What Is Polkadot?
Polkadot is a bridge-like protocol that allows exchanging data and tokens across multiple blockchains. The design was developed by the Web3 Foundation with the goal of gradually building a fully-functioning and versatile decentralized web.
Polkadot’s protocol offers a safe and secure environment for cross-chain computation and transmission. This, in turn, opens up a variety of possibilities for creating and connecting decentralized applications, services, and networks.
The developer’s unique approach to solving blockchain’s interoperability issue can help build systems that operate with data stored across a variety of blockchains by establishing a system of permissioned requests. For example, a private chain containing a tax institution’s records can send the required confirmation to a proof-of-income smart contract on a public blockchain.
DOT is Polkadot’s governance token that is used for staking, bonding, and executing decisions about the further development of the project.
How Does DOT Token Work?
The DOT token works in three main ways:
- It's used to govern the Polkadot platform. DOT holders exercise full authority over the protocol. Unlike other platforms that keep some of the privileges exclusive to miners, Polkadot allows token holders to engage in and manage updates, fixes, and the implementation of extra features.
- Staking DOT allows the project to operate. Staking is the process of holding crypto assets in a wallet to help upkeep the operation of a blockchain and getting rewards for contributing to its growth. The stability of the Polkadot blockchain is achieved via a validation algorithm called NPoS. In staking DOT, a user can act either as a nominator or as a validator. Nominators can choose up to trustworthy 16 validator candidates and earn rewards. Validators, in turn, need to hold at least 350 DOT and be able to operate a stable and responsive infrastructure 24/7.
- Bonding DOT creates new parachains. The token's other purpose is in the ability to attach new parachains to the network by "tying up" or "bonding" DOT. Antiquated or non-useful parachains are let go by removing the tied-up tokens.
Pros and Cons of Polkadot
Advantages of DOT
- DOT is a quickly-growing token. As of September 2020, it ranks as the fifth-largest cryptocurrency according to the market capitalization;
- The project’s creator and core infrastructure developer Gavin Woods (the co-author of Ethereum) is fully trusted by the crypto community;
- The idea behind the project is both inspiring and incredibly useful and its execution is remarkably well-engineered.
Disadvantages of DOT
- As noted by most experts, DOT is easily one of the most complicated cryptocurrencies in existence, making it intimidating for a novice trader;
- With DOT being a brand-new cryptocurrency on its own native blockchain, the options for storing the asset are severely limited.
Where to Buy Polkadot?
DOT can be purchased with most fiat currencies (USD, EUR, GBP, CAD, AUD, etc.) or with other cryptocurrencies. The crypto’s most popular pairs (BTC/DOT and ETH/DOT) are currently available through Bitfinex, Binance, OKEx, and SwapSpace, with the latter providing users with the option of purchasing DOT with any other coin or token.
How to Earn DOT Token?
There are two ways to earn DOT through the Polkadot platform: either as a nominator or as a validator.
For every period of 24 hours (a single era), DOT validators are paid proportionally to the quantity of era points they have earned. Era points are accumulated by participating in the following payable events:
- Issuing validity statements for parachains;
- Producing a “non-uncle block” in the main chain (the “Relay Chain”) of the network. An uncle block is a block that failed to become canonical on the Relay Chain;
- Producing a referenced uncle block, etc.
Validators are paid at the end of every era. The amount the validator had staked does not influence payout, only era points do: the block authoring payout will always be split equally.
Nominations make DOT off of the validators they back with their stake. The rewards are distributed pro-rata (i.e., proportional to the initial stake) to all nominators after the validator payment is deducted from the per-era reward.
Storing DOT: Best Polkadot Wallets
As of today, there are three wallets available for DOT: Polkawallet, imToken, and the Polkadot JS. Plugins for physical wallets are still pending with Ledger promising a drop in the upcoming months.
This is the platform’s primary web wallet that works alongside a separate Polkadot JS browser extension made for generating, managing, and storing user’s private keys.
This is a third-party mobile app currently available for download through Google Play and App Store. Polkawallet accommodates Kusama and DOT and has a user-friendly interface that is great for beginners. The app implements simplified algorithms staking and governance, supports offline signature, and provides overall secure storage for your crypto-assets.
The main advantage of imToken is that this mobile wallet allows users to store significantly more coins and tokens and exchange most of them directly through the app. The wallet is compatible with both Android and iOS and can also store BTC, EOS, and all ERC20-compatible tokens. imToken allows users to manage multiple-chain wallets with a single mnemonic password.
Staying true to its original objective of connecting independent blockchains into a single Web3 Internet, Polkadot is rapidly becoming the go-to project made by developers for developers. Similarly, the DOT token is quickly winning the crypto community over with its rapidly increasing value, wide composability, and possibilities for virtually unlimited growth.