Top Polkadot dapps overview

Polkadot

What is Polkadot

Polkadot is a cross-chain ecosystem founded by the Web3 Foundation, that reflects Web3’s vision of a multi-сhain and the user-friendly future of DeFi. The project was originated by the former Ethereum CTO Gavin Wood. He was the author of the whitepaper (Polkadot paper) in 2016, and later formed a project called Web3 Foundation, the purpose of which was the research and development of decentralized web technologies. Together with the ex-head of Ethereum security Jutta Steiner, Dr. Wood also co-founded Parity Technologies, which handled (and still does) the main development work on Polkadot, whose main goal is to solve the scalability problem.

A year before Polkadot arrived, its canary network Kusama saw the light of day, designed to be a testing ground for the new technologies planned for Polkadot. However, it should be noted that Kusama is not a testnet, but rather a blockchain of the same architecture. It offers real economic rewards, has its ecosystem, in many ways different from that of Polkadot, and is now going its own way, guided by its decentralized community.

Officially launched in May 2020 as a proof-of-authority network, Polkadot, which refers to itself as the first layer 0 blockchain, has made its way to the top ranking within just a year. In just a month after its launch, Polkadot switched the consensus model to Nominated Proof-of-Stake (NPoS). Another month later the network gathered the community of independent validators and transferred the governance to the DOT token holders.

The blockchain that introduced the concepts of parachains and candle auctions attracted a lot of attention from investors like Three Arrows Capital, Polychain Capital, and Pantera Capital. The gradual implementation of Polkadot's multi-chain concept began in late 2020 with the launch of the Rococo parachain testnet and grew strongly throughout 2021 when Polkadot ran its first auctions for leasing its parachains and onboarded five parachains with the second series of parachains expected to be launched in the first quarter of 2022. Kusama did the same, and the auctions resulted in more than 20 parachains.

How does Polkadot work

Polkadot unites many blockchains, all of which are heterogeneous, meaning that each of them can have an individual structure, area of specialization, and tokens. All parachains are secured and connected through the Polkadot Relay Chain, which is a layer-0 blockchain. That is why Polkadot is frequently referred to as a blockchain of blockchains.

The Relay Chain utilizes the Nominated Proof-of-Stake consensus model, where nominators, in exchange for a portion of validators’ staking rewards, create an additional security level by staking their DOT tokens in favor of the most active and reliable validators, thus helping them get to the active validator set. In the Polkadot network, collators collect parachains transactions and provide Relay Chain validators with evidence of their validity. Fishermen, which any parachain full node can become, are involved in monitoring the network for instances of validators' dishonest behavior.

The Relay Chain is built using Parity’s framework for building custom blockchains known as Substrate. Being the backbone of the whole network, the Relay chain is limited in the transaction type capability, as its main responsibilities are bounded by participation in the network’s consensus mechanism and interaction with the governance. Smart contracts are not supported by the Relay Chain. It also provides cross-chain transfers, and not just of tokens, but most importantly - of data. For instance, for trading synthetic assets a blockchain could request data about the stock price and get it from an oracle of a foreign parachain. Parachains can interact regardless of their types, which allows, among others, to share some permissioned information from a private chain with a public one.

The functions of the Relay Chain include providing security for any parachain, no matter how important it is. Thus, it is working as a universal “umbrella” for all the projects it unites and acts as layer zero for the layer-1 blockchains that can be attached to it.

Polkadot provides instruments to anyone wishing to build their blockchain as an individual network or as Polkadot parachain. Parachains are layer-1 blockchains running independently in parallel to each other (hence the name) and being connected to the Relay Chain. This connection with the heart of Polkadot does not however mean that parachains have to be identical or adopt Polkadot’s native token as their own. While parachains rely on the security that Relay Chain provides them through its pool of validators, they have plenty of autonomy in the form of their tokens, economic model, and governance. 

Parachains are deterministic state machines, meaning that each has its own state, executes blocks, and achieves a new state, as each new block is executed. The Relay Chain, in turn, links all those states into one state, referred to as the state of states. This algorithm is called sharding, so it is safe to say that parachains are Polkadot’s shards. Parahcains’ network participants that are required to run full nodes and are called collators are responsible for executing transactions (a lot like miners in the Ethereum network) and collecting them into blocks that are later validated by the Relay Chain validators. Thus, collators are not responsible for the security of parachains, the Relay Chain validators are. It is them who check the blocks validity and may reject them in case they are not correct.

There are two toolsets or Parachain Development Kits (PDKs) - Substrate and Cumulus. With the help of the Substrate framework anyone can build their own blockchain, and Cumulus is the extension to Substrate allowing implementation of a new blockchain on Polkadot as its parachain.

Implementation of a blockchain built with Substrate into Polkadot is only optional, which means, this blockchain can exist as an independent entity too. To be able to become a Polkadot parachain the project needs to participate in a parachain slot auction first, as the number of parachains that Polkadot can support is currently limited to 100. Acala Network, now Polkadot’s DeFi hub, was the first project to have won the parachain auction slot in November 2021.

However, the auction isn’t the only way to join the Polkadot ecosystem. Aside from parachains, Polkadot offers an option of parathreads. Technically, they are almost the same as parachains but don’t offer continuous connectivity to the network, which lowers the entry barriers and makes them cheaper for whoever occupies them. Parathreads are being rented without participation in auctions and utilize a pay-as-you-go model, which means that the tenant will have to pay (participate in an auction) for each block of their parathread to be verified by the Relay Chain. Depending on the protocol needs, parachains can switch to being parathreads and vice versa (if there are any parachain slots available).

Polkadot and Kusama's parachain slot auctions follow a similar pattern. Teams wishing to bid for the right to lease a parachain bond DOT tokens for the period the lease is active. Some however decide to opt for crowdloans and count on their community to make that bond for them. To cast your vote for one of the projects, you must lock your DOT or KSM, respectively, in favor of the chosen project. The project with the highest amount of coins locked in their favor wins and leases parachain for a specified period. For Polkadot, this period may vary and get up to 96 weeks (about two years). And those who locked their coins in favor of the winner will sacrifice their right to use these coins for the entire term of the parachain lease. Parachain auctions of 2021 were supported by such exchanges as Binance or Kraken which provided the grounds for the crowdloans.

 

Although all the Polkadot parachains are united with one layer 0 blockchain called Relay Chain, the system is still not a loop, as the external (autonomous) blockchains (including Substrate-powered) can also be connected with some parachains and/or with each other via bridges. Bridges can be built within the Polkadot ecosystem and between other blockchains. Web3 Foundation-financed developments of the bridges between Polkadot and Bitcoin / Polkadot and Ethereum can serve as an example.