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What is Polkadot (DOT)?

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For years, Polkadot (DOT) was among the most mysterious and controversial products in the new-gen blockchains segment. Now, when Polkadot nodes are up and running in mainnet for seven months, the time has come to dive deeply into its mechanisms and tokenomics.

Cross-chain interoperability (the opportunity of different blockchains to interact seamlessly with no third-party interference) seems to be the ‘holy grail’ of blockchain progress in 2021. Polkadot Network (DOT) is the first mainstream project that addresses this ambitious goal in a holistic manner.

Polkadot is promoted as the most advanced technological concept of the Web3 movement, i.e. flagship decentralized trust-free protocol when users control their own data with no intermediaries. Polkadot nodes allow multiple networks to exchange information directly and seamlessly: it works like a ‘blockchain of blockchains’.

Relay Chain is an instrument that facilitates the interaction between parachains, so, as long as the parachain can compile to Wasm and adhere to the Relay Chain API, it can exist as Polkadot’s shard.

Parachains create and propose blocks to Validators. Validators check them before including them to the network, so the Collators (full nodes of parachains) are free from any responsibility for network security.

As a result, Polkadot nodes’ finality and availability are guaranteed by validators and Relay Chain mechanisms with no risks of ‘slashing’ for connected parachains itself.

Should some network that utilizes different sorts of protocol (e.g. Bitcoin-like blockchain) be interested in connecting to Polkadot (DOT), it can do so through ‘bridges’, specific parachains that guarantee two-way compatibility.

Parachains interact with each other through a Polkadot’s own Cross-Chain Messaging Protocol (XCMP). As a result, the whole system of Polkadot nodes becomes scalable, trustless and consensus-agnostic for its prospective customers.

DOT token serves three key functions in the Polkadot network: governance, staking and bonding. In a nutshell, it is the technological framework for the rights and obligations of Polkadot nodes’ participants.

Firstly, the holders of DOT token can participate in crucial governing referendums on network fee adjustments, new parachains addition, upgrades and fixes to the Polkadot nodes protocol, and so on.

Then, DOT is used as the collateral for the ‘good behavior’ of network actors. Fair validators of Polkadot nodes can be awarded DOT for their work, while the malefactors will be heavily penalized by reducing their DOT balance. This resembles closely the way modern Proof-of-Stake and Delegated-Proof-of-Stake systems operate.

Also, DOT tokens are used by Parachain operators for bonding: to connect a new parachain, its maintainer needs to ‘lock’ some DOT tokens for the whole period of connection. Once this or that parachain isn’t active in Polkadot anymore, its DOT collateral is released.

Typically, DOT token is treated as one of the most amazing opportunities for mid-term and long-term investing. Swiss-incorporated investment firm 21Shares AG even released first-ever DOT Trust to let non-crypto investors be exposed to DOT price performance.

At printing time, DOT is changing hands at $20,3 or more than 120 per cent up in 2021.

Firstly, it cures major market’s pain, the lack of cross-chain interoperability. Then, it has already delivered solid infrastructure: besides active and stable mainnet, it launched Kusama sandbox platform, Karura DeFi-focused parachain and Polkastarter, a framework for decentralized token offerings (IDOs).

Finally, its native token DOT is integrated into Polkadot’s operations in a very sophisticated manner. So, its performance will highly likely go hand in hand with the protocol progress.