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Basics

History

"Polkadot is the brainchild of Gavin Wood, a seminal figure in Ethereum’s early history. Wood was co-founder, initial CTO, and core developer of Ethereum. He coded the platform’s first implementation, wrote its formal specification, and invented the Solidity smart contract programming language. On January 11, 2016 Wood bid farewell to the Ethereum community and turned his attention toward a new venture that would deliver on the promises that, in Wood’s opinion, Ethereum could not. According to Wood, the original idea for Polkadot came to him in the summer of 2016 while waiting for Ethereum 2.0 sharding specs to solidify enough to start implementing them. Prompted by developer Marek Kotewicz, he started trying to design a sharded version of Ethereum that was as simple as possible. By October 2016 Wood had finished the first draft of the Polkadot White Paper."

  • Polkadot has had a redenomination, possibly to benefit from unit bias. From their FAQ (6-5-2021):

"The Genesis block of the Polkadot network was launched on May 26, 2020, as a Proof of Authority (PoA) network, with governance controlled by the single Sudo (super-user) account. During this time, validators started joining the network and signaling their intention to participate in consensus.

The network evolved to become a Proof of Stake (PoS) network on June 18, 2020. With the chain secured by the decentralized community of validators, the Sudo module was removed on July 20, 2020, transitioning the governance of the chain into the hands of the token (DOT) holders. This is the point where Polkadot became decentralized.

The final step of the transition to full-functioning Polkadot was the enabling of transfer functionality, which occurred on Polkadot at block number 1_205_128 on August 18, 2020, at 16:39 UTC.

On August 21, 2020, Redenomination of DOT occurred. From this date, one DOT (old) equals 100 new DOT."

Audits & Exploits

Bugs/Exploits

  • Had some issues after a new upgrade which resulted in not creating new blocks. “Please downgrade your nodes to 0.8.30 and ensure you are running with `–execution=native`,” tweeted Polkadot co-founder Gavin Wood.
  • Kusama had its first exploit and governance returned the tokens back (22-10-2021):

"Here is where we uncover one way that Polkadot is different from many other blockchains.

On Ethereum, this story would have mostly ended here with the attacker disappearing into the mist. Maybe there would’ve been some drama on Twitter as the team tried to establish negotiations with the attacker (or threaten with doxing/calling the IRS on them).

On Kusama, this story is very different. Its governance has the very special power of being able to transfer tokens from any account, or even mint new ones. It can essentially nullify the results of any hack or mistake, and that’s exactly what it did here!"

Governance 

"The network will launch under a Proof-of-Authority (PoA) consensus algorithm that Wood invented, which will initially give all on-chain authority to the Web3 Foundation, the non-profit behind Polkadot. As such, the Polkadot network will have limited functionality, Wood said.

“It allows us to start the chain without having to have a set of validators already assembled and having to trust in our potentially unfulfilled governance structures to move the chain forward, Wood said."

"Unlike other PoS networks, Polkadot gives equal voting power to all elected validators its proportional justified representation model. NPoS is designed to discourage any concentration of validators. We’ve seen this somewhat play-out on Cosmos where the top 10 validators collectively have 46% of the network voting power although it is decreasing (in May 2019 it was higher at 57%). Here is where is gets rather interesting though. In Polkadot, a flat fee is given to validators regardless of how much staked is backing them (note - it may differ slightly from something known as Era points). This aspect of the model led Cryptium Labs to run 19 out of the 100 validators in the early stages of the Kusama testnet precisely because it was an economically rational strategy to execute.

This means the success of NPoS will be judged by its ability to nurture a pluralistic set of validators which naturally includes relying on the sound judgement of stake nominators. The important thing to realise here is that there is a separation of validation and political power in Polkadot. In any case, comparing validation diversification between Polkadot and other networks like Cosmos or Tezos will be an insightful watch."

  • There are multiple aspects behind the governance of Polkadot, for instance a council which is elected by token holders that has the ability to veto the decisions of the current token holders themselves, 24 of them with 1 year terms with one election for one spot every two weeks. Most importantly there is a self funding mechanism treasury controlled by the council which gains funds through fees, staking inefficiencies & slashing.
  • From Our Network (20-11-2020):

"Since launch and decentralization, Polkadot has enacted 9 out of 12 referenda, 6 of which were runtime upgrades — changes to the blockchain’s core logic."

  • From their FAQ (6-5-2021):

"There are several mechanisms that are built-in to the governance system to resist plutocratic tendency. One of these mechanisms is called conviction voting, and imbues greater voting power to token holders who are willing to lock their tokens on the protocol for longer lengths of time. Longer lock-ups display conviction in a vote. Conviction voting could allow a highly determined minority to overrule the vote of an apathetic majority in certain situations. Another mechanism is known as Adaptive Quorum Biasing. This makes proposals have a varying threshold for approval or rejection based on what part of the governance protocol the proposal originated in. For details on the subtleties of Polkadot's governance system, please see the governance page."

DAO

  • Created a DAO. "Anyone who holds DOT tokens from the prior token sale will be given a proportional amount of reputation to vote on proposals within the PolkaDAO. This reputation is initially given 80% for DOT holders and 20% for individuals and teams who have contributed to the initial rollout of PolkaDAO in some fashion, community building or otherwise." More info can be found here.
  • From Dot Pulse (2-10-2021):

"Polkadot governance relies on two major “chambers” of political actors: direct voting by DOT stakeholders and the Council. Referendums are weighted according to a combination of the DOT bond and a conviction factor. If you are willing to keep your DOT/KSM locked for more time, your DOT will count more.

Referendums are also a bit complex in how they define quorums and pass thresholds. Public proposals operate according to Positive Turnout Bias, which means that proposals with low turnout must have a very high proportion of Yes votes. Council-led proposals, if they were unanimously accepted by the council members, operate according to Negative Turnout Bias. This means that a proposal with low turnout must be very controversial to fail.

The Polkadot and Kusama councils are on-chain groups of elected representatives. DOT/KSM holders who don’t want to vote on each issue can simply pick a few council members to take most of the decisions for them. The Council is reelected on a near-continuous basis with each term lasting just one day on Kusama and seven on Polkadot.

