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Polkadot: An Attempt to Connect the Blockchains, Review, DOT token, ICO
SUMMARY
June 04  |  15 min read

Polkadot: An Attempt to Connect the Blockchains of the World

The COIN360 Editorial Team

Blockchain technology is an interesting concept and phenomenon. On the one hand, its growth and development has been surprising and it has gone a long way ever since the 2008 release of the Bitcoin whitepaper. On the other, there are still big hurdles that blockchain technology needs to overcome if we want to achieve significant, real-world deployment of it. Polkadot is a platform that introduces a heterogeneous multi-chain architecture which claims to address some of present-day blockchain technology’s biggest limitations, namely interoperability and scalability. The idea behind it is to create an internet of blockchains, where different chains (dubbed parachains) could work together in a truly interoperable fashion, all secured by a shared pool of common validators. While the idea is not entirely new (with projects such as Cosmos also revolving around interoperability), the proposed solutions for scalability and interoperability have raised the interest of many.

In this overview, we will dip our toes into all things Polkadot; what it is, how it works, some of its major controversies and more.

What Is Polkadot?

Polkadot, simply put, is a network that connects blockchains. As things stand right now, there are multiple blockchains, all of which serve different specific purposes. However, these blockchains exist in complete isolation with no possibility of communication or interoperation between them. Polkadot puts forward the idea of a scalable, heterogeneous multi-chain. In this proposed architecture, there is a network of chains that revolves around a central one, dubbed the relay chain. Upon the relay chain, the aforementioned network of chains work side-by-side, and they are able to send messages to each other. These chains that are connected to the relay chain are known as parachains.

Parachains can also potentially benefit from the fact that they all pool their security while still being able to have entirely arbitrary state-transition functions. Basically, this allows for parachains to be vastly different and still be able to communicate with each other. It puts forward the idea of an internet where independent blockchains can exchange messages and trust-free transactions in an environment that is rich in scalability, governance and interoperability. It is described as a step towards a truly decentralized internet with a varied ecosystem of dApps and resources.

Polkadot is a project co-founded by Dr. Gavin Wood, who also co-founded Ethereum and Parity. At press time, Polkadot is scheduled to be released before the end of 2019.

How Does Polkadot Work?

Interoperability

The Polkadot network functions with the help of three different chains which allow it to purportedly address issues in both interoperability and scalability:

  • Polkadot doesn’t provide a single chain that has varying degrees of generality over potential apps. Instead, Polkadot promises to provide a relay chain, self-described as the bedrock upon which parachains can work in an interoperable way.
  • Upon the relay chain, multiple parachains are hosted. They are described as dynamic data-structures that are hosted side-by-side. Parachains, although a constituent of the Polkadot network, are independent blockchains which gather and process their own transactions.
  • Finally, other blockchains can also interact with the Polkadot network through a bridge hosted on a parachain. This is for cases where a blockchain needs to retain its consensus and finality mechanisms. These are called bridge chains, and they allow the Polkadot network to be connected to the Bitcoin and Ethereum blockchains, among many others.

The inner workings of parachains are still being worked on, but it has been confirmed that there will be a finite number of parachain slots. To ensure fairness, auctions will take place where anybody can vie for a parachain slot. At press time, it is not known how many parachains the design of Polkadot version 1 will support yet, but it is expected that the total number will grow to something between 50 and 200. Parachains are finite in the sense that they have a finite lifetime as well. However, an existing parachain can take part in these auctions in order to extend their lease. Ideally, there should always be parachain slots available for auction.

For deploying a native parachain on the network, the people behind that parachain may use the Cumulus framework (an extension of Substrate; also made by Parity) to build a new blockchain easily as a parachain of the Polkadot network.

The complex structure of different chains, when transactions and participants of the network are accounted for, should look along the lines of the following:

Polkadot network: How does it work, What is Polkadot

A diagram of the Polkadot network, including different parachains fulfilling different roles and the different members that take part in the network.

The graphic representation above is that it is supposedly possible for a parachain to be a 2nd order relay chain. This tree-like structure of blockchains would be another solution for scalability proposed by the Polkadot team.

Polkadot parachains that are defective can be disabled. In cases such as these, when a parachain leaves the Polkadot network, they effectively become a solo chain and can’t keep benefitting from Polkadot’s pooled security.

Scalability

One of the long-standing issues of current-technology blockchains is scalability. The numbers vary, but Bitcoin usually has a rate of 3-4 TPS, while Ethereum has something along the lines of 15 TPS. As a reference, VisaNet handles an average of 150 million transactions every day, which roughly equates to 1,740 TPS. That being said, Visa is a payment system that is widely used throughout the whole world, giving it resources that Bitcoin and Ethereum couldn’t even dream of. The way in which current-technology blockchains process transactions is in a one-by-one fashion. This means that scalability is highly limited, as proven by the low throughput that blockchains usually have.

The way in which Polkadot supposedly addresses this problem is by putting forward a multiple parallelized transaction system. What this means is that, as it was explained above, several parachains can work side-by-side in order to process multiple transactions in parallel. This, according to the Polkadot light paper, allows the Polkadot network to supposedly achieve infinite scalability.

Polkadot Network – Multiple parallelised transaction

Members of the Polkadot Network

Polkadot will implement a nominated proof-of-stake (NPoS) consensus algorithm, where multiple participant roles will be acting together as part of Polkadot’s pooled security. The different members that participate in Polkadot are:

  • Nominators: Essentially, they are DOT (Polkadot’s native token) holders who stake their DOT to approve or show support for a validator candidate. If a validator is elected, the nominator who staked DOT in support of that validator will also earn a share of their rewards (and punishments, if there were any). Being a nominator is fairly simple, and as long as you behave correctly (by supporting validator candidates that don’t misbehave either), it can possibly be a low-risk source of continuous revenue.
  • Validators: A validator is in charge of securing the relay chain by staking DOT. They check the transactions that are taking place on the different parachains, and validate proof from collators in the form of blocks, transactions, and messages. They are particularly crucial to the system as they allow it to advance. If a validator behaves correctly, they are granted new tokens, but if they misbehave, their staked DOTs will get slashed. To further ensure proper behavior from validators, they are assigned to a different parachain on each block.
  • Collators: As stated above, collators work with validators. Collators are assigned to maintain a particular chain, where they collect parachain transactions, bundle them into a block, and produce state transition proofs, which are to be checked by a validator. If a particular block candidate from a collator becomes canonical, then they will be rewarded by being able to collect parachain-specific transaction fees.
  • Fishermen: Last but not least are the fishermen of the Polkadot network. Fishermen are deemed as the final security frontier in Polkadot. They watch for misbehavior in the network without creating blocks. They are the easiest role of the network to take, and they get rewarded if they successfully report misbehavior in the network.

What is Polkadot, Coin, Network – COIN360

How all four different roles that are within Polkadot work.

Pooled Security

One of the key elements of the network, and its different roles outlined above, is that, at the end of the day, all the work done by nominators, validators, collators, and fishermen, is part of a pooled (or shared) security system. Typically, two different chains have to compete for security resources. What’s worse, these resources (e.g. miners, computing power) are finite, which means that neither of the two competing chains actually benefits from the competition. This is even worse for projects that are new, as they have to come up with the means of creating and incentivizing a community into using those finite resources on their chain and not another one.

Polkadot allegedly does away with this notion through the network’s pooled security, thanks to which all parachains are equally secured. Thanks to the idea of having pooled security, the competition and distribution of finite resources will reportedly become cooperative, where individual chains can leverage collective security without having to compete with other chains or foster a new mining community from the ground up. However, this is all theory, and this situation is likely much more complicated when you have multiple parachains hosted on the relay chain.

Polkadot token – Price, Technology, Polkadot ICO

Polkadot’s pooled security system allows for all parachains to share the same finite resources.

The DOT Token

The DOT token is Polkadot’s native token. Although it is an ERC-20, DOTs will not be available for trading, as its purposes are exclusive to the Polkadot platform. DOT will reportedly be available by the end of 2019, when the mainnet launches.

The DOT ICO was held between Oct. 15, 2017, and Oct. 27, 2017, raising over $145M. However, soon after the ICO, a bug in the Parity wallet froze over $90M worth of DOT tokens from the ICO’s funds. However, the Web3 Foundation, supporter of the network, stated that it would not halt the project’s development. In January 2019, news of a token sale broke in which Polkadot expects to raise another $60M.

The DOT token is meant to serve 4 different purposes:

  1. Governance over the network: DOT holders have privileges such as managing forkless protocol upgrades and fixes as well as participating in decision-making processes regarding parachains and more.
  2. Operation: Good actors who behave in honest ways are rewarded and bad actors are made to lose their stake in the network.
  3. Interoperability: DOT tokens are used to pay for validators’ fees when sending messages from one blockchain to a different one.
  4. Bonding: new parachains are added by bonding tokens and outdated ones are removed from the network by removing bonded tokens. Any DOT that is deposited in the auction process will be returned at the end of the parachain’s lease.

The distribution plan for the DOT token is the following: 10M DOTs are anticipated to be contained in the genesis block, of which 50% (5M) are to be distributed considering the ICO. 40% of the remaining tokens (2M) are intended for future sales or for distribution, and the remaining 3M tokens will be allocated to the Web3 Foundation. DOT’s overall supply over time will not be fixed and it will not have an upper limit.

Latest Developments

This year has seen the release of Proof-of-Concept 3 and 4. Proof of Concept 3 saw the introduction of GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement), a finality gadget that can reportedly finalize blocks almost instantly under the proper conditions. Proof of Concept 4 arrived in May of 2019, and it introduced new staking features into Polkadot’s NPoS consensus algorithm.

At press time, Proof of Concept 5 is in the works, with the promise of delivering the implementation of ICMP (interchain message passing, which will allow for parachains to send messages to each other) and BABE (Blind Assignment for Blockchain Extension, a new block production mechanism that runs between the validator nodes).

Earlier in the year, the WSJ also revealed that Polkadot was planning to raise $60 million as part of a second token sale. At first, this was deemed as a controversial measure as people believed it was going to be a second ICO, but it was later confirmed that it was going to be a token sale, which goes along with the DOT distribution plan outlined above.

Controversies

The reason why the idea of a second token sale caused controversy was because the first ICO was also troubled. It all started after a new version of the Parity wallet (as a means of fixing a multi-sig vulnerability issue) was deployed on July 20th, 2017. As it turns out, this new version had yet another vulnerability issue that hadn’t been discovered at the time, which allowed somebody to turn the Parity wallet library contract into a regular multi-sig wallet and become its owner. What ended up happening was that the library, turned into a wallet, was accidentally deleted. This meant that all multi-sig wallets that were deployed after July 20th were rendered useless, locking up 587 wallets which accounted for a total amount of 513,774.16 ETH (not counting other tokens). The ICO of Polkadot had just taken place when this happened, which meant that around $90M worth of DOT was locked up because of the accident.

What’s more, an official postmortem revealed that Parity was actually made aware of the issue by a Github contributor three months before the accidental deletion of the library happened. If it had been fixed then, it would have been impossible for somebody to delete the library, and it would have prevented the massive lockup of tokens. It has to be said, though, that this suggestion was reportedly taken as a convenience enhancement and not as a critical issue that needed to be fixed as soon as possible.

Polkadot Coin (DOT), ICO, Vulnerabilities

Github contributor 3esmit identified the potential vulnerability three months before the accident.

Since then, an additional security flaw was discovered in February, which prompted the release of a new update. However, it was revealed that one month after the issue, only two thirds of the nodes that ran the Parity client were actually patched.

The key thing that relates all these events to Polkadot is the fact that the co-founder and author of the Polkadot whitepaper, Gavin Wood, is also the co-founder of Parity.

In February 2019, Afri Schoedon, Parity Technologies’ release manager and Ethereum developer, quit the Ethereum community allegedly due to his relation to the Polkadot project. Schoedon denied any involvement with the Polkadot project at the time and stated that his discontent with Ethereum came from the project’s slow development. Schoedon stated that the Polkadot project is similar to Ethereum 2.0 (Serenity, which has an estimated release date for 2021) at its core, and received backlash from the community, who accused him of creating a conflict of interests between the two. After these allegations and due to targeted harassment, Schoedon was forced to leave the Polkadot project.

More controversy was sparked when Ethereum gave a grant to Parity to keep developing the Serenity platform and some people thought it would go to continue the development of the Polkadot project. After Afri Schoedon’s exit from the Ethereum community, Ryan Zurrer, director at Web3 Foundation, stated his concerns regarding Ethereum 2.0’s timeline and then stated that Ethereum and Polkadot are not competitors but rather “highly synergic” protocols. SpankChain’s CEO, Ameen Soleimani, tweeted about how the two aforementioned protocols are, in fact, competitors, and started putting Zurrer on the spot after he kept defending Ethereum while asking for fund recovery. Soleimani disagreed strongly with Zurrer comments’ that the two were not competitors, given that they are both “competing for resources and developer mindshare” and called Zurrer out in a tweet that stated he had tried to sell most of his ETH to Soleimani and then tried to recruit SpankChain (and several of his friends) to build on the Polkadot Network. After many more tweets, Soleimani stated that his decision to invest and buy DOT was almost jeopardized by Zurrer’s participation as an advisor on the project, but that Gavin Woods’s “relentless engineering culture and commitment to open source” persuaded him.

Polkadot and Ethereum

Tweet from Ameen Soleimani in response to Ryan Zurrer’s statements regarding Polkadot and Ethereum.

Controversy affected Polkadot once again as early as last week, when it was revealed that multiple investors were approached by OTC desks offering sums of DOT tokens at a discounted price, with one buyer reportedly receiving a 50% discount. Deals such as these are usually in breach of contract as they are not allowed. The fact that DOT is a pre-launch token makes this even more controversial because a big risk is placed on the buyer as they are only SAFTs (Simple Agreement for Future Tokens), meaning that there is no guarantee that the buyer will actually receive the tokens once they are released.

Verdict: Ethereum Killer?

There’s no denying the potential that Polkadot has. Thanks to the novel architecture that it proposes, the idea of dealing with scalability and interoperability issues seems more possible than before. It also brings more awareness to the future of crypto as a whole: in the event of massive adoption, having a higher TPS rate will be an absolute necessity. However, the words “in the event of” are key. Crypto has definitely had an explosive growth since its inception, but other things, such as mass adoption, don’t happen overnight. As things stand right now, crypto has been enjoying a bullish run in the last handful of weeks, but mass adoption is definitely far. Recent announcements that point towards social media giants such as Facebook and Telegram adopting crypto means that millions of potential users would be exposed to it, something that would definitely be of major relevance in terms of adoption.

That being said, that’s something that could happen in the future. Until such needs like addressing scalability issues or for blockchains to be able to send messages to each other become urgent, the more traditionally known blockchains will remain standing strong.

Even if Polkadot takes over and becomes the number one blockchain platform, the only thing that would be allegedly needed would be to connect Polkadot and Ethereum through a bridge parachain, which would allow for both to successfully coexist (though we are not sure if this is as possible as Polkadot says). If anything, Polkadot is an interesting proposal and a glance into the future of blockchain technology, but the proposed solutions cater more to the needs of tomorrow rather than the needs of today. Polkadot and especially the people behind Polkadot have not been free from controversy either, and, as proven by the community reaction from the possibility of having a second ICO, the community doesn’t forget easily. Furthermore, Polkadot is still in development, and it is always best to take proposals from projects that are in development with a grain of salt.

The Polkadot network is a novel proposal that could help tackle interoperability and scalability issues in crypto, but it is not the killer of Ethereum.

Thanks for reading,

The COIN360 Editorial Team