Often referred to as the "Blockchain of Blockchains," Polkadot is a next-gen Layer-0 meta protocol and an open-source blockchain launched in May 2020 to realize the broader vision of a secure, resilient, and fair Web3. DOT is the native coin and governance token.
It unites a network of native purpose-built Layer-1 blockchains called parachains and multiple external blockchains (connected to it using innovative bridging technology), allowing them to operate at scale alongside each other seamlessly.
The parachains and external blockchains can freely interact with each other, too, thus making them interoperable. This is a significant shift from the siloed design of conventional blockchains like Ethereum and Bitcoin. Parachains can process transactions simultaneously, reducing the burden on the main chain and offering ease of scalability.
Parachains also allow developers to customize their blockchains, allowing them to optimize parachains for specific use cases with their native tokens.
The Relay Chain is Polkadot's central chain which constitutes the heart of its network. It was created using the Substrate framework to build custom blockchains.
The Relay Chain is also responsible for maintaining Polkadot's shared security, cross-chain interoperability, and consensus mechanism. It has been designed to handle minimum functions, including the network's governance and nominated Proof-of-Stake (NPoS) participation. All validators are staked on the Relay Chain and confirm transactions from the connected parachains.
The Polkadot ecosystem also has parathreads, which are parachains based on a pay-as-you-go model, making them more affordable. The parachains and parathreads can also connect and communicate with external blockchains like Bitcoin or Ethereum through Bridges.
The network is secured using the NPoS consensus mechanism. Users can choose to participate in the consensus system as nominators or validators.
Nominators can select trustworthy validators to update the network while validators verify transactions. Both nominators and validators stake DOT and receive rewards in return.
DOT serves multiple purposes within the larger Polkadot ecosystem. It is the currency used to pay transaction fees when sending data or tokens across chains. It also serves as a governance token that users can stake to vote on the future of Polkadot.
DOT tokens also serve as the currency to incentivize users to maintain the integrity and ensure the system's security. Users can stake DOT to participate in the network's consensus mechanism, and acting against the network will lead to the loss of staked assets.
DOT is also used for bonding, a type of proof-of-stake. By bonding tokens, developers can create new parachains, while removing bonded assets will delete outdated parachains.
All network users are required to pay transaction fees in DOT tokens for using Polkadot's resources. This fee is charged before the transaction and calculated per a weight-based fee model.
DOT price and tokenomics
DOT is an inflationary token, implying it doesn't have a hard cap or maximum supply. It has an approximate inflation rate of 10%, with new tokens generated for incentivizing validators. One can transfer DOT in fractions, with the smallest unit being 0.0000000001 DOT, called a Planck.
While there's no fixed maximum supply of DOT, 10 million DOT tokens were generated during its first Initial Coin Offering (ICO) held in October 2017. The tokens were distributed in the following manner:
-50% to ICO buyers
-30% to Web3 Foundation for Polkadot development and other Foundation activities
-11.6% retained by the Web3 Foundation for future fundraising initiatives
-5% for a private sale round held in 2019.
-3.4% for another token sale held in 2020.
Web3 Foundation conducted two private sale rounds in June 2019 and July 2020 of 500,000 DOT and 340,000 DOT tokens, respectively. In addition, a DOT redenomination took place on August 21, 2020, after a network-wide referendum. As a result, the DOT balance for all existing holders was automatically increased by a factor of 100.
Thus, the original 10 million DOT supply changed to 1 billion after the redenomination. And the market value of each DOT token decreased by a factor of 100. This event is popularly referred to as "Denomination Day."
It is important to note that while the initial supply of DOT ballooned to 1 billion after the redomination, the total supply of DOT is not capped. In other words, DOT has an unlimited supply. As of October 2022, over 1.248 billion DOT tokens had been issued, according to Polkastats data. DOT follows an inflationary model where the supply of tokens increases by 10% annually.
About the founders
Polkadot is the flagship project of the Web3 Foundation, which was formed by Gavin Wood, Peter Czaban, and Robert Habermeier in 2017. Web3 Foundation is a Swiss-based non-profit foundation established to support Polkadot's research, development, and fundraising efforts.
A well-known name in the crypto and blockchain world, Wood is one of the pioneers of blockchain technology. He is the co-founder and former CTO of Ethereum and the founder of Parity Technologies. In addition, Wood coined the term Web 3 back in 2014.
Wood also invented Whisper, a P2P communication protocol, Proof-of-Authority consensus, and the Solidity programming language. He currently heads the innovation initiatives on Polkadot and Substrate.
Czaban holds a master's of engineering from the University of Oxford and co-founded Web3 Foundation and Polkadot with Wood. Serving as Web3 Foundation's Technology Director, Czaban supports the creation of next-generation distributed technologies.
Habermeier is a Thiel Fellow with extensive research and development experience in cryptography, distributed systems, and blockchain tech. As a longtime Rust Community member, Habermeier is also widely known for using Rust to develop high-performance and parallel solutions.
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