Polkadot is one of the biggest refreshments for the cryptocurrency market in 2020. The project gained lots of popularity quickly so it’s not surprising that many investors are curious to answer the question “Is Polkadot a good investment?” To answer that effectively at least we have to know what Polkadot is and what it is all about.
So, let’s give a brief introduction to Polkadot. This protocol is built to allow interoperability between blockchains by providing a multiple-chain environment. The Polkadot chain is more than sending tokens from blockchain to blockchain. It also enables the communication of data between these networks.
Think of Polkadot as the blockchain that wants to bring us Web 3.0 through the decentralization of the internet. We talk about interoperability earlier and it turns out that not only is Polkadot interoperable within the crypto blockchain but it is also interoperable outside the crypto blockchain. As a result, users can create new blockchains and smart contracts as well as information exchange between blockchains. The Polka blockchain is upgradeable and it has its governance token called DOT. Let’s not forget what we are after with this article which is “Is Polkadot a good investment?” The answer to that will become clearer as we progress with the article.
The Mechanism of the Polkadot Chain
Dr. Gavin Wood founded the Polkadot project in 2016, which is handled by Parity Technologies. The project was built using the blockchain building tool called Substrate. This is a technology built by Parity technologies, which is another tech company co-founded by Dr. Gavin.
Many have dubbed Polkadot as the alternative to Ethereum and given that the co-founder of Ethereum develops it, it is easy to see why people draw up that comparison. However, things are not that straightforward. Polkadot was founded to be what Ethereum could not be by introducing a multi-chain environment and interoperability. The protocol itself is a system of multiple blockchains with the main Polkadot chain known as the Relay Chain. So, connected to this relay chain is a series of blockchains called the Parachains and each one has its structure on governance, consensus mechanisms, and tokens.
We said earlier that the protocol is built using Substrate, which means that all Parachains built with the same tool can link the Relay chain with ease. However, external blockchains like Ethereum will require a bridge to link the Relay chain. Polkadot relies on a hybrid consensus system to work. The Relay chain uses a type of Proof of Stake known as GHOST-based Recursive Ancestor Deriving Prefix, while the Parachains utilize a type of Proof of Work known as Blind Assignment for Blockchain Extension. The main components of the hybrid consensus include Fishermen, Validators, Nominators, and Collators.
Before technical hullabaloo bores us, it is also important we get an idea of the issue Polkadot is trying to solve in the cryptocurrency industry. This help will get an idea of how worthy an investment Polkadot could be or not.
The foremost problem that Polkadot attempts to solve in the blockchain industry is the issue of interoperability. The crypto industry is seriously segregated as different blockchains act as an island of their own. This eliminates the chance of one blockchain being able to utilize the data that the other chains have. To solve this, Polkadot introduces a series of signatory technologies that allow the communication of data across several chains. This includes the exchange of data between public and private chains and the other way round.
Is Polkadot a Good Investment? – a Look at the Top Projects Building on It
To help determine if Polkadot can be a good investment, we will look at some of the top projects building on this chain. This could help inform our conclusion on this enterprising blockchain. It is worthy to note that reports have it that investors are quite excited about the potentials of projects building on the Polka chain.
That’s not all, reports also have it that throve of new developers are rushing to the platform on the back of cooled interest in blockchains like Ethereum and Bitcoin. This has understandably driven up Polkadot’s token’s price as well as seen several projects join the protocol. The number of new projects working on the Polkadot chain is close to 253. These projects cover different types of projects from Polka Defi to bridges linking Polka to other chains like Bitcoin, etc.
Investors have already announced they are getting a sizable return on their investments. For example, a digital asset firm called KR1 announced a fifteen times ROI on its Polkadot Investment. The co-founder of the company said that the Polkadot ecosystem is full of buzzing projects with clear potential. KR1 is not alone in recognizing the potential that projects on Polkadot hold. Another digital asset firm RockX established an investment program worth $20M that will provide support to worthy projects. The funding can be accessed in Polka native token, DOT, and each project can access up to $500,000 worth of DOT. RockX will get the projects’ tokens or equity as ROI. Let’s have a brief look at the top projects that caught the eye.
One of the projects that got on the RockX investment fund is Acala. A DeFi app that is built on Polkadot. Its potential even got the attention of the RockX cofounder Alex Lam. The project is a parachain and as we have explained before it can communicate with other parachains as well as transfer value and collaborate with them. Acala is seen as a key provider of Defi infrastructure built on Polka, backed by a stablecoin with staking liquidity and decentralized exchange. The interoperability of Polkadot allows Acala to transfer data on its parachain to other networks like Ethereum as well as the other way round. That means you can move your asset, which is in Acala stablecoin to the Ethereum network to purchase Ethereum-based tokens through an exchange like Uniswap.
