Polkadot (DOT) – All you need to know

Quick definition

Polkadot is a cryptocurrency project that intends to connect all blockchains together in a network, and its native token is DOT. 

Key details

  • Polkadot is a cryptocurrency platform that intends to create an interconnected internet of blockchains, allowing tokens and data to be transferred.
  • This means that via Polkadot, blockchains like Bitcoin, Ethereum and the Binance Smart Chain could become interoperable (able to work together).
  • The platform uses a proof-of-stake (PoS) consensus, which it argues is more environmentally friendly than the proof-of-work (PoW) used by other projects.

What is Polkadot?

Polkadot is a blockchain platform and its native cryptocurrency, DOT, is used for governance over the network, staking and bonding. Founded in 2016 by Gavin Wood, the former Co-Founder and CTO of Ethereum, the platform claims to allow users to have full control over their own data, creating a fair network where markets prosper. 

The main attraction of Polkadot is its simplification of cross-chain communication and interoperability. By bringing multiple blockchains into a single network, Polkadot allows the transfer of both data and tokens to be seamless. 

It is an ambitious project, and in practice, it means that someone could use an app on Ethereum, and communicate with a totally different blockchain, such as the Binance Smart Chain (BSC). 

To understand Polkadot’s function more easily, it may be helpful to think of it as an internet browser that brings together websites that usually couldn’t co-exist in the same system, allowing you to search for different apps, transfer data and make transactions. 

There are also plenty of decentralised apps (dApps) on Polkadot that have been built by developers, and they range from decentralised finance (DeFi) projects to marketplaces and auction facilities. 

In addition, Polkadot is one of the fastest blockchain projects around, processing up to 1,000 transactions per second, outperforming both Bitcoin and Ethereum in terms of scalability. As a result, some feel Polkadot is better tailored for mass adoption. 

You can buy Polkadot and store it in your crypto wallet just like any other cryptocurrency, and we have released a step-by-step guide explaining how to do this. 

A brief history of Polkadot

Polkadot is now one of the world’s most valuable cryptocurrency projects, and its history can be traced back to 2016.

  • The first draft of the Polkadot whitepaper came out in 2016, but it wasn’t until the following year that formal arrangements started that concerned the platform’s realisation. In 2017, The Web3 Foundation was founded as a non-profit entity to support the R&D of Polkadot and to oversee its fundraising efforts.
  • Polkadot’s first 50% token sale then raised $145 million in under 2 weeks.
  • A hack led to around 66% of the sale’s proceeds being compromised. While this damaged the project’s reputation, it retained enough capital to meet its development milestones. 
  • A 2019 private sale held by Web3 helped bolster the project’s funds. 
  • The first major technical development for the platform was the launch of Kusama: an early, unaudited, and unrefined release of Polkadot. Kusama allows the developers to research governance, staking and sharding under genuine economic conditions. 1% of the initial DOT supply was allocated to Kusama stakeholders.
  • Polkadot’s first mainnet chain candidate launched.

How does Polkadot work?

Polkadot works by splitting its blockchain into a series of smaller chains that can add transactions at the same time. By processing its transactions in this way, Polkadot solves one of the biggest weaknesses of the Ethereum blockchain: speed. With many chains operating at the same time, Polkadot can process up to 1000 transactions per second, well beyond the capacity of Ethereum.

Polkadot has also solved another problem, which is the fact there are hundreds of cryptocurrencies and platforms that work in isolation and can’t communicate. It introduces ‘bridges’, links between its platform and the outside world. With a bridge, someone could use Bitcoin to pay for transactions on the Polkadot platform, a huge step forward from early generation blockchain technology.

To build on Polkadot, developers will need to use DOT to ‘buy’ or ‘lease’ a slot to build on. Those slots are going to be limited and once tokens are spent on the slots, they’re locked in for the duration of the lease, reducing the amount of DOT on the open market. Anyone who holds DOT can also stake it to help validate these new builds and earn rewards for contributing.


Sources & references
Risk disclaimer

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >