future of the internet that occurred in the years following the release of the Bitcoin whitepaper.
In 2013, two years after first reading the whitepaper, Gavin Wood was researching smart-text contract editing software for OxLegal having honed his technical credentials with a Master’s and PhD in Computer Systems and Software Engineering from his hometown University of York and later going on to research and design smart lighting controllers for nightclubs.
Alongside his nous for software engineering was a longstanding intellectual passion for game theory, an interest that culminated in his designing the board game ‘Milton Keynes’.
While an interest in game theory would certainly prove crucial in elements of Wood’s later work, the way that it manifests in the case of Milton Keynes is remarkably different. Where Wood would later tout the value of “empowering the individual against much more powerful corporate and state actors” in the Polkadot light paper, Milton Keynes encourages and rewards players who make “campaign contributions” to local politicians in exchange for political influence that can later be leveraged to play tricks on opponents. Whether it’s tongue-in-cheek humour or a dramatic shift in perspective, it couldn’t be further from where Wood would find himself 3 years after its release.
This interest in Economics is what piqued Wood’s interest upon first reading the Bitcoin whitepaper as he became excited by the prospects of digital currency. It took a couple years of percolating in his mind for the underlying technological potential to become apparent to Wood.
By the time Wood had begun conceptualising the possibilities of a decentralised web powered by a programmable version of the blockchain technology that supported the Bitcoin network, a 19-year-old Vitalik Buterin had beaten him to the punch of codifying such concepts in a design for a new blockchain based on similar principles when he published the Ethereum white paper in 2014.
A mutual friend noticed the similarities in the work of the pair and introduced Wood to Vitalik. Within a year, the two co-founded Ethereum alongside six other early blockchain aficionados, many of whom have also gone on to do big things in the space.
Wood is largely credited with building most of the infrastructure supporting the Ethereum network, having developed the first proof of concept, authored the yellow paper (a more technical version of the White Paper that outlines the specifications of the network) and going on to create the first Solidity, the first object-oriented programming language that allows the everyday developer to design smart contracts on Ethereum. In short, his two years as Ethereum’s CTO were prolific.
During his tenure as Ethereum CTO, Wood also found the time to coin a term that would go on to be misinterpreted and misunderstood by journalists and bears the world over - ‘Web3’. While more elegant explanations of the concept have been offered since, Wood describes his initial vision for a third wave of web innovation as being a ‘decentralised online system based on blockchain’. It is this vision that caused the shift in his thinking around blockchain when he would later go on to build Polkadot.
Despite the massive success of launching Ethereum’s ‘world computer’, Wood only ever envisioned the initial frameworks he’d designed for launching the network as being temporary, meaning to be replaced by a system that could operate in conjunction with other blockchains.
To try and put this more simply - Ethereum (in its genesis and current state) and Bitcoin are two blockchains that both try to achieve the same principle of trustless decentralisation but do so in two isolated, independent manners. Bitcoin (the network) allows actors to conduct permissionless transactions through a ledger that is verified by ‘miners’ on the network who are rewarded in Bitcoin (the cryptocurrency). Ethereum works in a similar manner - node operators (the ‘miner’ equivalent) are rewarded what is essentially a surcharge (‘gas fee’, paid in ETH) for the cost of operating the node to validate transactions on the Ethereum blockchain.
Despite using the same consensus mechanism (proof-of-work), the different currencies and validation methods mean that they two cannot operate in tandem for a given application or node on the blockchain (i.e. can’t ‘talk’ to one another). In other words, they are not interoperable.
Andrew Braun’s concept of ‘Interoperability Islands’ makes this a bit easier to understand. Braun uses the analogy of each network being its own island with its own population, language, currency, geography etc. If an adventurous explorer (i.e. user/developer) wanted to move to another island (i.e. set up a wallet, build an application), it would not be much use because they would not be able to set up a new bank account or conduct any of the other necessary administrative activity as their documentation (i.e. private keys etc.) would not be accepted or even comprehensible to the government (i.e. code) of the destination island. Their best bet would be to pose as a native of the new island and create entirely new personal documentation, getting rid of all artefacts from their past life.
On top of the interoperability problem, the fact that every node has to validate all activity on the chain vastly limits the efficiency and speed at which the network processes this activity. This is just the beginning of the limitations of the classic Layer 1 blockchain design, but that will be covered in more depth below when Polkadot comes into the picture.
Following this logic, both deliver on their promise of decentralised transactions, but the underlying technology supporting the transactions is centralised (i.e. the Ethereum Virtual Machine is a central means/protocol for processing all transactions on the Etherefum network). Wood’s vision was to decentralise the means of decentralisation.
In 2014, talk began amongst the Ethereum team about shifting the network to a newer, more sustainable and more efficient model. This involved a transition from the proof-of-work consensus mechanism outlined above to one of proof-of-stake as well as a transition from a single chain to a chain of shards. Both changes are important, but to this story the second one is more so.
As identified above, one of the key limitations that Wood identified with the first generation of blockchains was that they were difficult to scale and were perhaps less secure than they believed as all the data and network activity was run through one chain. The Ethereum founders identified this early and had always intended to work on developing ‘Ethereum 2’, an upgraded version of the network that would have a series of Ethereum blockchains run independently instead of having a single chain of nodes verify every single transaction on Ethereum (a.k.a ‘sharding’).
By the time 2016 rolled around however, no meaningful progress had been made and Wood felt that the time had come to pursue work on such a network by himself, but with added functionality that he didn’t believe would be possible on Ethereum. Enter Polkadot.
What is Polkadot?
Despite having a very different way of doing from Ethereum v1, it is worth noting that a lot of the philosophical grounding principles of Wood’s Polkadot project are very similar. Some of the biggies are:
Empowering individuals against more powerful states and organisations
Reducing the need for trust
Increasing the ease at which builders can develop and scale decentralised applications (dApps)
With these principles in mind, Wood sought to create a network that would achieve what Ethereum had (‘value layer of the internet’, ‘internet of money’, ‘world computer’, ‘mother of dragons’ etc.) but in a more scalable, secure and interoperable fashion. He achieved it through a design he coined ‘The Heterogeneous Multi-Chain Framework’. Doesn’t quite roll off the tongue as well as ‘Web3’.
The graphic above covers pretty much all there is to know about the infrastructure behind the ‘Heterogeneous Multi-Chain Framework’.
A series of parallel blockchains (‘parachains’) - each with their own functions & use cases - are connected via bridges to Polkadot’s Relay Chain, which acts as a unitary body that is responsible for the administration and operations of the parachain network. In reference to the Ethereum discussion above, the parachains here are the ‘shards’ that Ethereum v2 will be built upon - distributed blockchains-within-a-blockchain used to spread out the arduous computational efforts of the network.
An even simpler explanation is that Polkadot is just a ‘chain-of-chains’, where the relay chain is the subject and the parachains the object.
The Ecosystem
A large part of Polkadot’s brilliance is its capacity to make building top-tier applications designed for widespread use on the network as easy as possible. It does this through two means:
Substrate
One of the most impressive things about Polkadot is the amount of applications and software that actually go behind the network itself, all developed in-house. Substrate is the premier example of such an application - during the development of the Polkadot relay chain itself, Wood & Co. used this homemade software development kit (SDK) to make designing the blockchain easier and more organised.
Substrate continues to be the default software package used for building and testing custom blockchains for developers looking to break into the Polkadot network.
Substrate is unparalleled in terms of the simplicity and optionality it offers prospective developers. The value proposition comes from the way that Substrate turns the very rigorous, often months-long process of conceptualising and building a blockchain into a (literally) minutes-long affair of drag-and-drop based on your taste and experimental appetite. Don’t believe it? Here is Gavin Wood (admittedly a better blockchain developer than most) literally building a blockchain from A to Z in less than half an hour.