Another top project that has found its way to the Polkadot chain is Moonbeam. The project goal is to provide users with a similar experience to Ethereum as closely as possible. This doesn’t mean it will sacrifice the prized functionality of Polkadot. It simply means that the team behind Moonbeam will have contracts with Ethereum’s solidity code running on Polkadot with just little changes here and there. The use of existing tools like Truffle and Metamask is still applicable. There is also access to features specific to Polkadot like integration across several chains and on-chain governance.
The project has gathered around $1.4M in funding so far, notably from a venture firm belonging to the cofounder of Polkadot as well as other sources too. Another notable investor, KR1, expects that the incredible growth of smart contracts on the Ethereum chain will spur high adoption and growth rate on Moonbeam.
The focus of the project is delivering verifiable Internet-based identity credentials. It will be mainly utilized on an industrial level in areas like IoT. Thereby bringing the concept of decentralization to these industrial applications to involve several companies. One of the key reasons behind the team building the project on Polkadot is the cheaper gas price compared to Ethereum.
KILT is built by BOTLabs, a developer team based in Berlin. So far, the team has secured its first client in the mold of Energy Web. Energy Web is tasked by Germany’s federal energy agency with providing a digital registry to store its distributed energy resources like batteries, thermostats, etc. The product KILT offers will provide decentralized identities that can aid resource optimization. Also, KILT will make up part of GAIA-X, which is a German government initiative to investigate use cases in the blockchain industry.
There are also notable mentions like Plasm that uses the Polkadot chain. The three projects we have briefly discussed so far show that investors are buying into the Polkadot project. This is a good indication that we can consider Polkadot a good investment.
How does DOT the Polkadot native token bring value to the project? The token functions as a governance tool and DOT holders can participate in the decision-making process on the network. It is also used for bonding, and staking on the blockchain. The Fishermen, Nominators, and Validators use DOT to stake on the blockchain. The Collators use the DOT to bond the parachains to the Relay chain.
From an initial total supply of 10 million DOT to the current max supply of 1.01 billion coins, Polkadot allows this change in max supply to induce inflation for incentivizing users to participate in the network. The target is to get a participation rate of 75 percent to correspond with an inflation rate of 10 percent.
We also have the new DOT and the old DOT. The initial 10 million DOT is what we call the Old DOT and the new DOT was derived by multiplying the old DOT by 100 leading to the 1 billion coins we now have.
Analyzing the Price of DOT
The latest price of DOT as of November 7, 2020, is $4.23, this is about 100 times less than the old DOT price. Given that the Polkadot team replaced the old DOT with the new one, the data on the price for the old one is gone and no longer available. So, we don’t have much history on the price of DOT after the replacement. However, the price has been rising steadily since then and currently, it is ranked number 8 on Coingecko by market cap placing it in the top ten cryptos. However, the question for the future is if we will get to see Polkadot reach $100? If the token continues to perform well, it is a possibility.
Can Polkadot reach $100?
When all is said and done, will DOT prices reach $100? Considering how Polkadot is proving to be a good investment judging from initial reception, traders can discount this possibility. There are hundreds of blockchain projects launching every week, but all of them operate in isolation. For a close-knit, well-oiled, and beneficial blockchain ecosystem, they all need to beat at the same rhythm, and interconnection solves this.
In seven months to mid-February 2021, Polkadot prices rose from $1.3 to $34, for an over 3,000 percent return on investment. There are even more development and partnerships scheduled for this product. The pressure, obviously, is to link projects, and Polkadot is doing what’s needed, just like Ethereum gave people a way out when they asked for more.
Therefore, technical and fundamental factors favor bulls. Accordingly, $100, if anything, seems to be an underestimation if the price action of the last few weeks lays out what’s to be expected.
How Polkadot Became a Top Crypto Project
We have talked about how the cofounder of Ethereum decided to come up with another project that will be what Ethereum is not. That project is Polkadot and we have been discussing what makes Polkadot a good investment. Polkadot was designed to be a more comprehensive network, more of a shard form of Ethereum. Sharding allows the redistribution of workload that nodes work with, in a way that each node deals with their shard of data, and these shards can be communicated across the nodes’ network. This makes several blockchains interoperable, however, heterogeneous sharding maintains the uniqueness of each blockchain. The parachains in the Polkadot network are heterogeneous shards, which are linked to the Relay chain. Sharding has attracted a lot of people to Polkadot, which has boosted the profile of the project. Arguably, Polkadot is a better investment than some well-known newly launched coins also making waves in the crypto market.
