What is Polkadot and how does it work?

Polkadot is a cryptocurrency project that aims to facilitate the interoperability of multiple blockchains. It was created by Gavin Wood↗︎, one of the co-founders of Ethereum, and was launched in 2020. Polkadot’s goal is to enable different blockchains to communicate and share information with each other, creating a more interconnected and scalable network.

One of the key features of Polkadot is its use of a multi-chain architecture. Instead of relying on a single blockchain, Polkadot employs a network of interconnected blockchains, known as parachains. These parachains can be customised to suit different applications and use cases, allowing for greater flexibility and specialisation. Polkadot also incorporates a central relay chain that facilitates communication and consensus among the parachains.

Another important aspect of Polkadot is its governance model. It uses a decentralised governance system where token holders can participate in the decision-making process. This system allows stakeholders to vote on proposed upgrades, parameter changes, and even the addition or removal of parachains. The governance model aims to ensure that the network evolves in a decentralised and community-driven manner.

Polkadot distinguishes itself from other cryptocurrencies through its focus on interoperability. By enabling different blockchains to communicate and share data, Polkadot aims to address the issue of blockchain fragmentation and foster collaboration between different projects. This interoperability can promote scalability, as it allows for the sharing of resources and the offloading of transactions to different chains.

Furthermore, Polkadot aims to address some of the scalability and security challenges faced by other cryptocurrencies. By using a multi-chain architecture, Polkadot can potentially achieve higher transaction throughput compared to a single-chain system. Additionally, the shared security model of Polkadot ensures that all parachains benefit from the robust security provided by the relay chain.

Market Capitalisation

In June 2023, Polkadot’s market capitalisation stands at $6 billion, a significant drop from its all-time high of $52 billion in November 2021. Similarly, Polkadot reached its peak price of $53.54 during that period.

Takeaway

Polkadot focuses on enabling interoperability between blockchains. Its multi-chain architecture, decentralised governance model, and emphasis on scalability and security set it apart from other popular cryptocurrencies.