Besides having special powers over referendums, the Council is tasked with approving treasury spend proposals. The Polkadot treasury is continuously filled with transaction fees and some of the staking returns, and a portion of it gets periodically burned to incentivize quick spending. The treasury is designed to promote ecosystem development, including technical grants for supporting stuff like block explorers, wallets, as well as community events and content creation.

Anyone can submit a Motion to the Council to receive a treasury grant, as long as they provide 5% of the value they’re asking as a bond. The bond will be burned if the proposal fails, so you need to be very serious about making these requests!"

Treasury

"Polkadot (DOT) is the latest to invest back into its developer community with the launch of the Polkadot treasury. Run by community-elected council members, the pool will fund as many new community projects as possible. The treasury has already received multiple proposals related to infrastructure development, operations projects, and software development, by teams from Redspot, Centrifuge, Polkascan, and Encointer. The proposals to receive Treasury funding can be submitted by any holders of Polkadot’s native token DOT and will be approved based on their ability to “give traction to the network.” Proposals may relate to infrastructure deployment, network security operations, ecosystem provisions, software development, marketing activities, and community and outreach events.

In addition to proposal funding, the treasury will also support community efforts such as document translation, Polkadot-related content creation, educational videos, and general community support.

The proposals must be submitted on the Polkadot blockchain, however, in order to minimize on-chain storage, they will not contain any contextual information. Proposers will need to take advantage of off-chain avenues to explain the bulk of the project.

A deposit of 100 DOT or 5% of the total submission is required for each proposal submission in order to avoid low quality or spam proposals. Deposits will be returned to users when their proposal is approved or burned if rejected. Should the Treasury not spend all funds within a budget period, currently set at 24 days, 1% of the funds will be burned. The Treasury is funded from slashing, transaction fees, staking inefficiencies, and parathreads."

"Polkadot’s on-chain treasury - another controversial topic in blockchain land - has seen a lot of action as well: so far, the Treasury has doled out almost 100,000 DOT (~$500,000 USD) in a completely decentralized way, averaging 6100 DOT (~$27,000 USD) per proposal."

  • From the 2020 year end review (30-12-2020):

"Over 2020, more than 200 projects have been funded between the grants programmes and treasuries. Since launching with governance a few short months ago, Polkadot’s treasury has funded 23 proposals to a total of 118,465.63 DOT. In Kusama’s year or so of being live, its treasury meanwhile has funded 40 proposals awarding a total of 62,222.92 KSM. This is all in addition to the $4.1m granted to 145 proposals done as part of Web3 Foundation’s ongoing grants programme. And of course there are a growing number of ecosystem funds centred around Polkadot ready to support great projects. A further 10.4m DOT sits in the Polkadot treasury ready to be spent on great proposals, and this is set to increase at around 1.6m DOT each year, funded from part of Polkadot’s 10% annual token-base minting rate."

Token

 Launch

  • "Polkadot, raised more than $145 million in a token sale last month and is currently having to deal with $98 million-worth of its ether funds being locked up in Parity because of the flaw. In a blog post, the Web3 foundation, which supports the Polkadot project, asserted that all work will continue regardless of the frozen funds."
  • From CoinDesk (28-7-2020):

"A second private sale of the Polkadot token (DOT) netted the Web3 Foundation and Parity Technologies some 3,982.07 bitcoin (BTC) worth an estimated $43.3 million at press time, according to sources."

Token allocation

Utility

  • The idea is that Polkadot will have many Parachains (possibly) built on Substrate. It also has DOTS as a token and Kusama as an experimental network.
  • “The transactions that take place within Polkadot's shards - parachains and parathreads - do not incur Relay Chain transaction fees. Users of shard applications do not even need to hold DOT tokens, as each shard has its own economic model and may or may not have a token. There are, however, situations where shards themselves make transactions on the Relay Chain.”


DOTs

"Its native token will follow the distribution of DOTs and allow its holders to perform the sort of functions that DOT would enable in the main network. The incentive is that 1% of DOTs at Polkadot genesis time will be distributed to Kusama’s stakeholders and community."

  • From their FAQ (6-5-2021):

"The inflation rate is approximately 10% per year. A portion of the inflation is rewarded to validators for performing their duties, while another portion may go directly to the treasury. The exact percentage that goes into both varies and is based on the amount of DOT that are staked."

Token Details


Kusama Network (KSM)

"Really interesting approach to launching the main network by the Polkadot team, by releasing ahead of it a highly experimental, community owned version of it with real economic conditions and no central kill switch."

"Kusama network successfully transitioned to Proof of Stakeadded support for all major cryptocurrency wallets, launched Council elections, and passed 200 nodes."

  • Figment is a staker. From their website (9-3-2020): "Early test-net participant. Serving and trusted by many original Polkadot investors. No fee for minimum of 3 months."

"Kusama currently has 378 nodes running and registered with our telemetry server, with 180 validators producing and finalizing blocks. The number of active validators was recently increased from 160, by vote through on-chain governance. Additionally, 520 nodes are running other Substrate-based chains, which can be parachains on Polkadot or Kusama.

Currently, the validators on Kusama are backed by a total 3.201 million KSM, or approximately US $4.7 million. This has more than doubled from January, when less than US $2 million worth of KSM was staked."

"A referendum upped the number of active Kusama validators to a neat 1000."

Investors

Coin Distribution

"Polkadot distribution: "1,801 addresses, around 60% of all token holders, hold fewer than 100 dots." The report says these are likely to be individual investors. There were 3,050 participants (data) in the first crowdsale in October 2017. We can then factor in other Web3 Foundation expenses in DOTs and future planned distributions of up to 20% of DOTs."

Tech

Transaction Details

  • Capacity (TPS): "Polkadot uses parachains [parallel processing chains] and can go from 100K TPS to up to 1 million TPS"
  • Latency: 12-60 secondsfor finality (7-5-2021).

