Lots of Blockchain projects lightly use the “Web3” buzzword in their branding, but few have the technology to back up such claims. That isn’t the case for Polkadot ($DOT). Polkadot isn’t just a blockchain — It’s a multi-chain protocol.
Sounds impressive, but what does it mean?
Basically, Polkadot connects a variety of specialized blockchains together into a single ecosystem.
One of the major problems facing the growth of blockchain tech is a growing number of disparate development tracks, which lack the ability to communicate in a meaningful way…You can’t have a “web” of blockchains (the web3 dream) if there’s no interplay between systems. Polkadot aims to solve this problem by facilitating the creation of entirely unique layer 1 blockchains that are all processed in parallel: Parachains.
Although the parachains all have unique functions, block producers, and rules, they are all validated by a central chain, called the “Relay Chain.”
The relay chain provides additional security for the connected parachains, in addition to providing an unrivaled level of interoperability.
Unlike the Inter-Blockchain Protocol (IBC) of the Cosmos ($ATOM) ecosystem, Polkadot’s relay chain collects and validates transactions from every single parachain. This allows for the seamless transfer of all data across disparate chains, not just tokens. The protocol supports the creation of bespoke blockchains which can trustlessly share information and transaction data — Polkadot hopes to provide a foundation to support a decentralized Web using these features. Polkadot’s Native Token, DOT, has 3-fold utility:
Used for staking, to secure the relay chain,
Used for voting in network governance
Bonding tokens to connect new parachains
The first 2 are not uncommon, but the 3rd use case is unique to DOT.
In order for a project to enter onto the parachain network, they must compete in an auction where DOT is bonded in the name of that project. This can be done via crowd-funding, and the DOT bonded for the winning project will then be locked in bond for a set period of time (roughly 2 years).
This places demand on the native DOT token as the network grows.
From a Consumer Mentions Standpoint, DOT chatter has been outperforming the token’s price in recent months: