Web3, interoperability, and layer 0 are terms used when describing Polkadot. But what do they mean and how will they affect the internet market and cryptocurrencies? Cointelegraph Research’s new report explores how Polkadot is addressing distributed ledger scalability and web centralization simultaneously.
For starters, imagine a world where Facebook is replaced by a decentralized social media app built on Polkadot. This is what projects like Subsocial are building on their platforms, allowing users to determine what data to keep private and share. Users can profit from selling their data stored on the blockchain to third-party companies by minting Ocean Protocol tokens, OCEAN, and selling them on a decentralized exchange like Polkadex.
Not happy about the bank charging overdraft fees when your account balance is less than $ 0.00? Well, a Polkadot-based project called Acala has built an automated on-chain scheduler that is similar to a decentralized version of Stripe. This allows users to automatically transfer participation rewards to their wallet address, which can be linked to a physical credit card. This means that a person can be paid to help secure a decentralized monetary and banking system, and that the money they earn can be sent to a credit card and used to buy coffee at Starbucks.
This report covers:
- How Polkadot enables blockchains with different structures to coexist in an interoperable environment with shared security.
- How the slot auction system allows projects to compete for the right to stay connected to the network.
- How the ecosystem around Polkadot spawned a wide variety of decentralized products, from social media to prediction marketplaces and cloud computing.
Does Polkadot deliver on what Ethereum promised?
Ethereum’s consensus mechanism forces all nodes to validate all transactions. In contrast, the Polkadot blockchain splits batches of new transactions into many chunks and processes them in parallel. Blockchains that connect to the network can have very different rules of operation, transaction processing, and capabilities, giving the entire system much more flexibility.
Polkadot is trying to achieve scalability without lowering network security. This famous problem known as the “blockchain trilemma” was cleared up by Ethereum founder Vitalik Buterin himself.
In contrast to Ethereum’s single blockchain design, Polkadot has many different blockchains called parachutes that connect to a main blockchain, also known as a Relay Chain or layer 0. Similar to the commonly used hub and spoke model In airport design, connecting disparate blockchains through the central relay chain establishes a way to send messages and transactions across multiple blockchains without slowing down traffic on the transaction highway. Layer 0 refers to the concept that Layer 1 protocols like Bitcoin and Ethereum could be radios and Polkadot could be the hub. For example, the NFT Bit.Country project is a substrate-based blockchain that uses a bridge with Ethereum. This allows assets to flow between Ethereum and metaverses built on Bit.Country’s TEWAI blockchain.
No smart contracts in Polkadot
Since the Polkadot Relay chain does not have smart contracts, it relies on the blockchains that connect to Polkadot to enable smart contracts. For example, a parachain called Moonbeam has full compatibility with Ethereum contracts. Moonbeam developers have created a way to interact with digital currencies created in Polkadot through Metamask, the popular web browser wallet for decentralized finance. This means that tokens built on the Polkadot substrate, which is a blockchain development tool, can be seamlessly sent to Ethereum wallets and smart contract addresses.
The next layer of the Polkadot ecosystem includes the projects that are built on the blockchains that are built on the Relay chain. For example, Ocean Protocol is in the process of implementing its smart contracts on the Moonbeam blockchain. By building on top of Moonbeam, the OCEAN token will be compatible with Polkadot and Ethereum blockchain applications.
Rebuilding the Ethereum network in Polkadot
Polkadot’s improved scalability enables many projects to outperform Etheruem’s high transaction fees and low number of transactions per second. Similar to Ethereum’s decentralized data storage projects like FileCoin, Sia, or Storj, Crust Network is building a similar solution on top of Polkadot. Unlike Ethereum-based projects, Crust Network is not limited by Ethereum’s scalability issues. Many of the apps that we love on Ethereum are either being rebuilt on the Polkadot network or being integrated through chain-independent gateways.
The Polkadot ecosystem is packed with projects ranging from decentralized cloud computing with the Phala Network to cross-chain custodial portfolios such as the browser-based Math Wallet. Hardware-based virtual private network project Deeper Network has already sold more than 10,000 physical devices on Indiegogo, Amazon, and BestBuy. Deeper’s blockchain solution coordinates all devices and routing in a way that preserves privacy, maintains the device registry (in the form of a public key infrastructure), and manages the engagement and reputation subsystems.