How it works

"Polkadot is a heterogeneous multi‑chain technology. It consists of many parachains with potentially differing characteristics which can make it easier to achieve anonymity or formal verification. Transactions can be spread out across the chains, allowing many more to be processed in the same period of time. Polkadot ensures that each of these blockchains remains secure and that any dealings between them are faithfully executed. Specialised parachains called bridges can be created to link independent chains. Polkadot is built to connect private/consortium chains, public/permissionless networks, oracles and future technological developments yet to be created in the Web3 ecosystem. It enables an internet where independent blockchains can exchange information and trust-free transactions via the Polkadot relay chain, with the key tenets of scalability, governance and interoperability.

By connecting these dots, we allow for the development of a truly decentralized web, serving as a foundational building block for the creation of an ecosystem of Dapps and services that will distribute power and equity for the common good."

  • From their wiki (7-5-2021):

"Polkadot uses Nominated Proof of Stake (NPoS) to select validators from a smaller set, letting smaller holders nominate validators to run infrastructure while still claiming the rewards of the system, without running a node of their own."

BABE/GRANDPA

  • From their wiki (7-5-2021):

"There are two protocols we use when we talk about the consensus protocol of Polkadot, GRANDPA and BABE (Blind Assignment for Blockchain Extension). We talk about both of these because Polkadot uses what is known as hybrid consensus. Hybrid consensus splits up the finality gadget from the block production mechanism.

This is a way of getting the benefits of probabilistic finality (the ability to always produce new blocks) and provable finality (having a universal agreement on the canonical chain with no chance for reversion) in Polkadot. It also avoids the corresponding drawbacks of each mechanism (the chance of unknowingly following the wrong fork in probabilistic finality, and a chance for "stalling" - not being able to produce new blocks - in provable finality). By combining these two mechanisms, Polkadot allows for blocks to be rapidly produced, and the slower finality mechanism to run in a separate process to finalize blocks without risking slower transaction processing or stalling."

  • From their wiki (7-5-2021):

"BABE (Blind Assignment for Blockchain Extension) is the block production mechanism that runs between the validator nodes and determines the authors of new blocks. BABE is comparable as an algorithm to Ouroboros Praos, with some key differences in chain selection rule and slot time adjustments. BABE assigns block production slots to validators according to stake and using the Polkadot randomness cycle.

Validators in Polkadot will participate in a lottery in every slot that will tell them whether or not they are the block producer candidate for that slot. Slots are discrete units of time, nominally 6 seconds in length. Because of this randomness mechanism, multiple validators could be candidates for the same slot. Other times, a slot could be empty, resulting in inconsistent block time. When no validators have rolled low enough in the randomness lottery to qualify for block production, a slot can remain seemingly blockless. We avoid this by running a secondary, round-robin style validator selection algorithm in the background. The validators selected to produce blocks through this algorithm always produce blocks, but these secondary blocks are ignored if the same slot also produces a primary block from a VRF-selected validator. Thus, a slot can have either a primary or a secondary block, and no slots are ever skipped."

  • From their wiki (7-5-2021):

"GRANDPA (GHOST-based Recursive ANcestor Deriving Prefix Agreement) is the finality gadget that is implemented for the Polkadot Relay Chain. It works in a partially synchronous network model as long as 2/3 of nodes are honest and can cope with 1/5 Byzantine nodes in an asynchronous setting. A notable distinction is that GRANDPA reaches agreements on chains rather than blocks, greatly speeding up the finalization process, even after long-term network partitioning or other networking failures. In other words, as soon as more than 2/3 of validators attest to a chain containing a certain block, all blocks leading up to that one are finalized at once."

Relay Chain

  • From their wiki (6-5-2021):

"The Relay Chain is the central chain of Polkadot. All validators of Polkadot are staked on the Relay Chain in DOT and validate for the Relay Chain. The Relay Chain is composed of a relatively small number of transaction types that include ways to interact with the governance mechanism, parachain auctions, and participating in NPoS. The Relay Chain has deliberately minimal functionality - for instance, smart contracts are not supported. The main responsibility is to coordinate the system as a whole, including parachains. Other specific work is delegated to the parachains, which have differing implementations and features.

Parachains connected to the Polkadot Relay Chain all share in the security of the Relay Chain. Polkadot has a shared state between the Relay Chain and all of the connected parachains. If the Relay Chain must revert for any reason, then all of the parachains would also revert. This is to ensure that the validity of the entire system can persist and no individual part is corruptible. The shared state makes it so that the trust assumptions when using Polkadot parachains are only those of the Relay Chain validator set, and no other. Since the validator set on the Relay Chain is expected to be secure with a large amount of stake put up to back it, it is desirable for parachains to benefit from this security."

  • From their wiki (6-5-2021):

"Most parachains will not need to worry about their own security, since all state transitions will be secured by the Polkadot Relay Chain validator set. However, in some cases (which are considered more experimental), parachains may require their own security. In general, these cases will revolve around lack of data available to Relay Chain validators.

One example is if the state transition function is some succinct or zero-knowledge proof, the parachain would be responsible for keeping its data available as the Relay Chain won't have it. Additionally, for chains with their own consensus, like the one that enables fast payments on Blink Network, there would probably need to be a Byzantine agreement between stakers before a parachain block is valid. The agreement would be necessary because the data associated with the fast consensus would be unknown to Relay Chain validators."

No Smart Contracts

  • From their FAQ (6-5-2021):

"The Polkadot Relay Chain does not implement smart contracts natively. The reason for not having smart contracts on the Relay Chain is part of the design philosophy for Polkadot that dictates that the Relay Chain should be the minimal logic required to accomplish its job. However, Polkadot will be a platform for other chains that do implement smart contracts. It's possible for parachains to enable smart contract functionality and then benefit from the security and interoperability features of Polkadot. Additionally, existing smart contract chains can connect to Polkadot as a parachain, or via a bridge."

Parachains

  • From their blog (18-12-2021):

"The winning parachains from Polkadot’s first batch of auctions were, in order, Acala, Moonbeam, Astar, Parallel Finance, and Clover. After building an impressive level of community support through crowdloans, to the tune of nearly 100 million total DOT locked, all of them are now successfully onboarded and producing blocks. The next batch of Polkadot auctions will begin on or around December 23rd, 2021 (block 8263710). The second batch will feature 6 auctions in total, with the 6 winning parachains to be onboarded on or around March 11th, 2022 (block 9388800)."

