The Polkadot protocol is engineered to enable unrelated blockchains to communicate securely, allowing value or data to move between networks like Ethereum and Bitcoin without needing an intermediary. It is designed to be both fast and scalable, using multiple parallel blockchains (or "parachains") to reduce the processing burden on the main blockchain.
The Polkadot token (DOT) has two primary roles within its network: it acts as a governance token, allowing holders to influence the protocol's future, and it is used for staking, which is how the Polkadot network verifies transactions and creates new DOT tokens. DOT can be traded on exchanges such as Coinbase as part of an investment strategy.
Polkadot’s Structure
The Polkadot network consists of a main blockchain known as the "relay chain" and numerous user-created parallel chains, referred to as "parachains." It also features a bridging layer, or "bridge," that facilitates the transfer of value and data between most blockchains and can even connect to non-blockchain databases.
How Polkadot Operates
Polkadot manages a high volume of data because the parachains handle much of the workload for the relay chain. Consequently, Polkadot can process over 1,000 transactions per second, compared to about 7 for Bitcoin and 30 for Ethereum. As the network expands and more parachains are added, Polkadot's transaction speed could potentially reach up to a million transactions per second. Bison Trails, infrastructure experts, describe it as follows:
"The relay chain is responsible for achieving consensus and transaction delivery ... among parachains. Parachains are application-specific blockchains within the Polkadot network, each functioning as a standalone blockchain with its own logic and features."
Staking on Polkadot
Polkadot employs a proof-of-stake consensus mechanism to maintain network security, verify transactions, and create and distribute new DOT. DOT holders can engage with the staking system in several ways, depending on the time, technical expertise, and financial resources they wish to commit.
Validators undertake the most extensive role — a significant commitment that requires technical expertise. To become a validator, one must operate a node (a computer part of the network) with minimal downtime and stake a considerable amount of DOT. In return, validators can verify transactions, add new transaction "blocks" to the relay chain, and potentially earn newly minted DOT, a share of transaction fees, and tips. However, validators risk losing some or all of their staked DOT for malicious behavior, mistakes, or technical issues.
Nominators enable regular investors to participate in staking indirectly by delegating some of their DOT to a trusted validator. In return, they receive a share of the DOT earned by their chosen validators. However, nominators also risk losing their stake if their validator fails to follow the rules.
There are two additional specialized roles: Collators, who manage valid parachain transactions and submit them to relay chain validators, and Fishermen, who monitor and report any malicious activities across the network.
By staking and participating in the network through any of these roles, participants may earn DOT rewards. DOT holders also play a role in governing the network by voting on proposed software upgrades.
Polkadot’s Origins
Polkadot was co-created by Gavin Wood, a co-founder of Ethereum, and officially launched on May 26, 2020. The nonprofit Web3 Foundation serves as the primary research organization responsible for maintaining Polkadot's open-source code.
