Polkadot’s innocuous-sounding name comes from it being a pattern with no beginning or end, comparable to the idea of decentralized applications with no center. As the flagship project of the Web3 Foundation, it seeks to enable a fully decentralized web where users are in control, having gone live on mainnet in May. A redenomination of DOT, the platform’s native token, then took place in August at a 1:100 ratio.
Polkadot is an interoperability protocol that uses sharding to scale networks. It can connect private and consortium chains, public and permissionless networks, and oracles. It facilitates a new form of the web where independent blockchains can exchange both information and transactions in a trustless way.
The Gavin Wood Connection
Polkadot was founded by Gavin Wood, a co-founder of Ethereum and formerly CTO of the Ethereum Foundation, where he helped develop Ethereum’s solidity programming language.
The connection doesn’t end there. Wood is also CEO of Parity Technologies (previously Ethcore), the blockchain infrastructure firm that developed Parity Ethereum, one of the two most widely used Ethereum clients. Parity also works on Polkadot development and the open-source blockchain framework Substrate.
Why Polkadot?
Polkadot sets itself apart from supposed "Ethereum killers" like Cardano, as it’s designed to complement leading smart contract protocols, rather than compete against them. Over 250 projects from stablecoins to social networks are currently building on it, notably including Chainlink and 0x Protocol. That’s up 25% in just over a month and expected to grow further.
Indeed, according to a report from Outlier Ventures, Polkadot has seen the biggest jump in active developers of all major protocols. Contrasting to reduced developer interest in Ethereum, developers building on Polkadot increased by 44% in the 12 months to June 2020.
Despite gunning to be much more than an "Ethereum killer," that hasn’t stopped mainstream media from applying the epithet whenever possible. A Bloomberg editorial on October 17 used just this term, while observing that the number of projects now building on Polkadot – 253 at the last count – is extremely bullish.
Polkadot is not a smart contract platform itself and instead provides the infrastructure for app developers to integrate smart contracts across an interoperable network of wide-ranging functionality. Taking on the established dominance of Ethereum in that field is more realistic when combining the power of a multitude of interoperable projects. Compartmentalization issues are thereby eliminated, rather than simply competing to become the smart contract platform king.
Polkadot could complement Ethereum too, of course, becoming part of a wider, more collaborative ecosystem and providing an additional layer-two scaling solution for dApps. There is a choice to be made between the projects in that regard, with third parties like Snowfork seeking to implement bridges between the chains to do just that, though anecdotal animosity is also apparent.
So What Advantages Does Polkadot Offer?
- Limitless Scalability - Parachains connected through bridges grow the network’s utility.
- Consensus Mechanism - An open and adaptable consensus mechanism to host different chains.
- Cross-Chain Functionality - Interoperable data and value transfers between chains.
- Governance Mechanism - A defined governance mechanism, compared to Ethereum’s "technocracy," as Gavin Wood describes it, based around a few key individuals.
- Upgradeability - Supporting upgrades without requiring hard forks.
- Pooled Security - Connected protocols benefit from pooled security through Polkadot’s relay chain, avoiding Ethereum’s smart contract vulnerabilities.
- DeFi compatibility - DeFi relies on composability, cross-chain communication, value transfers, and integration, all key components of the project.
Such capabilities suggest Polkadot poses a credible threat to Ethereum’s dominance. Polkadot also has several similarities with the Ethereum 2.0 proposal: sharding support, hybrid consensus models, staking mechanisms and state-transition functions. The difference being, of course, that it’s ready now, way ahead of Ethereum 2.0 that is still likely to take years to be fully deployed.
So, the race is on. If Ethereum cannot transition quickly enough, given increasing congestion, it may witness a growing number of projects jumping ship. Platforms like Polkadot are ready to go, attracting both projects and users, thereby disrupting Ethereum’s network effects.
Polkadot (DOT) Making Moves
Following the redenomination of DOT in August, Polkadot surged into the top ten by market cap, valued at around $3.5 billion. Subsequently, Dan Morehead, founder of blockchain investment fund Pantera Capital, which has also invested in Polkadot, commented:
"Polkadot is only trading at 10% of the value of Ethereum, and our theory is that it has a much higher than 10% chance of being a competitor to Ethereum."
Only a few projects now stand in between the two. Given Polkadot’s capabilities as an Ethereum disruptor, or at least a highly complementary protocol, it’s not unreasonable to expect that its market share can increase beyond just 10% of Ethereum as it rides the DeFi wave into the next cycle.
Projects like Polkadot represent a new era of scalability, interoperability and security to the benefit of end-users. The Web 3.0 won’t be built-out as a series of independent protocols, but as layers of interoperability, hidden under the hood. Working collaboratively, both Ethereum and Polkadot can thrive. Working apart, Polkadot may just eat Ethereum’s perpetually delayed lunch.