By having a piece of auxiliary software like Substrate at their disposal, it’s easy to see why the Polkadot ecosystem has been so attractive to new developers.
Kusama
Something that is extremely unusual about Polkadot’s rise to prominence is the fact that, in meaningful terms, it hasn’t even launched yet. This is where Kusama comes in.
Kusama acts as Polkadot’s ‘canary network’, in reference to the canaries that used to be sent into coal mines to signal possible dangers on site. The ‘canary network’ definition is used because Kusama isn’t actually the official testnet of the Polkadot network. That title belongs to ‘Westend’. Instead, Kusama fulfils a different set of priorities for experimentation on the Polkadot network, outlined below:
In short, where Polkadot prioritises the development of a network that is secure, predictable and efficient for mainstream use, Kusama prioritises exhibiting the frontier of possibilities that are available using Polkadot’s parachain structure. If Polkadot offers the security & opportunity of civilised society, Kusama offers the freedom & excitement of the Wild West.
This priority means that Kusama tends to optimise for chaos - key Polkadot governance functionalities are removed to enable greater speed and efficiency on the network, with everything else operating the same as it would on Polkadot. The ‘chain-of-chains’ analogy still applies.
As useful as Kusama is for experimenting with the bounds of the Polkadot network, these differences in the benefits offered means that, in the long run, Kusama will likely run as an entirely independent ‘chain-of-chains’ to Polkadot, even if it continues to operate as a sandbox for Polkadot developers. Where Polkadot is expected to become a hub for enterprise-level transactions and applications, Kusama will be the testing ground for the new-age possibilities of Web3 that require less security or for the big new ideas to be tested in a lower stakes environment.
This long-run possibility is only possible because of Kusama’s unique ‘non-testnet’ structure. Unlike other testnets on Ethereum or Cardano, Kusama’s ‘canary network’ distinction means that it allows developers to ship their applications to an environment with real-world conditions, backed by Kusama’s very real, very transferrable $KSM tokens. Operating as its own independent currency means that $KSM holders & stakers have every reason to vote and act in favour of the growth of the canary network.
Parachain Auctions
As with Substrate, Kusama is also used for testing new innovations on the Polkadot network. One of the biggest innovations for the network is being run as I write - Parachain Auctions.
While Polkadot is responsible for maintaining the functionality of its relay chain, the ‘chain-of-chains’ denomination means that the parachains that support the network’s variety of functions and act as a key to its scalability are, in a sense, outsourced to other developers that want their applications to run on the Polkadot relay chain.
Only 100 parachain slots are available at any given time with slots tending to be evaluated for review after a predetermined period of time, keeping in mind that more and more parachains will continuously be being developed that have the potential to improve the network more than the incumbents.
In order to ensure an equitable process, Parachain Auctions follows the age-old methodology of the ‘candle auction’, whereby the timing of the announcement is randomised. To submit projects to be auctioned, developers will go through the process of:
Announce their candidacy on the Kusama/Polkadot ecosystem directory
Optional: Announce Crowd Loan
Develop proof-of-concept and stress test on Westend testnet
Submit for Auction
The actual process for bidding in a Kusama parachain auction is outlined in the graphic below:
This process was replicated for the structure of Polkadot’s parachain auctions, with the only difference being that $DOT is contributed and bonded rather than $KSM. In order to make bids more competitive or attractive to investors, project builders will offer different terms for the bonding period in order to reward contributors - this can take the form of favourable vesting periods, referral bonuses and even NFT airdrops in some cases.
To give a sense of just how popular the ecosystem is even in its prenatal stages: the Kusama parachain auctions have seen over 3.1mn KSM (US$536mn) locked into auctions or crowd loans. Polkadot has seen over 124mn DOT (US$2.3bn) dedicated to these projects. The networks are still only up to their 23rd and 8th auctions (out of 100) respectively, with these token commitments representing 31% and 11% of the total supply.
Those are ridiculous numbers, and will likely only get even more so as the auctions heat up for the last few remaining parachain slots. It also wouldn’t be unexpected to see those bids heat up when the 100 slots are filled and the potential of the Polkadot chain becomes apparent to the mainstream, with more innovative solutions trying to take the place of incumbents.
If you have any interest in following along to see what parachains are winning the race to build their part of the network, the Parachain Auctions podcast and ecosystem database are both incredible resources.
$DOT
Like any blockchain, Polkadot’s native token plays a key role in the functioning of the network. However, due to its ‘chain-of-chains’ structure, Polkadot technically doesn’t classify as a typical Layer 1 blockchain (e.g. Ethereum, Bitcoin, Cardano) and therefore the token serves a slightly different role than it does for Layer 1s.
DOT serves three main functions:
Governance
Staking for Consensus
Bonding
Governance
By purchasing DOT on a cryptocurrency exchange, buyers are immediately credited as participants in the development of Polkadot’s relay chain, meaning that they can vote on proposed changes to the network (typically being upgrades and fixes). If token holders are passive, their votes are transferred to an elected council.
Staking
Polkadot applies a variation of the proof-of-stake consensus mechanism (used on Solana, Cardano & Avalanche) called the nominated proof-of-stake model (NPoS).
Under this model, token holders can elect to be a nominator or a validator in the system. The nominator-validator relationship is somewhat analogous to a directly financialised version of the citizen-politician relationship in a representative democracy.
Under this example, the nominator’s (citizen’s) decisions are not motivated by personal opinions or political beliefs but instead by voting on what they believe to be an optimal tradeoff between risk and reward. The sole responsibility of the nominator is to vote for a validator that they believe will perform the best at running the network’s consensus mechanism and have this validator secure and earn rewards on top of their staked tokens.
The trade off arises through the fact that the rewards available to nominators for backing certain validators are based on the reputation of those validators - backing a validator with a high reputation and long history of securing staked tokens offers less rewards than backing a less proven candidate. This is done to ensure that there is an optimal spread of staked funds across validators in the network.
Anyone who has put their DOT at risk by locking it up in staking pools with the chance of earning rewards can play either of these roles. To be a validator requires a lot of work fulfilling two core responsibilities:
Verifying the validity of blocks involved in parachain transactions
Producing relay chain blocks by collaborating with other validators to verify statements
The computational setup demands, minimum staking requirements and responsibility imposed on validators in the network are handsomely rewarded with a great share of the spoils when they are periodically distributed.
Conversely, bad actions such as running custom software, attacking the network or even being inactive for too long will lead to DOT being slashed from the validator’s pool, losing tokens for both themselves and their nominators. It is this kind of dynamic that lends directly from Wood’s interest in game theory and ensures that the network’s security and functioning is backed by shared self-interest.
Bonding
As mentioned when explaining the auction process for parachains above, to ‘vote’ in these auctions requires bonding DOT tokens for the auction period, which are either rewarded in the event of an auction victory or returned in the event of a loss. This is a novel use case for cryptocurrency tokens within a network and offers participants a new way to earn rewards and, in a way, vote on the direction of the network.
The DOT Difference
While the descriptions of the currency’s functions above illustrate the different ways in which DOT operates, in truth only bonding is unique when referenced against other Layer 1 tokens.
Instead, the true DOT difference may lie in the properties that it doesn’t possess. One of Polkadot’s driving missions is to create a future where the average Joe can use blockchain applications without knowing that they are built on a blockchain. By having parachains as the basis for the majority of the applications that run on Polkadot, possession of DOT tokens is not a necessary ingredient for participating in the ecosystem, even if it does offer some advantages.
This cannot be said for typical Layer 1 blockchains like Bitcoin or Ethereum that, though sometimes providing options for swapping tokens, are centred around one central currency.
The interconnections between crypto and finance are well documented and are a major factor in the technology’s growing potential. However, by eliminating the necessity for people to risk losses in search of reward when using crypto applications makes the whole system much more amenable to a wider audience.
The United States of Polkadot
While the ‘chain-of-chains’ simplification of Polkadot’s underlying structure is easy to make sense of, it can be less easy to interpret exactly why such a structure is beneficial or offers an advantage.
The official papers (light & white paper) summarise the key technical benefits as being:
Interoperability
Scalability
Ease of innovation
Forkless
Secure
User-driven governance
Even if you have some indication of what these terms mean or how they may apply to blockchains, it can be difficult to see how they interlink and create a defensible value proposition for Polkadot.
Ironically, given Polkadot’s mission of removing the need for trusted institutions, the two best analogies I have come across for explaining how the benefits of the ‘chain-of-chains’ structure interconnect come from the two institutions that many people most closely associate with excessive authority: schools and government.
The school argument has been explained well in other pieces, but I still view it as an incomplete illustration. While the government analogy is also nowhere near perfect, it might do a better job of framing the entire Polkadot ecosystem.
Imagine that instead of being a bunch of code, Polkadot is the United States of America. That would make the relay chain a sort of constitution - something for all participants and subdivisions of the federation to abide by.
Instead of relying on a governance system run by humans with no skin in the game, Polkadot ensures the integrity of its functioning by having every citizen nominate representatives whose responsibility is to secure their financial stake in the success of the greater nation, with one catch - the stake of the constituent’s is tied to the stake of the representative, meaning that the public interest is tied to the private interest (proof-of-stake consensus). No more of this bullshit.
To improve the functioning of the nation, Polkadot has divided itself into 100 states (parachains). Unlike in the USA, each state here is responsible for specific parts of society or the economy. California might be an NFT hub, New York might be a DeFi hub, Washington a smart contract hub and so on. To secure their spots within the federation, states must demonstrate that they serve useful functions independently and pitch this to the people of the nation (DOT token holders). If the people believe that the state should be granted entry to the federation, they will invest in municipal bonds (auction bonding) to indicate their support for the potential of that state’s contributions to the greater nation.
But if states can function independently, why would they want to join the federation?
Security: Beyond being just a social contract or constitution, the relay chain is also responsible for governing the military (antivirus, debugging etc.) as a common good that protects all the states in the nation. The more states there are, the bigger the military gets and the more secure each state becomes.
Scalability, Innovation & Interoperability: Being united under one flag with other states that have passed through the court of public approval gives each individual state access to a world of new economic and social possibilities as data becomes shared between them. Think of this as a form of open borders, where the NFT state may be able to benefit from improved information flows from the DeFi hub and improve their services based on this information (interoperability).
The greater volume of information and resources that each state can accumulate through its interactions with other partners will make it more powerful and successful as it benefits from the combination of trade and comparative advantage (scalability), providing incremental benefits to its constituents.
The influx of new data and resources from other states also provides specialist hubs a new way of thinking about and solving their problems (innovation).
All this occurs without the state ever having to give up its right to self-governance and, unlike in the actual United States, its own form of legal tender.
The downside of this from the states’ perspective is that they can be removed from the federation if their contributions are deemed inferior to the prospects of an applicant state. From the nation’s perspective, this is no biggie whatsoever. When one state is removed for a new one, there is no need to physically carve it out from the nation (obviously) and rewrite the constitution. Instead the relay chain is automatically upgraded to move the bridge connecting that state to the rest of the nation to connect the state that has just been voted in. During this process, the bondholders in the no-longer-federated state are paid back.
This is a murky explanation of the concept of a forkless blockchain, but what it intends to indicate is the ease at which the nation can renew and improve itself without needing insurrections, annexations, culture wars or any of that other funny business.
As mentioned above, the governmental example is in no way flawless, but hopefully it can serve to illustrate how well-balanced and efficient a multi-chain ecosystem can be.
Prospects
The Bull Case
Polkadot is the Best Bet on a Multi-Chain Future. Gavin Wood is a staunch anti-maximalist. As someone who has pivotal in the construction of some of the core facets of the entire crypto ecosystem, it’s not surprising that his priority is to see it grow. Building a platform in Polkadot that is designed for interconnectivity rather than competitive superiority is his way of achieving this.
