Polkadot is a decentralized exchange platform that was created in 2016 by the Web3 Foundation, a Swiss non-profit organization that is based in Switzerland’s Crypto Valley. The network was developed by the Parity Technologies project with Dr. Gavin Wood at its head.
The Polkadot project is one of the most high-profile ICOs in history. It managed to raise almost 145 million USD in a fundraising round in October 2017 or about 500,000 ETH at the time of fundraising. It was necessary to pass through a strict verification procedure to invest in the project.
It’s worth noting the interoperability and scalability of the project making it so successful. The unlimited growth of the system becomes possible thanks to the use of parachains. The Polkadot network allows blockchains with different consensus models to interact with each other through dedicated intermediaries, without any action required from the developers or users of these blockchains.
The main goal of the project is to create a platform that allows different blockchains to interact with each other, but the project developers do not intend to stop there. The vision of the project is to create a fully decentralized Internet 3.0 based on Web3.
The system will also allow uniting public and private networks and databases, as well as all other technologies that will find the application on the new Internet. Moreover, the platform with almost unlimited scalability allows an unlimited number of blockchains and services to be connected to it.
In fact, the project takes on the issue of the security of blockchains, services, and applications, allowing their developers not to think about the technical issues at all and focus on other tasks.
Polkadot platform and technology
The project pursues extremely ambitious goals and its implementation was very difficult. The first block of Polkadot's own network appeared in the third quarter of 2019, that is, three years after the work on the project started.
The startup has created a protocol for the combination of various third-party blockchains and decentralized databases. Thus, Polkadot has created a cross-chain ecosystem in which many different blockchains can exchange data with each other, including transactions. The Polkadot system itself acts as a connecting glue for control, interoperability, and scalability. The Relay Chain is the Core Polkadot blockchain, and other blockchains that are called parachains are connected to it with help of Substrate.
The open-source protocol enables anyone to make sure of its reliability, as well as help in finding and fixing bugs. The successful functioning of the project and its ecosystem directly depends on its participants. Several main categories of users are responsible for the system's performance. One of them is validators, who validate the data contained in the parachain blocks. They receive project tokens for data verification. In addition, they add new blocks to the relay chain (the mechanism responsible for maintaining consensus and exchanging transactions between different blockchains). These blocks are then moved to all available parachains, due to which the exchange of transactions between blockchains is achieved. For each transaction, validators should make a deposit. If the transaction meets the consensus requirements, the collateral is returned and the validator receives a reward. If the consensus is violated, the collateral disappears.
Nominators are the other necessary component of the system. Their main task is to select reliable validators, ensuring the protection of the relay chain. They need to select only those who comply with the requirements of consensus since the nominators pay a deposit for them. They are not involved in the process of making and confirming transactions.
Collators belong to the fundamental link of the system. They perform the function of managing parachains (parallel blockchains) collecting user transactions and confirming blocks based on the proof of validity algorithm (proof of validity). They receive the award for their work in the form of 100% commissions. Their activity can be compared to the work of blockchain miners with more standard algorithms such as proof-of-work and proof-of-stake.
The category of fishermen is responsible for tracking violations made by validators. Despite the fact that they are not doing anything else, they get a high reward for identifying violations. They also need to make a deposit to participate in the process.
During the ICO, 5 million tokens were sold, and a total of 10 million were issued. The DOT token has three main purposes. It was created for control over the ecosystem, execution of transactions, and communication. Tokens are needed to add new parachains, to bind tokens, to remove old and unnecessary ones, and to remove bound tokens. This is a form of a proof-of-stake algorithm.
All network participants, from collators to ordinary users, can receive rewards for actions that contribute to the development of the network. Penalties are provided for actions that do not comply with consensus algorithms. This system should ensure the reliable functioning of Polkadot.
As it has already been mentioned above, the Polkadot project raised 144.3 million USD in a fundraising round in October 2017. It happened a month before a successful hacking attack. The investors highly assessed an interesting, well-thought-out idea of the project. Unfortunately, most of these funds will never be available to the project. In 2019, 500,000 DOT tokens, which is 5% of the total supply, were sold turning Prolkadot into a unicorn project with evaluation over 1.2 billion USD.
Dr. Gavin Wood Parity, who co-founded Web3 and Parity Technology projects, is also a co-founder of Ethereum. He has a PhD in Software Engineering. However, it is worth noting that Wood's reputation is not that spotless. In 2017, the Parity Technology's Ethereum wallet was attacked by hackers in 2017 due to the vulnerability in the code and the company lost 153,000 ETH. After some time, the same vulnerability was used again. At that time 513,000 ETH were frozen forever. The most interesting thing is that the startup Polkadot suffered the most, having lost at least 306,000 ETH due to the freeze.