In May 2020, a team of developers — including Ethereum co-founder Gavin Wood — launched Polkadot. This is a unique cryptocurrency that expands on existing crypto tokens with the eventual goal of building a decentralized internet and is therefore an extremely interesting and potentially attractive investment for crypto enthusiasts to consider. It is built on a blockchain network but is more scalable than existing tokens. Polkadot is more than a single blockchain — it’s an ecosystem of connected blockchains. The central chain (known as the relay chain) provides security for the entire network. And the side chains (known as parachains) increase the network’s capacity. Notably, each of these parachains is its own blockchain, and each can be optimized for a specific purpose, just like Ethereum is optimized for smart contracts. But other examples include blockchains built for file storage, financial services, communication, or supply chain transparency. Bridges are the last piece of the puzzle. These allow parachains to connect to external networks like the Bitcoin or Ethereum blockchain. In other words, Polkadot not only supports its own ecosystem, but it also integrates with existing networks, allowing communication between platforms that can’t normally communicate.
The biggest advantage of Polkadot is its processing capability. The Bitcoin and Ethereum networks can process around three and 15 transactions per second respectively, while the Visa payments network processed 4,840 payments per second in the last quarter. Thus, we can already see the issues with the likes of Bitcoin and Ethereum in comparison to traditional payment methods, and Polkadot seems to have solved this problem through the use of parachains. By using parachains, Polkadot can process more transactions in parallel, boosting throughput — at least, that’s the theory. The first parachains are slated to launch later this year. But when they do, Wood believes the network may handle as many as 1 million transactions per second. This means that it is now a very good time to invest in this cryptocurrency, as its value could very well go through the roof upon the launch of the first parachain networks later in 2021.
The best way to understand how Polkadot works is by using real-life scenarios. Let’s say that Parachain A has been designed for file storage, while Parachain B will work with smart contracts. Now, for example, say a company posts a job requirement via a smart contract on Parachain B. Instead of filling out a lengthy application, all you would need to do would be to give Parachain A permission to access your background information, and this would then fill the relevant information on the application. The smart contract on Parachain B would verify your credentials, while if you meet the requirements of the application, the contract would then automatically trigger a job offer. This would simplify the recruitment process by a huge degree, and is just one example of how Polkadot could help improve performance and efficiency across multiple sectors.
Building on that scenario, let’s say Parachain C is designed to collect data from Internet-of-Things devices, like cameras or biometric sensors; and Parachain D is optimized for financial services like payroll. When you arrive at work (or log in to your account), Parachain C could relay that data to the smart contract in Parachain B. Using the agreed-upon hourly wage or salary, Parachain B could then inform Parachain D that you need to be paid. Parachain D could then send money from the employer’s account to your account, automating the payroll process and providing you with instant access to your paycheck.
The ultimate goal for Polkadot is to build a completely decentralized network – one where users can access any type of decentralized app or service securely from anywhere, and thus Polkadot’s system of connected blockchain networks gives it the greatest potential to create such a network.