This is a bet against the kind of power laws that have been seen in web2 markets, where firms like Facebook, Uber and Airbnb used network effects to corner their respective markets. By building a network optimised for interoperability, Polkadot wants to see a different kind of ‘market’ that allows chains to shine in their niche and use information from other chains to make the entire experience better for users.
The other thing that makes Polkadot uniquely positioned for success as a multi-chain hub is its forkless nature, where the necessary updates that will need to be made to maintain optimal functionality will occur seamlessly rather than requiring the arduous changes that are currently seen for the dominant Layer 1 blockchains today.
Power to the Token Holders. It could be argued that for someone who really wants to be actively involved in a crypto environment, there is no token that is more rewarding to hold than DOT. Beyond the additional financial possibilities that are opened up by becoming a network validator or the opportunity to take an active role in voting on changes to the relay chain, the opportunity that DOT provides token holders to ‘vote with their feet’ by bonding their tokens to their favourite projects in parachain auctions is extremely unique and valuable.
A Better ‘New Internet’. Polkadot doesn’t mince its words in saying that it wants to be the default blockchain for the mainstream, creating an experience where users would get all the benefits of crypto without knowing that they were using a crypto product.
In this great piece, Packy McCormick describes the opportunity to own Ethereum as being analogous to ‘owning the internet’ at the dawn of the web1 era. As good as this piece is at describing Ethereum’s many benefits - the ‘owning the internet’ analogy is more complete for an interoperable ‘chain-of-chains’ like Polkadot than it is for a discrete blockchain like the OG Ethereum.
To stretch the analogy, Ethereum is realistically more like a homepage on the internet, a la Reddit. You have your anonymised profile that allows you to experiment with the many niches of the site, but it is disconnected from the rest of the internet by virtue of having its own profile conventions and currency. Polkadot is more like Google - an interconnected network of specialised apps that use shared information to make the experience fluid, convenient and constantly improving with new user inputs.
A Honeypot for Talent. As much as the word ‘community’ gets thrown around in crypto circles as a crucial ingredient for success, Polkadot has a genuine case for being the best at delivering on it. This community strategy begins with a media operation that outlines all of the facets of the Polkadot ecosystem from buying tokens to building chains at a variety of degrees of complexity such that novices and experts alike can inform themselves as much as they want about the network.
Second, and perhaps most important, is the amount of work that has gone into making Substrate a best-in-class platform for building blockchains. Polkadot developers reflect on the unparalleled ease-of-use and variety that Substrate offers. The interoperability on offer allows builders to build upon and improvise with the work of their forebears to build unique applications and entire blockchains in a fraction of the time it takes on other networks. The chaos that Kusama allows developers to play around with also offers an outlet for creative coding that can be refined for high value submissions to the Polkadot network.
Lastly, Polkadot does a good job at building community the old-fashioned way - bringing people together for in-person events all over the world to teach and cooperate with novice and experienced Polkadot developers alike.
Another community hack that Polkadot employs is the use of bounties & grants through its affiliation with the Web3 Foundation (also founded by Gavin Wood). As the network develops, the need for balance across the special use cases for different parachains will become more pressing - to get ahead of this, Polkadot has implored its community to do their best to build parachains for specific use cases that the network might need for a better chance at getting a slot and the guarantee of a fixed success fee from the foundation.
Investors like Polkadot. A Lot.
The graphic above pretty much does all the explaining for this dot point. Despite not receiving the same kind of media love as other up-and-coming ‘Ethereum killers’ like Solana, Terra and Avalanche, the investor love is well and truly there.
A Robust Business Model. While the commercial side of things often tends to be ignored by technologists intently focused on building, this has been far from the case within Polkadot’s four walls. While Wood obviously sought and succeeded in recruiting top-notch technical and research minds, what has been most impressive is the processes and opportunities Polkadot the firm has created to allow employees to commercialise and develop this research under the Polkadot umbrella.
