If you ask an average DeFi user about everyday problems in the crypto space, he will probably mention two things: Scalability and interoperability. Even though the testnet for ETH 2.0 is online, which tries to solve these problems, Ethereum will not build a decentralized financial system for the entire world population on its own.
The fact that the whole DeFi space is extremely dependent on Ethereum is why alternatives are required! The lack of Interoperability is a huge problem in the crypto sector. Most blockchains operate as independent silos; however, it is tough to connect them with other networks. Secondly, high gas prices are sometimes pure horror for crypto users because they mean very slow and expensive transactions.
In today's TOKEN ANALYSIS, the Polkadot blockchain is presented to the DEFI WORLD community, aiming to tackle these problems.
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How Polkadot works
Polkadot is a blockchain with some very nice characteristics. First of all, Polkadot is a so-called "sharded blockchain", which means that this blockchain is divided into many Parachains. This means that there is one elementary chain at Polkadot, the so-called "relay chain". The relay chain is responsible for the blockchain's security and operability, while the Parachains are sovereign blockchains. These sovereign blockchains can have their own token and can optimize their functionalities for specific use cases. Precisely this is the reason why Polkadot is currently way more scalable than Ethereum. At Polkadot, transactions can be executed parallel on each Parachain, while at Ethereum, all transactions are conducted on a single blockchain. This is why Polkadot is currently way more efficient. However, Ethereum will switch to a sharded blockchain as well after moving to ETH 2.0.
Nevertheless, there still is one question: How can Polkadot solve the problem of interoperability?
Well, there are the so-called bridges. These bridges allow Parachains to communicate to different blockchains and networks outside of the Polkadot ecosystem. This means that Polkadot is a helpful factor for the whole space instead of danger for Ethereum! Polkadot wants to unite the space with all its networks while offering scalability at the same time.
It is quite clear who the target users are. Everybody.
As already mentioned, Polkadot is designed to unite the space! No matter if you are a Bitcoin Maximalist or a DeFi fan. Polkadot aims to help you execute as many transactions as possible, even if it runs over different blockchains.
However, especially for developers, Polkadot is a must-watch blockchain because it is easy to build up an entirely new blockchain for a particular use case.
The Polkadot token has three different use cases:
- Bonding and Governance
Polkadot tokens can be staked to earn a passive income from your assets. Also, Polkadot tokens are used to pay the transaction fees to reward the validators, who are an essential aspect of the functionality of Polkadot's consensus algorithm: Proof of Stake.
In addition to that, the Polkadot token fulfills the use of governance as well. In order to set up a Parachain, more tokens are needed. They are getting locked and unlocked again when there is nobody who uses the particular Parachain. Users can also vote on network fees, dynamics of auction, protocols, and schedule for Parachains, upgrades, and much more.
The total supply of Polkadot has been changed from ten million to one billion. Nowadays, Polkadot gets inflated by ten percent a year. Polkadot tokens can be traded on Kraken, Binance, Huobi, and on many more platforms.
Polkadot aims to solve one of the biggest problems in the space, and is well on track to succeed. However, we will have to wait and see how important Polkadot's role will be in the future. But if Polkadot manages to get even close to its promising potential, there are no limits to the blockchain. It is also important to note that Polkadot is not trying to challenge Ethereum, EOS, Cardano, or Cosmos, but rather to unite them. Furthermore, it should be said that there are already exciting projects in the Polkadot ecosystem, such as MantraDAO or Polkastarter.
Also, Polkadot has the sixth-largest market capitalization, which means that even newcomers in the space will immediately notice Polkadot.
We at DEFI WORLD are big fans of Ethereum, but we believe that Polkadot is the most exciting project in space right now, with the potential to become as impactful as Ethereum. Whether this is true, however, is another question. The fact is: Polkadot should be on the screen of every crypto user.
All information presented above is for educational purposes only and should not be taken as investment advice.