Another reason why Polkadot has quickly risen in the rank of top projects is the ability of the parachains to issue its token – something similar to what you will find in Ethereum based protocols. The parachains can also link external blockchains through the bridge, which depends on Polkadot shards to connect and communicate to these external chains. A good example is a DApp planning to build on the Polkadot chain, which can issue a PolkaBTC token. The token is a form of BTC that is tokenized on the Polkadot network. For people that could still be struggling to comprehend the idea of Polkadot, you can look at it via the eyes of Ethereum. The parachain can be compared to the ERC-20 tokens on Ethereum.
It seems investors were already eager to dig in even before the PolkaBTC project is launched into the market. That tells you a thing or two about how valuable the Polkadot network can be and what makes a better investment. Funds like Spartan Black already see the Polkadot project hitting the top-three ranking in terms of market cap in the future. The project is being dubbed as the most crucial project after Ethereum.
The DOT is finding favor with investors and increasing in value due to the lure of interoperability that Polkadot offers. This also pinpoints the advantages of sharding as we mentioned earlier.
Is Polkadot The Next Ethereum?
From what we have learned is that Polkadot is building what Ethereum couldn’t.
It has been years since blockchains were demonstrated and launched, but they still exist as isolated islands. This needs to change.
What Polkadot creators are doing is efficiently connecting blockchains by introducing interoperability and a multi-chain environment in such a way that the blockchain is decentralized, interconnected just like the internet is.
Much has been said about how best projects can co-exist by feeding off from information generated by each.
It is desirable and, most importantly, critical for developers with grand ideas obstructed by the segregation of the current architecture. Blockchains are here to stay. This is the refreshing admission of enthusiasts, critics, and regulators.
The only way forward is interoperability for a complete, symbiotic circle.
We have dealt with the technical part above, and now we see whether Polkadot is the next Ethereum.
To best answer this, we must know that Ethereum was the first to introduce smart contracting. Its innovation saw projects build decentralized applications (dApps) on its layer.
Some of them have gone on to transform lives.
Polkadot is efficiently linking blockchains. It is among the first practical projects spearheading the interchain revolution. The co-founder of Polkadot is Gavin Wood–and is one of the co-founders and lead developers of Ethereum. Like he created Ethereum’s Solidity—the programming language of Ethereum, he has never stopped building and innovating. A substrate is one of his creations and is core in activating interoperability. It is only a few months since launch, but over 270 projects are working on Polkadot. They are actively benefiting from a project whose man-hours go back to 2016.
Additionally, right off the bat, Polkadot is integrating what Ethereum failed to do and plans to add in the next version called Serenity. The idea of a sharded architecture that relieves the base layer’s nodes is beneficial, especially in transaction transmission efficiency and scalability, giving the Polkadot project a higher profile. If anything, for what’s forecasted, Shards are integral to Polkadot. They are surprisingly beating Ethereum, foreseeing what Ethereum developers missed out on launch and trying desperately to fix now as the network chokes in unreasonably high Gas fees.
Therefore, like Ethereum started a smart contracting revolution enabling asset tokenization, Polkadot follows its path to create a richer web. Herein, all blockchains created over the last ten years can be interconnected based on Polkadot’s Substrate infrastructure or through reliable and secure bridges. With interconnection comes the ease of development, better innovation, and faster adoption, all of which stack up positively for Polkadot (DOT) bulls.
There is no crypto project that doesn’t have an issue or two to deal with and Polkadot is no different. One pressing issue is user familiarity with the platform given the project’s complexity and it seems that the Polkadot team is not too concerned about that yet. Another issue of note is the interoperability of the Polkadot chain. Although the network stresses the interoperability of the chain, in reality, that applies directly to blockchains built on the Polkadot chain. However, an outsider like BTC or Ether will need to be bridged to the Relay chain on Polkadot.
Although we talked about some issues that are present around the Polkadot project, the potential of the project and the value it offers means it really could be worth any investment made into it. Is Polkadot a good investment? Well, given that it has crept into the top ten crypto projects in the world, we can say it is pretty much a worthy investment to add to your portfolio.
Disclaimer: The information in this article is for educational purposes only. Please do not treat it as investment advice. Do your own research.
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