Polkadot is a relatively new cryptocurrency quickly gaining popularity. Bitcoin still tops the list for cryptocurrency and isn’t at risk of being dethroned anytime soon. But polkadot is rising in rank and threatens other high-ranking cryptocurrencies, like ethereum.
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How Does Polkadot Work?
Polkadot cryptocurrency is the native token on the blockchain of the same name. The blockchain is a way of storing information that works similarly to a database. Blockchain technology stores information to create:
- A permanent timeline, without the need to purge data
- Uneditable records, so Polkadot can’t be easily hacked
- Transparency and visibility to anyone
- Decentralized currency not limited to control by a single bank or entity
How Blockchains Differ From Banks
Whereas a banking network is a centralized system, where a central bank oversees the banks farther down the network, blockchains are decentralized — there is no centralized oversight. In addition, banks are highly regulated by the government. Blockchain, on the other hand, is, at least for now, mostly unregulated, leaving it vulnerable to exploitation by criminals who use it to transfer money undetected.
Banks’ centralized networks make them easier to hack than blockchains, but your money is generally safe in a bank. That’s because the Electronic Fund Transfer Act makes banks responsible for losses due to fraudulent transfers. Your cryptocurrency wallet has no such protection, and because transactions are anonymous and irreversible, it’s unlikely that you’d recover your cryptocurrency in the event it was stolen.
Where user experience is concerned, cryptocurrency has a significant benefit over banks — blockchain transactions can be completed in less than an hour, whereas bank transactions can take a day or two.
How Is Polkadot Different Than the Competition?
Polkadot is newer than other popular cryptocurrencies. Bitcoin was the first to emerge. It offers basic abilities compared to the second-most popular cryptocurrency, ethereum, which can complete more complex tasks.
However, there is a charge for each task on the Ethereum network, so the cost of more complex transactions adds up quickly. And Ethereum has only one “lane” for transactions, which can lead to network congestion — a situation expected to improve following a major upgrade to the blockchain.
Parachains
Polkadot is different because it offers parachains, short for parallel chains, which are series of connected blockchains. Polkadot is thus a “multichain” consisting of blockchains running alongside one another in a way that speeds up transactions. Having multiple lanes to complete transactions leaves less chance for network overload.
Additionally, Polkadot created protocols that allow its network to interact with other blockchains. Since its blockchain network is flexible, it has an increased ability to pivot and serve more specific needs.
In January, Moonbeam became Polkadot’s first fully operational parachain. The smart contract platform won a Polkadot parachain auction in October thanks to $1.4 million in DOT — Polkadot’s token — contributed by Polkadot supporters, CryptoPotato reported. Moonbeam plans to deploy over 80 projects using its protocol. Four additional parachains also won auctions.
Polkadot has captured the attention of Europe’s largest telecom company, Deutsch Telekom, which has a history of supporting blockchain technology, according to CoinDesk. Its subsidiary, T-Systems Multimedia Solutions, has already purchased a significant amount of DOT and will provide infrastructure to users who stake assets on Polkadot — “staking” being a process for verifying crypto transactions.
Why Are Investors Choosing Polkadot?
Polkadot is gaining interest from investors because it is more interactive. Developers can link blockchains to the Polkadot system and even create entirely new blockchains. When investors see developers flocking to new technology, it catches their attention.
When it comes to bitcoin and ethereum, investors often have to buy fractions of coins based on their value. Polkadot, which currently trades at $6.39, is more affordable, making it a more enticing purchase.
The Strategy Behind Choosing Polkadot
As cryptocurrency becomes more popular, upstart coins like polkadot will take some of the market share from major players like bitcoin and ethereum. Ethereum easily beat bitcoin in growth in 2021. However, many investors are turning toward up-and-coming blockchain networks that provide alternatives to Ethereum — “Ethereum killers,” as some have dubbed these newcomers.
As an investor, you have the most to gain, albeit at greater risk, from investing in a budding new cryptocurrency opportunity that shows a lot of potential.
Potential Benefits of Investing In Polkadot
In August 2020, polkadot hit the market with a value of $2.69. As of Sept. 29, it’s over $6. While significantly lower than it’s highest-ever price of $53.98 last November, the current price represents a nearly 140% increase in value in just over two years. This growth is enticing to investors looking to see a return on their investment.
Some investors see Polkadot as an inevitable progression of cryptocurrency. It’s the next step in improving blockchain technology. It’s a scalable business model, leaving lots of room for growth.
In fact, Polkadot’s developers just released a “roadmap” for implementing changes that could spur growth by improving scalability, parachain development, cross-chain communication and other operations, Cryptonews reported. For investors, business growth means an increase in value.
Investor Contributions
It also has a foundation designed to reward those who hold DOT. Token holders have governance rights over the entire platform, Binance explained, including voting rights on:
- Network fees
- Establishing or removing parachains
- Network upgrades
Polkadot weeds out bad investors by releasing their DOT tokens into the ecosystem. This leaves room for serious investors to help Polkadot improve the way it offers services.
Potential Risks of Investing In Polkadot
Polkadot was created by Ethereum founder Gavin Wood and introduced in 2016 via a whitepaper. As a newer cryptocurrency, it has little track record for comparison, which makes it significantly riskier. Other risks include:
- Prices can be highly volatile.
- Coins aren’t backed by a tangible asset.
- Government regulation could impose limits on how cryptocurrency can be used.
Is Polkadot a Good Investment?
Polkadot is still very young. If you like taking risks, your investment could pay off big in the long run. But it could also go bust if a newer, better technology comes along and overtakes Polkadot.
While Polkadot has many projects in the pipeline, it will take some time for its cryptocurrency to see true success. The good news is that it already has monetary value in exchanges, making it a crypto worth watching.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Sept. 29, 2022, and subject to change.
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