  • From their FAQ (5-9-2020):

"Parachains are the name given to the parallelized chains that participate in the Polkadot network. Polkadot’s natively supported blockchains achieve consensus using the greater network’s consensus mechanism, both adding to and benefiting from pooled security.

Bridges are connecting layers that will enable existing blockchains with their own state histories and methods of consensus to link with Polkadot without having to be a native parachain. These include Bitcoin and Ethereum."

  • From their FAQ (6-5-2021):

"Parachains have the flexibility to implement their own monetary system or incentive structure for collators. However, this is not strictly necessary. Since the collator's job is to continue to give recent state transitions to the validators on the Relay Chain who validate each transition, the security of the parachain and the Polkadot network is completely separate from parachain economics. Parachains need collators to continue to progress, so it wouldn't be unreasonable to see them incentivize collator nodes in some way, but the specific mechanism is completely up to parachain implementers."

  • From their wiki (6-5-2021):

"The key constraint regarding the logic of a parachain is that it must be verifiable by the Relay Chain validators. Parachains may have their own economies with their own native tokens. Schemes such as Proof-of-Stake are usually used to select the validator set in order to handle validation and finalization; parachains will not be required to do either of those things. However, since Polkadot is not overly particular about what the parachain can implement, it may be the choice of the parachain to implement a staking token, but it's not generally necessary.

Collators may be incentivized through inflation of a native parachain token. There may be other ways to incentivize the collator nodes that do not involve inflating the native parachain token.

Transaction fees in a native parachain token can also be an implementation choice of parachains. Polkadot makes no hard and fast rules for how the parachains decide on original validity of transactions. For example, a parachain may be implemented so that transactions must pay a minimum fee to collators to be valid. The Relay Chain will enforce this validity. Similarly, a parachain could not include that in their implementation and Polkadot would still enforce its validity. Parachains are not required to have their own token. If they do, is up to the parachain to make the economic case for their token, not Polkadot.

"Parachain consensus" is special in that it will follow the Polkadot Relay Chain. Parachains cannot use other consensus algorithms that provide their own finality. Only sovereign chains (that must bridge to the Relay Chain via a parachain) can control their own consensus. Parachains have control over how blocks are authored and by whom."

Parachain Auctions (IPOs)

"Parachain slots will be leased in a series of auctions commencing on Nov. 11 and will require DOT tokens to be locked for the duration of the lease. Nearly $800M in DOT tokens has been contributed via crowdloans, with Acala Network and Moonbeam leading the pack. Interestingly, both are Ethereum-compatible smart contract platforms focused on cross-chain DeFi."

"It’s important to point out that Polkadot’s entire architecture is based on the concept of parachains, which are independent, cross-communicating blockchain networks. In order for a parachain to be added to Polkadot, it must secure an available parachain slot. However, only a limited number of parachain slots exist. Polkadot’s goal is to have 100 parachain slots available on its network. Polkadot’s native token, Dot, is also required to bond a parachain to take advantage of the network’s scalability, security, interoperability and governance functionality. Therefore, parachain teams will need to acquire parachain slots through a permissionless auction process. While teams could buy Dot on the open market, Mauric mentioned that most parachain projects will undergo an IPO [Initial Parachain Offering] to participate in these auctions, allowing teams to accept Dot loans from any Dot holder.

According to Mauric, funds secured through this module would go into an account on the Polkadot Relay Chain. If the project is able to secure enough contributions to win the auction, then the Dot loans will be returned to the contributors at the end of the parachain lease period. If the project is unable to secure enough contributions and the auction is lost, then the Dot loans will be returned to contributors immediately.

IPOs vary in a number of ways from what was previously seen with ICOs and IEOs. The most obvious distinction is the amount of transparency and flexibility investors should gain. For example, unlike the ICO boom where investors would send cryptocurrency to teams that could easily pull the rug, stakeholders are guaranteed to regain access to their Dot at the end of each lease period. Mauric noted that with an IPO, Dot holders are simply lending their tokens to a team for a period of time in order for them to win a parachain slot. “This is a much safer, fairer arrangement for parachain teams because stakeholders regain access to their Dot at the end of the lease period,” he said.

Acala Network, a decentralized finance hub for Polkadot and Kusama, will be one of the first companies to host an IPO to crowdfund Dot and Kusama’s native token, KSM."

Collators

  • From this blog (6-2-2020):

"The block creation process starts with parachain collators. Collators are similar to validators on any other blockchain, but they do not need to provide security guarantees because Polkadot provides those. Collators only need to create blocks that extend their finalized chain."

  • From their wiki (6-5-2021):

"Collators maintain parachains by aggregating parachain transactions into parachain block candidates and producing state transition proofs for validators based on those blocks. Collators maintain a full-node for the Relay Chain, and a full-node for their particular parachain; meaning they retain all necessary information to be able to author new blocks and execute transactions in much the same way as miners do on current PoW blockchains. Unlike validators, collator nodes do not secure the network. If a parachain block is invalid, it will get rejected by validators. Therefore the assumption that having more collators is better or more secure is not correct. On the contrary, too many collators may slow down the network. The only nefarious power collators have is transaction censorship. To prevent censorship, a parachain only need ensure that there exist some neutral collators - but not necessarily a majority. Theoretically the censorship problem is solved with having just one honest collator. Collators are being used on the Rococo testnet"

  • From their wiki (6-5-2021):

"The incentivization of a collator node is an implementation detail of the parachain. They are not required to be staked on the Relay Chain or own DOT tokens unless stipulated to do so by the parachain implementation."

Fisherman

  • Got deprecated, since it was not game theory-proof. Unclear what it will be replaced with (14-9-2021).
  • From this blog (6-2-2020):

"A fisherman is essentially a parachain full node with some dot tokens at stake. While parachain collators don’t need any stake of dot tokens — they only need incentives from their own parachain to create blocks — fishermen do need to stake dot tokens as an anti-spam mechanism. Without any value at stake, fishermen could submit fabricated invalidity claims."

