Concepts: Polkadot

Ozier Zarouq Khan
Ozier Zarouq Khan 6 April 2021

Polkadot’s (DOT) increased in price by 73% in just over two weeks.

While that’s a big jump in small numbers — from $8.20 to $14.30, at a time when BTC was hovering around $40,000 — it’s still enough to catapult Polkadot into the world’s top five digital assets. Suddenly, Polkadot was everywhere.

But what is Polkadot, how does it work and why is is it suddenly attracting so much attention?

What is Polkadot?

Polkadot is a “heterogeneous blockchain architecture” that allows side chains to connect with public blockchains. It can be thought of as a chain of chains. Polkadot was created by Gavin Woods, Ethereum co-founder and former Chief Technology Officer, along with Thiel Fellow Robert Habermeier and Peter Czaban.

The technical side

Polkadot is a Proof-of-Stake blockchain architecture that solves several of the problems facing legacy chains, particularly Ethereum. For example, Polkadot evades the bottleneck caused by single-chain onchain transaction processing that currently vexes the Ethereum chain, leading to longer transaction times and ballooning gas prices.

Using Proof-of-Stake rather than Proof-of-Work gets Polkadot out from under the mining requirement that slows down both Ethereum (for now) and Bitcoin.

And Polkadot takes one of the key ideas of Ethereum a step further; rather than a blockchain for decentralized applications, Polkadot is a blockchain for blockchains, allowing users to build their own chains using Substrate.

(A complete technical guide to Polkadot is here.)

One of Polkadot’s most essential features, in both senses, is heterogeneous sharding.

Heterogeneous sharding

Sharding is a solution to the energy- and computation-expensive requirement that a whole blockchain process each transaction. Instead of the whole chain doing the work, groups of nodes shard off to process it. The information contained in shards is shared across the network, so it’s open to examination, but the whole chain is no longer involved in actually processing each transaction.

This isn’t particularly new, and Ethereum’s stopgap solutions while it transitions to the PoS-powered Eth2 includes sharding (in fact, the identification of sharding as a potential solution for Ethereum was what gave Woods the idea for Polkadot).

What is new for Polkadot is the idea of heterogeneous harding; each shard is unique, but remains interoperable across the network. In effect, each shard is its own chain, but operating on the Polkadot network.

Relay, Parachains, Bridges

Relay, Parachains, Bridges Source

The Polkadot network breaks down into four main types of structure:


This is the main Polkadot chain. Its function is to transmit information between parachains within the Polkadot network and serve as a source of truth for the whole network. The Relay chain is built with Substrate


Parachains are heterogeneous shards — independent chains within the Polkadot ecosystem. Parachains have their own tokens and structure. This is a really major innovation, because it allows for much greater flexibility and efficiency. Previously, even in blockchains that allow sharding, each shard is a fraction of the whole and works the same way as the main network; a mini-mainnet.

But each blockchain’s use cases and requirements are different. Polkadot lets users build their own blockchain inside the Polkadot ecosystem, connected to every other Polkadot chain via the Relay chain, yet with custom specifications tailored to its purpose (greater emphasis on security, speed, and so on).


Parathreads are “part-time Parachains” operating on a pay-as-you-go model for users who don’t require constant access to the blockchain.


Bridges connect parachains to external networks like Bitcoin.


Substrate is a blockchain development environment for parachains on Polkadot. It’s a modular framework for building blockchains from readymade components or custom ones, meaning less coding skill is needed and you don’t need to “reinvent the wheel”.

Substrate supports multiple smart contract platforms and is interoperable with the Ethereum Virtual Machine (EVM). It’s a type of development environment that most devs would find familiar, with libraries, a runtime environment and the ability to query a node or interact with the Polkadot net using Javascript.

Substrate measures block size in “weight”, defined as “the mechanism used to manage the time it takes to validate a block. Generally speaking, this comes from limiting the storage I/O and computation”.


