Blockchains and the innovations they offer largely existed as isolated entities in the crypto space, unable to share value or communicate with each other. However, the introduction of Polkadot has changed the narrative through its heterogeneous and multi-chain approach.
Polkadot is one of the newer cryptocurrencies that has been gaining popularity, due to it's decentralised platform that enables seamless communication between different blockchains.
Read on to learn everything you need to know to get started with trading Polkadot, from it's history, advantages and disadvantages, to how you can buy and trade it using crypto CFDs.
What is Polkadot and how does it work?
Polkadot, sometimes referred to as “the internet of blockchains", is a blockchain platform that allows for the communication and transfer of value (data, tokens, etc) across independent blockchains. The Polkadot network functions majorly through interactions between the relay chain, parallel chains, parathreads and bridges.
The relay chain is the main blockchain and the heart of Polkadot. It’s responsible for achieving interoperability across blockchains, security, and reaching consensus. By design, the relay chain doesn't support additional computations like smart contracts. This reduces the workload on the relay chain, ensuring fast transaction processing.
Parachains are application-specific standalone blockchains that rely on the main for security. These chains can have different mechanisms and functionalities, but they must pass on blocks to the relay chain for final computation. To run a parachain, projects have to lease a slot on the relay chain by locking funds during the duration of the lease. By spreading on-chain activities and computations across parachains, Polkadot achieves very high scalability.
Parathreads are almost the same as parachains, only that they are designed for one-time events via a pay-as-you-go model. Conversely, parachains are continuous. Bridges fulfil the interoperability of Polkadot by allowing communication between parachains and blockchain networks like Bitcoin, Ethereum, Binance Smart Chain, etc.
Additionally, the Substrate framework that Polkadot is built on enables developers to easily build custom blockchains in a few hours utilising a library of templates.
The Polkadot network is powered by its native token DOT, which is used for securing the network through staking. It also serves as the governance token of the network, enabling every stakeholder to have a voice in the future of Polkadot. Any upgrade to the network is carried out on-chain autonomously without the need for a hard fork.
Why has Polkadot become so popular in recent years?
Polkadot’s popularity in the crypto markets comes majorly from its capacity for building scalable interoperable blockchains within a few hours. Coupled with burgeoning gas fees and congestion in Ethereum, developers and investors are increasingly turning their attention to the Polkadot ecosystem.
In December 2021, parachains went live on Polkadot. Many developers are now launching decentralised applications (DApps) on Polkadot, especially projects that have been on the Kusama testnet.
When was Polkadot created?
Polkadot began with a whitepaper published in 2016 by Gavin Wood. A token sale was later conducted in 2017, which saw the project raising 485,331 ETH. Polkadot later went live with its Relay Chain in May 2020.
Polkadot was co-founded by Gavin Wood (co-founder of Ethereum and former CTO of the Ethereum Foundation), Peter Czaban, and Robert Habermeier. Gavin Wood is known for inventing Solidity, the programming language developers use to build decentralised applications on Ethereum.
The non-profit Web3 Foundation (also founded by Gavin Wood and Peter Czaban) is responsible for maintaining Polkadot's code, while Parity Technologies maintains the software development framework on Polkadot's Substrate framework.
How does the Polkadot network validate transactions?
Polkadot uses a Nominated Proof-of-Stake (NPoS) consensus mechanism for validating transactions and reaching consensus concerning the state of its ledger. Validators stake a substantial amount of their DOT tokens in exchange for rights to validate transactions and add new blocks to the network in exchange for new DOT tokens.
Regular users who stake their DOT tokens nominate a trustworthy validator who they believe will act honestly to secure the network. In exchange, they get a share of the DOT reward the validator receives.
However, users can also see their staked tokens slashed if their nominated validator acts dishonestly or experiences downtime. The loss nominators may incur differentiates nominated proof of stake from the similar Delegated Proof-of-Stake (DPos) consensus mechanism.
Polkadot price history
Just barely one year and six months after its launch, the price of Polkadot has skyrocketed. Although the road hasn't been an entirely smooth one for the "blockchain of blockchains", as its token’s price experienced substantial price volatility since it started trading. Below are some notable price movements in the cryptocurrency’s short history.
- August 2020: DOT debuted on crypto exchanges on August 19th, around the price of $3 with high expectations from crypto investors considering the reputation of its founders in the crypto space. The price of DOT doubled in just ten days after its launch, sending the cryptocurrency into the category of top 20 cryptocurrencies by market capitalisation.
- January 2021: Polkadot accelerated into the top ten as its price soared over a hundred per cent, crossing $10 billion in market capitalisation. DOT reached an all-time high of $18.60 before closing the month at $16.44.
- May 2021: While the crypto boom was reaching its peak, DOT boosted further to a new all-time high of $47.33. However, following the entire crypto market crash in the next few weeks, DOT crashed to $18.06 before experiencing a slight recovery to end the month at $20.43.
