What is Polkadot Crypto? Learn More About DOT Crypto
We have been hearing the word ‘blockchain’ increasingly frequently for the past 6 or 7 years.
Over those years, plenty of new cryptocurrencies have been created, each running on its own blockchain network. There have been plenty of blockchains developed. For example, DOT crypto - What is Polkadot?
However, most work independently of each other. For investors and end users, this became a blessing as there were multiple options to choose from.
Additionally, it also became a problem because there was no interoperability among all these newly created blockchains. That is where Polkadot comes in, potentially. Its goal is to connect other blockchains, which we will go into more detail with.
In this article, we will look at what is Polkadot crypto and how you can trade the DOT cryptocurrency.
Table of Contents
Introduction: What is Polkadot Crypto?
Polkadot was created with the idea of encouraging developers to create their own blockchains for their applications.
The Polkadot system consists of two types of blockchains, one is a relay chain and the other is a para chain.
The relay chain is like the base chain. It has security features and allows for communication with other chains on the Polkadot platform. It supplies the foundational protocol on which other blockchains develop within the Polkadot ecosystem.
The relay chain is not meant to support smart contracts. It has fewer features and is only meant to serve as a coordinator and communicator between different blockchains.
The para chains are where all the developer-driven innovation happens. Parachains are independent blockchains. Each one can have its own governance rules to transact.
Developers would basically build and launch their own para chains to support their applications. Para chains benefit from the relay chain’s security and network features since they are linked to the relay chain.
One para chain can communicate with another and there can be interoperability between different para chains because the relay chain allows such networking to happen.
Now, join us as we take a deep look into more details about the Polkadot blockchain, including how to trade DOT Contract for Difference (CFD) at Admirals. CFDs are derivative products which come with high risk in any given trading activity.
Click the banner below to register for a demo account where you can practice trading with virtual funds:
What is Polkadot DOT Cryptocurrency?
The Polkadot blockchain was conceptualised, via a whitepaper, back in 2016 by Ethereum co-founder Gavin Wood. The Polkadot token is known as DOT. It hit the market via an initial coin offering back in 2017. The Polkadot network’s initial block was released in May 2020.
Interoperability is the USP of Polkadot. Imagine that you sent an email from your Gmail address to a Yahoo address. What would happen if the two could not communicate since both are different businesses?
Now imagine if you tried sending money from a Bank of America account to a Chase account, but the two banks couldn’t communicate with one another. Wouldn’t that hinder banking operations and hence, economic activity?
Something similar is potentially happening with blockchains. Since you have so many of them (e.g. Ethereum, Bitcoin, EOS, etc.), the lack of interoperability seems to be hindering the widespread adoption of blockchain. Polkadot aims to address this issue via its two-blockchain model.
Polkadot uses a Nominated Proof-of-Stake (NPoS) consensus mechanism to verify transactions. This mechanism involves locking up some DOT tokens via a process known as staking. The NPoS mechanism is very different from the conventional Proof-of-Work mechanism that bitcoin uses where coins are mined as a reward incentive.
Polkadot can be traded on multiple exchanges and you can Buy and Sell the DOT CFD at Admirals. If you’d like to learn more about general trading and how to trade, make sure you register for one of our upcoming webinars:
What are the Use Cases for Polkadot DOT Crypto?
DOT is the native token of the Polkadot ecosystem. It is used to make payments, participate in the network’s governance, for staking, and other transactional purposes. DOT holders can take part in voting rounds on important governance-related decisions. DOT can also be used to incentivize validators to validate transactions on the Polkadot network.
DOT can also be used to perform functions on apps built on Polkadot blockchains. Various apps built by developers on different para chains can communicate and exchange information with one another.
DOT tokens would be the primary currency that drives transactions on such apps. Polkadot-powered apps could cover a wide variety of industries. Anything from supply chain management to identification systems where data tracking ability and transparency are important factors can benefit from the use of Polkadot blockchains and the DOT tokens.
Lastly, DOT tokens can be traded in both price directions with the goal of making profits. We show you below the daily price fluctuations on the TradingView widget of the EOS against USD:
*Please note that past performance is not a reflection of future results.
How is Polkadot Crypto Different from Ethereum?
The Primary Concept: Ethereum is used to run dApps just like Polkadot is. However, Polkadot aims to allow multiple apps on different blockchains to work with one another. Ethereum isn’t designed for such interoperability.
Consensus Mechanism: Polkadot works on a proof-of-stake consensus mechanism that involves validators staking their tokens to participate in the consensus process. Ethereum, meanwhile, works the proof-of-work consensus mechanism which involves mining tokens using energy-intensive equipment.
Scalability: Polkadot is designed to be scalable via its multiple para chains that are independent yet interoperable. Ethereum, meanwhile, has a limit of 15 transactions per second.
Advantages and Disadvantages of Polkadot DOT Crypto
As outlined above, interoperability and scalability are Polkadot’s key advantages. It allows independent and distinct blockchains to exchange information and assets with each other.
Developers can easily build their apps using para chains while taking advantage of the relay chain’s security features. Polkadot is also more scalable than cryptocurrencies like Ethereum.
One can theoretically build multiple para chains to perform specific functions and have each chain interface with the other to create a well-rounded solution.
Polkadot’s proof-of-stake consensus mechanism is less energy-intensive and does not require the computing power that Bitcoin and Ethereum miners demand.
Polkadot does have some disadvantages as well when compared to other cryptocurrencies. Firstly, the platform is still relatively new and complex. So, developers may face a steep learning curve when trying to use the Polkadot ecosystem.
Secondly, DOT is a cryptocurrency and comes with its fair share of volatility. So, there is always a chance that traders and investors face losses if price movements are sudden and unexpected.
Lastly, there are multiple dApps platforms. The space is very competitive and Polkadot could face stiff competition if another platform with better features makes its way.
Polkadot DOT Crypto: Conclusion
Polkadot is no doubt a revolutionary concept with its two-level blockchain setup.
It essentially is against the idea that there can only be one blockchain that dominates the landscape. It looks capable of delivering the decentralized web, or web3, that we hear about in conferences and speeches. However, it faces a lot of competition. Time will tell if it succeeds.
Other articles you may find interesting:
- How to Hedge Stocks with CFDs
- How to Start Forex Trading Guide 2023
- Crypto Slang Terms: Your Guide to the Cryptoverse
Is Polkadot a good crypto investment?
Whether or not Polkadot is a good crypto investment or not is completely subjective, depending on the risk profile and investment style of each individual investor. Crypto trading or investments are highly volatile and hence, carry high risk, generally speaking.
Will Polkadot crypto hit $100?
While it's impossible to predict how high the price of any given financial asset will rise to, some crypto enthusiasts believe DOT crypto could rise to $100 in 2029-2030. Crypto assets are highly volatile and risk management should be considered before trading.
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