Kusama is Polkadot’s “canary” network, analogous to Google Chrome Canary — a bleeding-edge testnet for Polkadot projects. Built using Substrate, with a near-identical codebase, Kusama is the place to test possibilities and trial ideas before attempting them on the Polkadot mainnet. The website warns: “expect chaos. No promises”.

Polkadot coin and tokens The native token of the Polkadot network is the DOT; the smallest unit of account on Polkadot is the Planck (a reference to the physical constant Planck’s length). These are comparable to Satoshis or wei/gwei. DOT serves three functions for Polkadot:

  • Used for governance
  • Staked for consensus
  • Bonded to connect parachains to the Relay chain

Polkadot governance

Polkadot uses NPoS — Nominated Proof of Stake. There’s a council, currently of 13 members but eventually projected to grow to 24 members, in charge of proposing referenda on Polkadot. All Polkadot DOT coin holders can vote in referenda. The voting system for council members is the same as the selection system for block validators: the Phragmén method. This is one of many systems (DPoS, for instance) designed to offer both agility and decentralization, and is prone to the criticism that it puts decentralization, and therefore security, at risk.

Is Polkadot an Ethereum killer?

Since tokenization on the Ethereum chain proved its value, every general-purpose blockchain that allows Dapp development and promises fast transactions has been promoted as an Ethereum killer. But as we’ve said before, there probably isn’t really a market for an Ethereum killer and Polkadot definitely isn’t it.

To displace either Bitcoin or Ethereum would require overcoming a massive first-mover advantage, and huge brand recognition that extends far beyond fintech and the digital assets world.

Instead, Polkadot will claim its place by offering interoperability with the Ethereum and Bitcoin blockchains, granting its users access to the most popular all-purpose blockchain and the most valuable digital asset. Rather than seeking to replace the big hitters, it promises to allow its users better, more convenient access to them — and to build products that leverage that access.

Currently, though, there are relatively few projects on Polkadot. An overview of these might give us some idea of where the project is headed.

Projects on Polkadot

Polkadot projects range from the fairly conventional, at least by blockchain standards (DeFi, interoperability protocols) to the unusual and advanced (robotics, AI).

We’ll look briefly at a representative sample; you can see all registered Polkadot projects here.

Acala: DeFi on Polkadot

Acala is a DeFi hub and stablecoin platform for Polkadot, supporting the aUSD 1:1 USD stablecoin. It’s governed by Acala Network Token (ACA) holders, and offers rewards to aUSD holders.

The Acala foundation is also behind Karura, a stable, EVM-compatible DeFi platform for Kusama.

Efinity: NFTs on Polkadot

Built by tokenization veterans Enjin, Efinity lets users move any NFT from any chain onto Efinity. Running something like 700-1000 TPS, and with ~6 second block time, Efinity offers NFT users interoperability and security. Enjin is also building projects to go with Efinity, like JumpNet, intended to provide free access to the Ethereum network.

Ocean: Data trading on Polkadot

Ocean treats data as an asset class that can be traded, tokenized, staked and consumed via the Ocean app. Ocean “enables data wallets, data exchanges, and data co-ops by leveraging crypto wallets, exchanges, and other decentralized finance (DeFi) tools”.

Robonomics: Serverless IoT robotics on Polkadot

Robonomics brings blockchain security to the IoT, letting developers build secure robotics networks.

So is Polkadot hype or a real addition to the digital assets ecosystem?

Polkadot’s main value lies in its ability to let other blockchains talk to each other. It can act as a way into Ethereum or Bitcoin. The difference between Polkadot and other “next big thing” projects is that it already has a clear use case, one that’s not dependent on siphoning off users from Ethereum. Instead, it promises access to the current and (potential) future big hitters in the space, augmented by its own featureset: sovereign chains with their own tokens, interoperable and secure.

There are criticisms of Polkadot, not least that most projects are in their infancy, though the council governance structure worries some onlookers too. But Polkadot has real users and real use cases, especially in the DeFi and NFT spaces. The ingredients for success are here, though only time and the market will tell whether Polkadot keeps its top slot.


Disclaimer: This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please note our full disclaimer here.

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