- November 2021: After several attempts to reach its former heights of May 2021, DOT rose to hit a new all-time high of $54.14, breaking a record set five months earlier. The rise comes off the launch of parachains on the Polkadot Mainnet, which sees the blockchain another step closer to its vision. The price later experienced a re-correction as it ended the year at $37.19.
- December 2021: DOT ended the year on a downward trend as its price crashed further to $27.54. As of the time of writing, DOT hasn't shown any sign of recovery, plummeting further to around $20.
What is the market capitalisation of Polkadot?
DOT has a market capitalisation of $21,388,034,571, placing it at number 10 among the largest cryptocurrency networks in the world at the time of writing. Since Polkadot runs on a decentralised blockchain ledger, anyone can easily view transactions that occur in the network using blockchain explorers like Subscan or Polkascan.
You can see the complete history of transactions that have occurred in the network right from its inception. However, the wallets involved in these transactions are cryptographically secured, enabling increased transparency without compromising user privacy.
Polkadot trading guide
Let’s take a look at how you can explore the trading and investment opportunities that Polkadot provides.
How to trade Polkadot (DOT)
Polkadot is making waves in the crypto market with several protocol updates boosting the price of DOT. Polkadot’s price appreciation combined with the crypto market’s volatility makes DOT an exciting digital asset to trade.
You can trade Polkadot tokens directly on numerous leading cryptocurrency exchanges or online brokerage platforms, like Axi, through crypto CFDs that enable traders to speculate on both rising and falling prices. You can get started on trading DOT through the steps below:
- Conduct research about Polkadot, including its fundamentals and price movements.
- Decide on a trading strategy that aligns with your risk tolerance and trading goals.
- Choose a crypto exchange or brokerage where DOT is listed.
- Make a deposit using fiat currency or cryptocurrency.
- Start trading with your strategy.
- Monitor your trades to optimise your strategy.
How to invest in Polkadot (DOT)
You can invest in DOT by purchasing the digital asset on a cryptocurrency exchange and securely storing it in a cold wallet for long-term safekeeping. You can follow the steps below to purchase the cryptocurrency. You can also choose to stake your DOT tokens to earn yield on your digital asset.
How to buy Polkadot (DOT)
To buy DOT, you will have to open an account with a crypto exchange, own a DOT wallet, and have fiat currency at hand to make your purchase. Use the steps below to buy DOT tokens:
- Open an account with a crypto exchange that supports DOT.
- Deposit the fiat equivalent of your desired amount of DOT.
- Create an order.
- When the order is filled, your DOT will appear in your exchange wallet.
- For more security, transfer the tokens to a wallet where you manage the private keys.
How to store Polkadot
DOT is stored on cryptographically secured digital wallets, called cryptocurrency wallets, where owners can access their assets anytime. Based on your investment and security needs, you can store your DOTs in exchange wallets, hardware wallets, software wallets, web wallets, or paper wallets. With the following easy steps, you can safely store your DOT tokens:
- Choose a wallet that matches your investment goals.
- For long term holding, you may consider using a hardware wallet like the Ledger Nano S. Conversely, if you’re actively accessing Web3 solutions, a web wallet will probably suffice.
- Set up the wallet and backup your passphrase or private keys depending on the wallet type.
- Transfer the DOT tokens to your wallet.
- Your DOT will reflect in your wallet after a few seconds or minutes.
Advantages of Polkadot
Discover the advantages and disadvantages of the Polkadot network below:
- Polkadot helps speed up the transition from Web2 to Web3 through its feature of interoperability.
- It’s highly scalable and has low transaction fees.
- Polkadot consumes very little energy, making it an environmentally friendly chain.
- Its platform is developer-friendly as you can launch a parachain in less than four hours.
Disadvantages of Polkadot
- Its consensus mechanism requires the need for trust.
- Many of the features in Polkadot's whitepaper aren't yet live on its network.
- Not all validators may be comfortable with their staked funds being slashed for what may be technical downtime or a computational mistake.
What price is Polkadot’s DOT expected to reach?
The price of Polkadot had an exciting run in 2021, hitting different milestones, launching parachains, and experiencing its first bear market. Considering DOT is still a young project with only a year and six months in the market, predicting its price behaviour is essentially impossible, especially with the unpredictability of cryptocurrencies. However, several industry experts have shared their predictions for the price for DOT.
Walletinvestor's price projections see DOT growing +74.74% in a year i.e price can go up from $21.663 to $37.855. And in 2027, the future price could be $118.405, meaning a $100 investment will have grown to $546.58 in that time.
Forecast from Price Prediction places DOT at an average price of $27.6 in 2022, $38.3 in 2023 and $113 in 2025. The price is expected to jump to an average of $528 by 2030. Before making any investment decision, however, do your own research and never invest more than you can afford to lose.
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