Parathreads

  • From their wiki (6-5-2021):

"Parathreads are an idea for parachains to temporarily participate (on a block by block basis) in Polkadot security without needing to lease a dedicated parachain slot. This is done through economically sharing the scarce resource of a parachain slot among a number of competing resources (parathreads). Chains that otherwise would not be able to acquire a full parachain slot, or do not find it economically sensible to do so, are enabled to participate in Polkadot's shared security — albeit with an associated fee per executed block. It also offers a graceful off-ramp to parachains that no longer require a dedicated parachain slot, but would like to continue using the Relay Chain.

The difference between parachains and parathreads is economic. Parachains must be registered through a normal means of Polkadot, i.e. governance proposal or parachain slot auction. Parathreads have a fixed fee for registration that would realistically be much lower than the cost of acquiring a parachain slot. Similar to how DOT are locked for the duration of parachain slots and then returned to the winner of the auction, the deposit for a parathread will be returned to the parathread after the conclusion of its term.

Registration of the parathread does not guarantee anything more than the registration of the parathread code to the Polkadot Relay Chain. When a parathread progresses by producing a new block, there is a fee that must be paid in order to participate in a per-block auction for inclusion in the verification of the next Relay Chain block. All parathreads that are registered are competing in this auction for their parathread to be included for progression.

There are two interesting observations to make about parathreads. One, since they compete on a per-block basis, it is similar to how transactions are included in Bitcoin or Ethereum. A similar fee market will likely develop, which means that busier times will drive the price of parathread inclusion up, while times of low activity will require lower fees. Two, this mechanism is markedly different from the parachain mechanism, which guarantees inclusion as long as a parachain slot is held; parathread registration grants no such right to the parathread."

Fees

Upgrades

"The latest upgrade on Kusama includes the ability to deploy parachains to the network. It also includes logic for running parachain slot auctions and crowdloans which can be used to crowdfund a team's auction bid. Polkadot parachain launches are expected to begin once 1) an external audit and 2) after Kusama executes at least one successful parachain auction/crowdloan and hosts one functional parachain. This means DOT could launch auctions after just 1 auction on KSM."

Staking 

  • From their FAQ (6-5-2021):

"Validators are rewarded from the inflation of the Relay Chain, transaction fees, and tips. However, they only take a percentage of the former two. The minimum stake that is necessary to be elected as an active validator is dynamic and can change over time. It depends not only on how much stake is being put behind each validator, but also the size of the active set and how many validators are waiting in the pool."

"Referendum 2 seeks to increase the maximum validators allowed on the network from 197 to 236. Polkadot has always planned to increase the validator count at least until the network hits an upper bound around 1,000 validators. The vote is currently live and should end around Sep. 15, 2020. It will require a supermajority approval to pass."

"Polkadot went a step further in a much shorter time period, having gone from 20 validators with a few dozen nominators on each, to 233 validators and a total of 7000+ nominators. These economic actors have altogether staked a whopping 652 million DOT, or a total of around 3 billion USD value — 49% of all KSM and 65% of all DOT in existence is locked in the staking system at the moment of writing."

  • From the 2020 year end review (30-12-2020):

"At time of writing, of the 1.02bn DOT which exist within Polkadot, 63% are locked into the staking system. Polkadot has been steadily increasing the size of its validator set, beginning at 197 immediately after launch and increasing by one each 24 hour period. With 274 validators, run by around 200 independent operators and backed by over 7,000 individual nominating accounts, Polkadot is arguably the most decentralised high-value (and therefore secure) network in existence."

"Hardware-wise, Polkadot’s standard validator configuration requires 64 GB of RAM, an NVMe SSD and an Intel I7-7700K processor. Not quite node-on-a-laptop level, but there are definitely faster gaming PCs than this! "

Substrate

  • "Some of these teams are preparing for Polkadot’s launch today by building on the Substrate technology stack. Polkadot parachains don’t have to be built on Substrate, but they can be and it is easy for them to be used in Polkadot. For Substrate chains to become parachains there is very little technical overhead or extra coding. The chain simply needs to bond DOT tokens to lease a parachain slot on the Polkadot protocol and access the global network of blockchains."
  • The Substrate implementation of GRANDPA is part of Substrate Frame.

Different Implementations

Interoperability

  • From their FAQ (6-5-2021) in which it seems like the interoperable part of this project is still not completely thought out:

"One of the cornerstone interoperability technologies being researched and developed for deployment on Polkadot is cross-chain bridges. Bridges come in a variety of flavors with varying levels of trust associated with them. Polkadot is predominantly researching the trust-minimized flavor that imposes economic costs on the operators of the bridge, and therefore makes it economically secure. Bridge efforts are being worked on in concert with other projects in the ecosystem."

Ethereum Bridge Frontier

"Polkadot is weeks away from the release of the first viable bridge to the Ethereum blockchain, according to a Thursday announcement from developer house Snowfork."

"SnowFork is attempting to build a completely trustless bridge between Ethereum and Polkadot’s parachains. This wouldn’t be limited to asset transfers but would allow data, derivatives, and other financial products to move up and down between the two ecosystems."

BTC Bridge

IOST

"IOST has announced it is now at the final development stage for building a cross-chain transfer bridge to the Polkadot Ecosystem."

Plasm

Other Details

XCMP

"Polkadot relies on a system called Cross-Chain Message Passing, or XCMP for short, to connect parachains with each other. Basically, each parachain must create channels with the peers it wants to communicate with and collateralize that channel with DOT. The channel can then be used to send an arbitrary message expressed in code. This includes transfers of fungible and nonfungible tokens, but also directly calling functions on the other parachain.

XCMP can already be used to “teleport” your KSM or DOT between parachains from the PolkadotJS interface. Other tokens will work with this system too, but the individual parachain teams need to coordinate to make this happen. There is just one small caveat to what we said: XCMP is not really live yet. What we have today is XCMP-lite, which stores data on the Relay Chain and is a bit more limited in terms of capacity. "

Privacy Method

"Unconventional blockchain features like on-chain identity and Kusama’s “Human Blockchain Project” have also flourished beyond expectations. Specifically, Kusama currently boasts 340 identities registered, while Polkadot has 257. These are mostly validators looking to increase their reputation factor by including real-world information about their setup on-chain so that potential nominators can know who they’re backing. Kusama’s funky Society (something akin to a DAO), which makes a blockchain out of people who tattoo themselves with the chain logo and the account index of the most recently added member, now counts 30 members with 5 more bidding to join! That’s 30 bodies with tattoos of a black canary bird out there in the wild."

Compliance

Oracle Method

  • Has its own protocol level oracle built into Substrate 2.0. From Cointelegraph (24-9-2020):

"The most important feature of Substrate 2.0 is the “off-chain worker,” a development module that lets blockchains perform advanced computations or make their own web requests to the outside world. Off-chain workers leverage Substrate nodes to perform operations that would normally be outside of the blockchain’s capabilities. In a blockchain like Ethereum, a particular computation has to be quick and limited enough to fit into a block of instructions. This excludes many types of operations that are either non-deterministic — for example web requests that may fail — or are just too complex for the resources available. Substrate 2.0 allows developers to unload these operations to the nodes running the network, which are able to perform web requests, encryption and decryption, signing of data, random number generation and other CPU-intensive tasks.

This system would allow Polkadot developers to build complex systems like price feed providers entirely on-chain, removing some of the elements of trust involved. The issue of finding reliable data sources — the core of the “oracle problem” — would still remain, but developers would have maximum flexibility in the design of their DApps and blockchains.

By contrast, oracle systems like Chainlink have their data gathering logic entirely off-chain. Smart contract developers can only access the final data submitted by the oracles, necessitating a certain degree of trust in these providers that these types of solutions try to minimize."

  • Bluzelle announced on Sept. 15 that it would integrate its services with the Polkadot network; "Nevertheless, the integration is still in a preliminary phase, Bains noted, “At this time there is not anything built to show. It’s early stages. We are working with a number of DOT projects already." Bluzelle would come as an additional oracle provider as Chainlink was previously adapted to Polkadot by the Parity team."
  • Chainlink will make off-chain data feeds, APIs, and traditional payment services available to all contracts on the Polkadot network. “We intend to drive the development of an oracle parachain together with the Chainlink team,” said W3F Executive Director Peter Czaban. Announced: October 2018

"Unlike the Ethereum version of Chainlink, which has nodes that report price information, Kusama and Polkadot parachains can individually determine whether they want to embrace Chainlink pricing data. By including their specific module, termed a “pallet,” developers can effectively bridge the Chainlink data into their respective smart contract applications.

For Polkadot Defi projects like Acala, this means that their parachain can choose to incorporate the oracle in a modular fashion. Yet, parachain projects that don’t need access to the data won’t be required to integrate the module. By extension, this means they won’t need to allocate any blockchain resources to Chainlink."

Their Other Projects

Moonbeam

"Blockchain infrastructure company PureStake said its building Moonbeam, a smart contract platform which will be compatible with the Ethereum blockchain. Moonbeam would allow developers to transfer existing Ethereum dapps and create new dapps using Ethereum development tools like Truffle and MetaMask.

“Getting traction for a new developer platform is a numbers game,” wrote PureStake founder and CEO Derek Yoo “By providing Ethereum compatibility, we give ourselves access to the largest market of existing blockchain developers.”

Moonbeam is based on Parity Technologies Substrate blockchain development framework, and would be a parachain —similar to a shard— within the Polkadot network. The platform will be released together with the Polkadot network launch."

  • Is still not live on mainnet (12-10-2020). "We are currently targeting Q2 2021 for a Moonbeam launch on Polkadot. We will be launching to Kusama later this year, in Q4 2020."

Roadmap

"Like Kusama, Wood told RL1 attendees Polkadot will roll out in five or six stages, beginning with a “chain candidate” launched by the Web3 Foundation. The candidate operates as a de facto genesis block for the network, but under the guidance of Web3 Foundation developers. If the candidate does not meet the team’s requirements during this initial phase, it will be replaced by another, Wood said.

Subsequent stages of the Polkadot rollout will issue the network’s DOT tokens to holders and form validators for the planned switch to PoS. This work will be overseen by a “Sudo module,” Wood said, that will govern how the blockchain structure is initially formed. This module will eventually be dissolved, with DOT token holders taking over the network’s governance toward the end of Polkadot’s launch.

The Sudo module and overarching rollout structure are a “staging ground as much as a proposal” for evolving the chain from something that is restricted to something that is permissionless, Wood said."

Usage

  • From the 2020 year end review (30-12-2020):

"The Polkadot community now consists of well over 100 teams and projects covering a broad set of uses. China alone has over 30 teams that are building systems, projects and components for the Polkadot ecosystem. Many of these are active in the community and household names in our Element channels including Acala, Phala, Crust and Darwinia amongst others, contributing code, feedback and encouragement for the entire Polkadot community."

Projects that use or built on it

  • An extensive list can be found here (5-9-2020).

Pros and Cons

Pros

"People find value in DOT because it promises to provide significant interoperability between a number of blockchains, while also highlighting the benefits of sharding." Some would debate the sharding part, and would rather call Polkadot its parachain design sidechain technology.

Cons

  • From Bitcoin.com (24-9-2020):

"The Delphi Digital executive notes how Polkadot’s parent, the firm Parity, had a “rocky history.” Shaughnessy also details how “voting on Polkadot could face hurdles” and “Polkadot’s council of 6–24 people (could be less or more over time) could be a centralization risk for the entire network.” News.Bitcoin.com reported on a number of Parity’s blunders during the last few years."

  • Has high inflation.
  • Parachains can have their own token and therefor do not get the same PoS safety as the Polkadot chain itself gets.
  • The idea of needing a cross-chain protocol in the middle between other blockchains is getting caught up by bridge technology and wrapped tokens.
  • From the Web3 Tech Lead (25-5-2021):

“As far as multichain apps, which I definitely see coming with asynchrony, it’s a big problem,” Petrowski said. “It’s a totally different application programming paradigm. So, spreading out is great, but also requires some new thinking on the part of developers who are using it.”

Competition

  • Melonport has also taken up the challenge of deploying the Polkadot network after the whitepaper was published. But so far hasn't delivered (2021).
  • Other L1 smart contract blockchains like Ethereum, Avalanche, Cardano, etc. Although both Polkadot and Cardano are yet to have smart contracts live (5-2021).
  • Polkadot is in competition with other cross-chain protocols, namely Cosmos. It is also competing with Bridge technology (two blockchains linking with each other through wrapped tokens).

Polkadot vs Comos

  • You can check out an explanation on how it is different (27-4-2019) then Cosmos here, or check out quoted parts down here but I would recommend to read the whole piece.

Local vs Global Security:

"Parachains are blockchains within the Polkadot network. (Update (22-10-2019): First parachain successfully connected to Polkadot) These chains have their own state machine, their own rules, and their own local block producers (collators). Each parachain is essentially an independent state machine, and can utilize any type of unique functionality, consensus algorithm, transaction cost structure, and so on. In the Polkadot Network, all the parachains are children of a parent chain called the Relay Chain, which contains some representation of a “global state” of all the parachains combined. The Relay Chain has its own consensus algorithm called GRANDPA consensus, which finalizes blocks on the parachains quickly. Through this model, parachains in Polkadot operate under a “shared security” model — if the Relay Chain is highly secure with 1000s of validators, any parachain will benefit from this strong security by simply connecting to the Relay Chain. This allows parachains to have sovereignty over their state machine and other local rules, as well as strong security shared with hundreds of other chains.

The drawback to this model is that the validators in the Relay Chain have the final say over state changes made in any parachain. For example, the validators could, for some reason, continually reject blocks that come from collators of a specific parachain and permanently block the parachain’s progress from being included in the global state. Polkadot tries to reduce this from happening by shuffling validators so that they validate random parachains, lowering the possibility of a specific validator censoring a specific parachain. Polkadot also has another class of validators called Fishermen, who continually check the validators for malicious activity."

Governance:

"(A) difference between Polkadot and Cosmos is with regard to governance and membership. In the Polkadot network, there is one single Relay Chain and some number of parachains that the validators of the Relay Chain can support. The current estimate is that there will be 100 slots for parachains, but this number can shrink or grow in the future. The Polkadot Network allocates slots for becoming a parachain via an auction mechanism — the highest bidder is able to secure a parachain slot for some fixed time duration by locking up DOTs (the native cryptocurrency of Polkadot) in a Proof-of-stake system. This means that to become a parachain in the Polkadot Network, you would need to purchase a large amount of DOTs and lock them up for as long as you want to continue being a parachain."

"In the Polkadot Network, governance decisions are determined by the amount of DOTs voters have. There will be a formal mechanism for voting on-chain, but it has not been finalized and the latest updates are here. Other than regular stake-weighted voting, Polkadot also uses the idea of a council to represent passive stakeholders. This council is a group of people, starting with 6 people and adding one every two weeks until 24 people. Each of the members is elected through an approval vote. While the specific details of this governance process are yet to be finalized, the implications are that there are ways to change parameters in the Relay Chain such as block time, block reward, etc., as well as ways to change membership rules for parachains. For example, the Polkadot governance process could change the number of DOTs required or the auction mechanism to become a parachain. A common misperception is that DOT holders can vote to kick out parachains at will, but in reality DOT holders can only change the process of membership. This means that a bonded parachain stays bonded throughout its entire lease."

Consensus mechanism:

"The Polkadot Relay Chain uses a consensus algorithm invented by the team called GRANDPA. This algorithm allows the Relay Chain to finalize many blocks from all the parachains quickly and can also accommodate a large number of validators (over 1000). Simplistically, this is because not all the validators need to vote on every single block — instead, validators can vote on a single highest block they think is valid, and the algorithm transitively applies the vote to all ancestors of that block. Through this, the algorithm finds the set of blocks which have a supermajority vote and considers that final. GRANDPA is still under development and we do not know how it will perform in the real world.

The parachains can use a variety of consensus algorithms to come to local consensus. Polkadot provides a software development kit (Substrate) that comes with 3 consensus algorithms out of the box: GRANDPA, Rhododendron, and Aurand. It is likely that more algorithms will be added to Substrate and will be usable within the Polkadot Network."

Substrate vs Cosmos SDK

"Both Polkadot and Cosmos offer a software development kit, called Substrate and the Cosmos SDK respectively. They are both intended to make it easy for developers to start building their own chains, and include various modules out-of-the-box, such as governance modules (voting systems), staking modules, authentication modules, and so on. The main difference between the two is that the Cosmos SDK supports Go, whereas Substrate supports any language that compiles to WASM (Web Assembly), giving more flexibility to developers."

  • "In conclusion, (...) the biggest advantages of Polkadot over Cosmos are the following:
  1. Application developers do not need to bootstrap their own security
  2. If they can solve data availability, interchain messaging under shared security is easier
  3. They seem to be more ambitious with Substrate (WASM, more consensus algorithms & modules out-of-the-box)
  4. Focus on arbitrary message passing better for cross-parachain contract calls. (Still unsure of use case today)
  5. Seems to have more developers building version 1.0

Conversely, the advantages of Cosmos compared to Polkadot are the following:

  1. Cosmos is live. Polkadot is not. (27-4-2019)
  2. Polkadot has a restrictive & possibly expensive parachain membership process
  3. More customizability is better for specific projects (e.g, Binance)
  4. Evil validators of parachains could spread corruption throughout entire network. Cosmos restricts corruption to only within the zone & corresponding assets
  5. Cosmos SDK used by many projects already
  6. Focus on asset transfers simpler & easier to get right. Proven use case today.
  • Another comparison between the two projects can be found on the Cosmos forum.

Polkadot and Ethereum 2.0

  • From the Polkadot wiki (7-5-2021):

"Model

The shards in Ethereum 2.0 all have the same state transition function (STF), as in the rules governing how the blockchain can change state with each block. This STF provides an interface for smart contract execution. Contracts exist on a single shard and can send asynchronous messages between shards.

Likewise, in Polkadot, each shard hosts core logic, the shards are executed in parallel, and Polkadot can send cross-shard asynchronous messages. However, each Polkadot shard (in Polkadot terminology, "parachain") has a unique STF. Applications can exist either within a single shard or across shards by composing logic. Polkadot uses WebAssembly (Wasm) as a "meta-protocol". A shard's STF can be abstract as long as the validators on Polkadot can execute it within a Wasm environment.

