What is Polkadot?

Medium Nov 13, 2020

What is Polkadot
Key Takeaways:
– Polkadot is a protocol designed to support multiple chains within a single network.
– Polkadot is designed to operate three types of blockchains: relay chains,  parachains, and bridges.
– Polkadot’s NPoS system provides a reward system for validators (actual nodes which produce blocks on the Relay Chain) and nominators (nominate them on their own behalf via staking without running a node).

Polkadot is a next-generation blockchain protocol designed to support multiple chains within a single network. The multi-chain protocol is designed to return control to individuals, building on the revolutionary promise of existing blockchain technology and going beyond to offer several additional advantages.

For instance, it aims to overcome a problem in the current blockchain landscape whereby hundreds of blockchains exist in isolation with little ability to communicate. Polkadot is built on the premise that blockchains should be able to securely communicate with one another.

Polkadot is the latest entrant in the blockchain space, seeking to grow the ecosystem with additional solutions beyond networks like Ethereum and Cosmos. However, Polkadot is designed to coexist and interoperate with other blockchain networks rather than competing with them.

How does it work?

Polkadot is designed to operate three types of blockchains. The ones, called parachains, are the independent, specialized blockchains that connect to Polkadot. Others, called bridges, connect Polkadot to other networks such as Bitcoin and Ethereum. Lastly, the Relay Chain is what brings all the parachains and bridge chains together into a shared interoperable ecosystem.

The Polkadot Relay Chain is the backbone of the network. It secures the entire network and provides the basis for the parallel transaction processing that makes Polkadot highly scalable . It  uses a novel type of Proof-of-stake called Nominated Proof of Stake (NPoS), which is designed to decentralize control of the network for better security, fairness, and efficiency. 

Parachains are independent blockchains that connect to the relay chain and provide chain-specific features to the Polkadot network. Each parachain can have a specialized design and is maintained by its collators. Collators are responsible for collecting parachain transactions into parachain block candidates and passing them to  validators, who secure and finalize transactions on the relay chain.

Another component are parathreads, which are parachains that connect to Polkadot under a ‘pay-as-you-go’ model rather than leasing a long-term parachain slot.

Bridges, on the other hand, are a type of specialized parachain that connect to other blockchains such as Bitcoin and Ethereum. They allow for the transfer of tokens and functionality between Polkadot and outside networks.

Several actors in the Polkadot network work to keep the blockchain operational. These are:

  • Validators, who stake DOT tokens, validate proofs from collators, produce blocks on the Polkadot Relay Chain, and participate in consensus
  • Nominators, who stake DOT tokens and help secure the Relay Chain by selecting trustworthy validators
  • Collators, who create blocks to extend the parachain and create proofs of validity for validators.
  • Fishermen, who monitor the network and report malicious activity. Currently validators are acting as fishermen for the network.

Reward system in Polkadot

Polkadot’s NPoS system provides a reward system for validators and nominators to behave properly by slashing a portion of their staked tokens if validators act maliciously, and rewarding them for being honest and active. If more than 10% of validators are offline and cannot be reached by the network, they are punished by slashing a portion of their stake. The mechanism ensures validators remain online to provide the network with security and data at all times.

NPoS allows rewards for the nominators since they vote in validators they believe will be online and available to serve the security of the network. These nominators back validators by staking their own tokens and get rewarded proportionally to the stake of the validator. Thus, Validators can also collect fixed fees to help cover the validator’s operational costs, such as hardware and software upkeep to ensure the validator stays online.

Token holders can nominate up to 16 validators who share rewards if they are elected into the active validators set. Moreover, The validator slots are rewarded equally with the amount determined by the validator with the least amount of stake in the slot.

The nomination process is a single-click operation inside the wallet. Rewards must be claimed manually via the Polkadot Explorer or Ledger Live. As long as one person claims from a validator for an era, all nominators for that era will be paid out. The person issuing the payout doesn’t even have to be one of the nominators. The staking rewards are available to be claimed for 84 days only. 

Nominators are therefore an important part of the network. They participate indirectly in the consensus protocol with an economic incentive to pay close attention to the evolving set of candidates and ensure only the most capable and trustworthy among them are elected as validators.

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