This process for commercialising research is a key input to one of the businesses’ core differentiators, its vertical value chain. As has been mentioned above, a large part of Polkadot’s appeal to prospective participants in the ecosystem is the comprehensiveness of the tools available to easily build high-quality blockchains that will operate in tandem with 99 other best-in-class chains if successful. Technical resources like Substrate, Kusama & Westend make the process of building parachains a low effort affair.
The Bear Case
Polkadot is going to have to be dealing with the in-laws. It was briefly mentioned above that Wood left the Ethereum team partly due to the snail pace with which they were moving towards developing a sharded version of Ethereum with a proof-of-stake consensus mechanism. Well, the time has come. Eth2’s ‘beacon chain’ - the counterpart of the Polkadot ‘relay chain’ - was released in late 2020, with the rest of the network looking to be completed later this year.
As shown in the diagram above, when this rollout is complete it is expected that Eth2 will be a more efficient sharding network than Polkadot to begin with. This will have obvious implications on the speculative value of the DOT token, but more crucially may offer Polkadot developers an alternative to test, stealing away some of Polkadot’s most important resources - the talented developers working solely for a chance to bridge onto the Polkadot relay chain.
The key point of difference to keep an eye on will be the different approaches the two networks take towards parachain independence. On Eth2, all interfaces and logic must follow the central infrastructure provided by the Eth2 network (a.k.a. eWasm), whereas Polkadot allows parachains to define their own structures.
It is also worth noting that given that only the Polkadot relay chain is currently live, the figures given in the graphic above are only temporarily accurate. The sharding enabled by parachains is expected to boost TPS to 100,000 in the near future with the potential to boost that figure to 1,000,000 as the network continuously upgrades. For reference, 100,000 TPS is around 60x what Visa can handle and 10x the amount of payment requests that the Stripe API handles in busy periods.
DOT Can Spread Itself Thin. The many utilities that the DOT token offers its holders is a core part of the network, however as a speculative asset it is possible that it might be less valuable.
While buying Ethereum gives you a decent proxy for ‘shares’ in the growth of the network, the asset price of DOT is less likely to reflect network growth. This is because most parachains that go up for auction create their own tokens to be used for their specific use cases, greatly dividing the number of transactions that would be conducted in DOT.
While there are ways to turn a tidy profit on DOT investments (most likely through well thought out auction and high upside crowd loan strategies), the reality is that the price of DOT is more attuned to the whims of the crypto market more generally than the actual success of the network.
The Exclusivity Problem. Part of the magic of the growth in blockchain is the open world of opportunities it provides all actors to ship novel applications and products online. It is this kind of permissionless, effortless opportunity machine that gave us the gifts of ConstitutionDAO and Dogecoin.
This kind of free opportunity isn't quite as available on Polkadot. Admittedly, there is a difference between designing dApps or shitcoins and designing entire mini-blockchains that comes into play here, but the fact of the matter is that any number of excellent projects will never see the light of day on Polkadot because of the finite number of parachain slots. This could impose an upper bound on the potential of the blockchain and possibly, once the first set of parachain slots are filled, disincentivise some talent from attempting to build on a blockchain that is not guaranteed to accept their entry.
Closing Thoughts
When Gavin Wood finished his first drafts of the Ethereum yellow paper and proof-of-concept in 2014, he could never have predicted some of the many weird, whacky and sometimes useful applications unleashed by the virtual machine.
What he likely did know, however, was the power that the Ethereum infrastructure gave to developers to build an unimaginable variety of high-value decentralised applications. While Ethereum has given the crypto world many of its favourite hits, it would be unwise to bet against the logic of the man who is often credited with providing the code for enabling these phenomena to grow.
In the quest to create a better programmable blockchain, Wood again likely is unaware of the amazing doors it will open up. What he does know is that it will unleash more technical power and efficiency than those that came before it. The possibilities are, if not endless, expanding. That is something to get excited about, keeping in mind Polkadot (literally) hasn’t even begun yet.