Like Ethereum 2.0, Polkadot also has a main chain, called the Relay Chain, with a number of shards, called parachains. Parachains are not restricted to a single interface like eWasm. Instead, they can define their own logic and interface, as long as they provide their STF to the Relay Chain validators so that they can execute it.

Polkadot, now live as a Relay Chain only, plans to launch the ability to validate up to 20 shards per block, gradually scaling up to 100 shards per block. Besides parachains, which are scheduled for execution every block, Polkadot also has parathreads, which are scheduled on a dynamic basis. This allows chains to share the sharded slots, much like multiple small airlines might share a gate at an airport.

Consensus

Both Ethereum 2.0 and Polkadot use hybrid consensus models where block production and finality each have their own protocol. The finality protocols - Casper FFG for Ethereum 2.0 and GRANDPA for Polkadot - are both GHOST-based and can both finalize batches of blocks in one round. For block production, both protocols use slot-based protocols that randomly assign validators to a slot and provide a fork choice rule for unfinalized blocks - RandDAO/LMD for Ethereum 2.0 and BABE for Polkadot.

There are two main differences between Ethereum 2.0 and Polkadot consensus:

  1. Ethereum 2.0 finalizes batches of blocks according to periods of time called "epochs". The current plan is to have 32 blocks per epoch, and finalize them all in one round. With a predicted block time of 12 seconds, this means the expected time to finality is 6 minutes (12 minutes maximum). [2] Polkadot's finality protocol, GRANDPA, finalizes batches of blocks based on availability and validity checks that happen as the proposed chain grows. The time to finality varies with the number of checks that need to be performed (and invalidity reports cause the protocol to require extra checks). The expected time to finality is 12-60 seconds.
  2. Ethereum 2.0 requires a large number of validators per shard to provide strong validity guarantees. Polkadot is able to provide stronger guarantees with fewer validators per shard. Polkadot achieves this by making validators distribute an erasure coding to all validators in the system, such that anyone - not only the shard's validators - can reconstruct a parachain's block and test its validity. The random parachain-validator assignments and secondary checks performed by randomly selected validators make it impossible for the small set of validators on each parachain to collude.

Message Passing

Shards in Ethereum 2.0 will have access to each other's state via their crosslinks and state proofs. In the model of Ethereum 2.0 with 64 shards, each one posts a crosslink in the Beacon Chain for every block, [4] meaning that shards could contain logic that executes based on some light client proof of a transaction on another shard. [7] Ethereum 2.0 has not released a specification for which nodes pass messages between shards.

Polkadot uses Cross-Chain Message Passing (XCMP) for parachains to send arbitrary messages to each other. Parachains open connections with each other and can send messages via their established channels. Given that collators will need to be full nodes of the Relay Chain as well, they will be connected to one another and will be able to relay messages from parachain A to parachain B.. Messages do not pass through the Relay Chain, only proofs of post and channel operations (open, close, etc.) go into the Relay Chain. This enhances scalability by keeping data on the edges of the system.

Polkadot will add an additional protocol called SPREE that provides shared logic for cross-chain messages. Messages sent with SPREE carry additional guarantees about provenance and interpretation by the receiving chain.

Governance

Ethereum 2.0 governance is still unresolved. Ethereum currently uses off-chain governance procedures like Github discussions, All Core Devs calls, and Ethereum Magicians to make decisions about the protocol. [8]

Polkadot uses on-chain governance with a multicameral system. There are several avenues to issue proposals, e.g. from the on-chain Council, the Technical Committee, or from the public. All proposals ultimately pass through a public referendum, where the majority of tokens can always control the outcome. For low-turnout referenda, Polkadot uses adaptive quorum biasing to set the passing threshold. Referenda can cover a variety of topics, including fund allocation from an on-chain Treasury or modifying the underlying runtime code of the chain. Decisions get enacted on-chain and are binding and autonomous.

Upgrades

Upgrades on Ethereum 2.0 will follow the normal hard-fork procedure, requiring validators to upgrade their nodes in order to implement protocol changes.

Using the Wasm meta-protocol, Polkadot can enact chain upgrades and successful proposals without a hard fork. Anything that is within the STF, the transaction queue, or off-chain workers can be upgraded without forking the chain.

Conclusion

Ethereum 2.0 and Polkadot both use a sharded model where shard chains ("shards" in Ethereum 2.0 and "parachains/parathreads" in Polkadot) are secured by a main chain by linking shard state in the blocks of the main chains. The two protocols differ in a few main areas. First, all shards in Ethereum 2.0 have the same STF, while Polkadot lets shards have an abstract STF. Second, governance processes in Ethereum 2.0 are planned to be off-chain and thus require coordination for a hard fork to enact governance decisions, while in Polkadot the decisions are on-chain and enacted autonomously. Third, the validator selection mechanisms are different because Polkadot can provide strong availability and validity guarantees with a smaller number of validators per shard."

GRANDPA and Casper FFG

  • From the Polkadot wiki (7-5-2021):

The two main differences between GRANDPA and Casper FFG are:

  1. "in GRANDPA, different voters can cast votes simultaneously for blocks at different heights
  2. GRANDPA only depends on finalized blocks to affect the fork-choice rule of the underlying block production mechanism"

Team, Partners, Funding.

"Web3 Foundation has commissioned five teams and over 100 developers to build Polkadot."

Partners

  • Is 'friends' (partnered) with:

ZCash, Melon, Golem, Gridsingularity (Gavin Wood is a co-founder), Waves, Fragment, Colony, Gnosis, BigChain DB, Soramitsu, Slock.it & BlockEx Ltd.

"New Polkadot Ecosystem Fund launched by Web3 Foundation and Polychain Capital to support teams building Polkadot parachains."

  • Polkadot will be the first non-ethereum blockchain to integrate Chainlink. "Chainlink is set to become the first and primary oracle provider for all Substrate-based chains and eventually the entire Polkadot network," Polkadot announced (25-2-2020).
  • Is mentioned as a partner on Ontology's website (2-11-2020).
  • Partnered with IOST to create a bridge (5-2-2021).
  • Mentioned (12-7-2021) as a partner on the website of DFI.Money (YFII)

Funding

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