The "Web" in Web3: Explaining the Polkadot Cryptocurrency

Interoperability represents one of the most significant challenges facing the cryptocurrency ecosystem today. Different blockchain protocols operate with unique coding standards on their respective networks, creating barriers that prevent them from interpreting data from non-native sources. This fundamental limitation restricts traders' ability to send native cryptocurrencies across multiple chains seamlessly. Although some protocols have developed synthetic solutions to address this issue, the lack of genuine interconnection within web3 remains a substantial obstacle hindering the widespread adoption of cryptocurrency technologies. Polkadot (DOT) emerges as one of the most prominent projects dedicated to solving this critical challenge by integrating interoperability directly into web3's infrastructure, introducing an innovative blockchain system designed to unite disparate digital assets and potentially realize the long-sought goal of true cross-chain functionality.

Polkadot's history

The genesis of Polkadot traces back to the vision of Gavin Wood, a computer scientist who played an instrumental role in building Ethereum (ETH). After contributing to Ethereum's foundational development, Wood departed to pursue his ambitious concept for a more interoperable cryptocurrency project. In 2016, he published the Polkadot white paper, articulating his vision for a blockchain network that could bridge the gaps between isolated cryptocurrency ecosystems. To bring this vision to life, Wood co-founded two key organizations: the nonprofit Web3 Foundation and the development company Parity Technologies. These entities would lead the research, development, and funding efforts necessary to transform Polkadot from concept to reality.

The project's initial funding came through an initial coin offering (ICO) conducted by the Web3 Foundation in 2017, which successfully raised $144 million for Polkadot's native DOT cryptocurrency. The development journey faced a significant setback when a security vulnerability resulted in $155 million being locked in Parity Technologies' crypto wallet. Despite this substantial challenge, the Polkadot team demonstrated resilience and determination, securing additional funding rounds and continuing development work. Their perseverance culminated in the successful launch of the Polkadot mainnet in 2020, marking a major milestone in the project's evolution.

How does the Polkadot blockchain work?

Understanding what Polkadot is built on requires examining its innovative architectural design. Polkadot is built on a dual-layer structure consisting of a central "relay chain" and multiple application-specific parallel blockchains known as "parachains." The relay chain serves as the network's backbone, ensuring core security and validation procedures through a Proof-of-Stake (PoS) consensus algorithm. Network participants operate nodes—specialized computers that lock (or "stake") DOT coins to participate in transaction validation. These validators earn cryptocurrency rewards each time they successfully submit and verify a batch of transactions, creating an economic incentive structure that maintains network security and integrity.

Polkadot is built on the principle of modularity and interoperability, where parachains represent the application layer of the ecosystem, functioning as sovereign blockchains developed by third-party creators. This concept parallels the decentralized applications (dApps) found on platforms like Ethereum, but with greater autonomy. While parachains benefit from the robust security infrastructure provided by the relay chain, they maintain complete freedom to establish their own unique decentralized ecosystems. Each parachain can implement its own native tokens, consensus mechanisms, and governance protocols tailored to its specific use case and community needs.

The allocation of parachain slots operates through a democratic process involving the DOT cryptocurrency holders. Through regular "parachain auctions," DOT holders vote to determine which projects receive the limited available slots on Polkadot's network. Once a parachain secures a position on the network, it gains the ability to interact with all other parachains through their shared connection to the relay chain, enabling the cross-chain communication that lies at the heart of Polkadot's interoperability vision.

What are DOT tokens?

DOT represents Polkadot's native cryptocurrency, and when traders discuss the Polkadot coin price, they're referring to this digital asset. The token serves multiple critical functions within the Polkadot ecosystem, making it an integral component of the network's operations. The primary purpose of DOT involves securing the blockchain through the staking mechanism, where token holders lock their DOT to participate in network validation and earn rewards.

Beyond its security function, DOT plays a vital role in Polkadot's decentralized governance structure. Token holders can use their DOT to participate in voting on network upgrades, protocol changes, and other important decisions affecting the ecosystem's future direction. Additionally, DOT is essential for participating in parachain auctions, where projects compete for slots on the network. Finally, like most blockchain networks, DOT serves as the medium for paying gas fees—the transaction costs required to process operations on the Polkadot network.

What is Kusama?

Kusama functions as Polkadot's experimental testing ground, often characterized as "Polkadot's testnet," though it operates as an independent blockchain network. This platform provides blockchain developers with a low-risk environment to test and refine their ideas before deploying them on Polkadot's mainnet. Programmers leverage Kusama to develop parachain concepts, explore Polkadot's features, write and test code, run experimental programs, and identify potential bugs or design flaws in their applications.

While Kusama mirrors many of Polkadot's structural elements and operational characteristics, it maintains its own distinct identity through the use of KSM, its proprietary cryptocurrency. KSM serves similar functions to DOT on the Polkadot network, facilitating staking, governance participation, and transaction processing within the Kusama ecosystem. This parallel structure allows developers to gain practical experience with Polkadot's technology stack while minimizing the financial risks associated with deploying untested code on the main network.

What makes Polkadot unique?

Polkadot distinguishes itself in the cryptocurrency landscape through its singular focus on achieving comprehensive blockchain interoperability. Polkadot is built on a foundation that prioritizes cross-chain communication, with the relay chain serving as the architectural cornerstone for this vision, providing the infrastructure necessary for a truly interconnected web3 ecosystem. This innovative approach, which Polkadot is built on, allows developers to create decentralized protocols featuring their own native cryptocurrencies and governance structures while simultaneously benefiting from the relay chain's robust security consensus mechanism and enabling seamless cross-chain communication within the broader Polkadot ecosystem.

The project's ambitions extend beyond its own ecosystem boundaries. As Polkadot continues expanding and scaling its operations, the development team has been working toward establishing connections with established blockchain networks such as Ethereum and Bitcoin (BTC). These connections would be facilitated through proprietary bridge technologies designed to enable communication and asset transfers between previously isolated blockchain networks. This capability could potentially transform the fragmented cryptocurrency landscape into a unified, interoperable ecosystem where digital assets move freely across different platforms.

Conclusion

Polkadot represents a significant advancement in addressing one of the cryptocurrency industry's most persistent challenges: blockchain interoperability. Through its innovative architecture that Polkadot is built on—combining a secure relay chain with customizable parachains—Polkadot creates an ecosystem where different blockchain protocols can communicate and interact seamlessly. The project's comprehensive approach, incorporating the DOT token for security, governance, and transactions, along with Kusama as a testing environment, demonstrates a well-thought-out strategy for achieving its ambitious goals. The technological foundation that Polkadot is built on emphasizes modularity, security, and cross-chain functionality, positioning it uniquely in the blockchain space. As blockchain technology continues to evolve, Polkadot's focus on interoperability and its efforts to bridge connections with established networks like Ethereum and Bitcoin position it as a potentially transformative force in realizing the vision of a truly interconnected decentralized web. The success of this endeavor could mark a crucial milestone in cryptocurrency's journey toward mainstream adoption and practical utility across diverse applications.

FAQ

What is Polkadot built on?

Polkadot is built on Substrate, a multi-chain framework featuring a relay chain and parachains that enable secure interoperability and scalability across multiple blockchains.

Does Polkadot run on Ethereum?

No, Polkadot does not run on Ethereum. Polkadot is an independent blockchain network with its own infrastructure. While Polkadot supports EVM-compatible parachains, it operates as a separate ecosystem.

What blockchain is Polkadot on?

Polkadot operates on its own blockchain called the Relay Chain. It enables multiple blockchains to connect and run simultaneously through its parachain functionality, providing shared security and cross-chain communication.