Polkadot DOT

About Polkadot

Polkadot is a next-generation blockchain protocol that connects multiple blockchains into a unified network. Polkadot allows these blockchain networks to scale, specialise, upgrade, self-govern and work together to share functionality and information across software applications without having to rely on centralised service providers.

What distinguishes Polkadot is its interoperability. Transfers made using Polkadot don’t have to be just tokens – they can be any kind of data or asset. It provides a medium via which disparate blockchains can be made to interact with one another. In practice, this is done through ‘parachains’ which contain their own runtime logic, but benefit from features shared across the central relay chain at the heart of the Polkadot system.

A single Polkadot coin (or ‘token’) is known as a DOT. Being a digital currency, DOT is highly divisible.

• Polkadot is the first blockchain to use a sharding technique, which enables a database to partition and store cryptocurrency across a peer-to-peer network.
• It is an ongoing project that is being developed by the Web3 Foundation
• DOT came to be in mid-2020 as part of a phased launch, created by Ethereum co-founder, Gavin Wood.
• DOT became the sixth-largest cryptocurrency within a year of its launch, being valued at more than $30 billion.
• Polkadot is built around a single ‘Relay Chain’, which provides consensus to other chains.
• Holders of DOT, Polkadot’s native token, are entitled to joint governance of the platform.

History of Polkadot

Polkadot was launched in 2017 by Gavin Wood, who is the co-founder of Ethereum and is behind the Solidity language. Wood released the first whitepaper in support of the new currency in 2016 and envisioned what he called a ‘sharded’ variant on the Ethereum theme.  It has since become a credible rival to Ethereum.

The sharding technique Wood refers to is a technique used by a database to partition and store cryptocurrency across a peer-to-peer network. This spreads the computational load across multiple systems and allows for huge improvements in scalability. In this case, the shards are heterogeneous, which allows each of them to connect to a unique chain.

Polkadot is an ongoing project developed by the Web3 Foundation, an organisation set up to create a truly decentralised internet where users are empowered to take back control of their data from governments and private interests.

What determines Polkadot’s price?

Like all cryptocurrencies, DOT can be traded 24/7. This means its price is subject to constant fluctuation.  The first token was sold in 2017 as part of a crowdfunding effort for the platform, fetching 481,331 ETH. Since its launch in 2020, the price of DOT has climbed steadily, surpassing $40 in early April 2021.

The price is largely determined by supply and demand. Blocks in the Polkadot chain are created and validated via a mechanism known as Nominated Proof-of-Stake. This is driven by two kinds of actors: Validators and Nominators. The former verify the blocks. After a DOT has been validated, it is locked for twenty-eight days. Validators are responsible for their own take, as well as those who might nominate them.

Nominators work slightly differently. They either lack the technical capacity to maintain a validator node, or don’t want to bear the risk that comes with maintaining one. Each nominator can select up to sixteen validators to which they can attach their stake.

This system is built on reputation: according to the developer, good actions are rewarded while bad actions will result in those responsible losing their stake. This helps maintain network security through the behaviour of individuals. Misbehaviour is punished via slashing, which transfers DOT from the staking pool into the treasury at a rate proportionate to the perceived threat.

Unlike BTC, DOT does not have a maximum total supply: inflation is designed to be 10% in the first year, with validators being rewarded according to the amount they stake.

Redenomination

On August 21^st, 2020, DOT was redenominated. The smallest possible division of the currency, the Planck, was previously denominated at 1e12th the value of a DOT. This changed to 1e10th of the value following the change.

Effectively, it meant that while every holder still held onto the same number of Planks, the number of DOTs this constituted was increased a hundred-fold. This was a change not in the supply of the currency, but in the shared consensus about where the decimal point was positioned. The change resulted in a historic uptick in the value of the currency, which more than tripled over the following week before relaxing again.

This minor boom was nothing compared to the sustained rise in value the currency has experienced since the turn of the new year 2021, when a single DOT was trading for just over $5. Over the following four months, this figure has increased almost ninefold – reflecting broader trends driving crypto in general upwards.

Polkadot Price Prediction

If there were an easy and reliable means of predicting the future of a commodity, then everyone would be doing it. What follows should therefore not be mistaken for investment advice. Like any cryptocurrency, predictions about the future value of DOT are inherently speculatory, and vulnerable to error. Moreover, the inflation model used by Polkadot means that holders of dot will see their holdings progressively dilute over time.

We should also be given pause by previous attempts to guess at the future of the currency. What’s worth noting is that many of the experts in the online crypto community have been utterly blindsided by the currency’s sudden emergence. Coinpedia in January projected a price of $20 by 2022, while AI-driven analysis by Walletinvestor forecast a complete collapse in the price over the following years. The latter prediction may yet come to pass, but since it’s driven by machine learning, we can’t know the rationale behind it.

Price Volatility

All of the factors which lead to volatility in crypto are present in abundance when it comes to DOT. The market is small; therefore the actions of fewer traders can lead to disproportionate swings in price. Moreover, DOT is a new asset, whose potential value is not yet established. As we’ve mentioned, DOT can be traded at any time of day or night, and isn’t equipped with a circuit-breaker of the sort you might find on a traditional stock exchange. These are features rather than bugs. Those trading in DOT should expect to endure falls as well as enjoy rises.

Much of the value of DOT stems from the perceived utility of interoperability between blockchains. With that said, many advocates of crypto in general are averse to sharding as a practice, believing that it can ultimately compromise security.

Imperfect information, rumour and speculation can all lead to sudden swings in price. The same applies to confidence the organisation, and to feelings amongst investors, which can be difficult to quantify.