Polkadot Review

Summary

Polkadot is a protocol that enables independent blockchains to exchange information. The defined purposes behind the project are:

  • To enable applications and smart contracts on one blockchain to transact with data and assets on other chains;
  • To run several parachains, each processing multiple transactions in parallel, allowing networks to enjoy infinite scalability;
  • To benefit from shared security, where individual chains leverage collective security without having to start from scratch to gain traction and trust.

The unique technical aspects behind Polkadot’s heterogeneous multichain technology are the use of relay chains, which coordinate consensus and transaction delivery between chains; parachains, the connected blockchains running transactions parallely to one another; and bridges, the link to blockchains that have  their own consensus, such as Ethereum.

 

Industry Need

Polkadot’s vision is to enable a truly decentralized Internet which serves the true promises of blockchain technology, where independent blockchains exchange information trustlessly, and where the creation and mass adoption of decentralized applications will distribute power and equality for the common good of the world.

Blockchains may be applied to a wide variety of fields, including Internet of Things (IoT), finance, governance, identity management, web decentralization, or asset tracking. That said, despite the promises, we have still not witnessed a significant real-world deployment of present technology.

The five key points of failure recognized by Polkadot of current blockchain technology that they aim to solve are:

  • Scalability. Existing blockchain technology cannot support the amount of transactions needed to enable a decentralized economy.
  • Governance. Current blockchain governance is developed around overly simplistic consensus mechanisms that incorrectly reward the few at the expense of the many.
  • Isolability. Blockchain networks are in isolation of one another, siloed with no communication or interoperability between them.
  • Developability: Decentralized app development is limited by the lack of integration opportunity given the previous three points of failure.
  • Applicability. Due to a lack of developability, end consumer use cases are never realized.

 

Solution

Polkadot aims to become a network that connects blockchains, allowing new blockchain designs to communicate and share security, while still retaining their entirely customized and unique state-transition functionality (virtual machines, consensus protocols, etc.).  At a high level, Polkadot aims to solve the problems of blockchain interoperability, scalability, and shared security. With Polkadot, developability is no longer limited, and applicability is therefore widened to real world use cases.

 

Tech Analysis

Polkadot’s goal is to provide a scalable, heterogeneous multichain that is built under a minimal, simple, general, and robust design. Unlike previous single blockchain implementations, Polkadot provides no specific functionality. Instead, it provides a relay chain layer upon which a larger number of validatable, globally-coherent, dynamic data structures (no requirement to be a ‘blockchain’) can be hosted in parallel. These are called parachains (short for parallelizable chains).

Polkadot may be considered the equivalent to a group of independent chains, except for the features of shared security, and trust-free interchain communication. These are the main points behind Polkadot’s scalability advantage. To provide a brief but technically comprehensive overview of the system as a whole, we’ll explore:

  • A description of their underlying consensus mechanism design.
  • The Nominated Proof of Stake algorithm.
  • How Parachains work.
  • The process of Interchain Communication.
  • The use of Bridges to integrate with other blockchains.

 

Tech Breakdown

Consensus mechanism design

In the Polkadot Network, a low-level consensus over a set of mutually agreed valid blocks is reached through an asynchronous Byzantine fault-tolerant algorithm. Its integration is inspired by the simplicity of Tendermint, and the efficiency of HoneyBadgerBFT at identifying defective network infrastructure, given a set of mostly benign validators. This particular consensus design is important because it requires the means of choosing and setting validators and incentivizing them to be honest under any form of network deployment, without any particular organization or trusted entity required to maintain it.

Nominated Proof of Stake

Polkadot requires the measurement of stake for any particular account, in order for validators to be elected. These are chosen infrequently, once per day at most, but can go up to once per quarter the NPoS scheme. Nominated Proof of Stake is basically a form of Delegated Proof of Stake, where nominators choose validators by staking tokens on the presumed strongest candidate, and validators in return are bonded by their stakes to not act in any misbehavior that may be punishable by stake slash. This algorithm ensures all token holders are incentivized to participate in consensus. Through NPoS, Polkadot maintains checks and balances across the system to encourage game theoretic situations to run under strong incentives for benign outcomes. 

Parachains

Parachains are a simpler form of a blockchain, which connect to the security and trustless transactions of the relay chain, similarly to the concept of sharing in Ethereum. Each parachain is independent and transactions can be executed parallelly across all parachains, while using the same source of security. These are important factors for network scalability, as distributed computations won’t need to fully depend on the root relay chain. At the core of Polkadot, parachains meet the vision to enable a truly decentralized Internet, where different decentralized apps and services connect under a common communication point, each with their own custom settings but while sharing a common pool of security.

Interchain communication

When a transaction is made on a parachain, the resolution is sent to a second parachain or even the original relay chain. This is important as it ensures that transactions are processed sequentially even when they’re executed on different chains. With a network of interconnected blockchains, without a system ordering the transactions, double spending would be very easy. Transactions on Polkadot are minimal, as there is no associated payment, and each transaction is made up only of an origin and an address. They are also tamper-proof, and through a Merkle tree structure, queuing takes place between parachains as transactions move from one to the other.

Involved across the process, there are several roles:

  • Validators. In charge of securing the relay chain by staking DOTs, validating proofs from collators, and participating in consensus.
  • Nominators. In charge of selecting good validators by stake.
  • Collators. In charge of collecting parachain transactions from users and producing state transition proofs for validators.
  • Fishermen. The final security layer, monitoring the overall network and proving bad behavior to validators.

Interchain communication is fundamental to Polkadot’s approach for interoperability, as it brings tamper-proof, logical order to a free of payment transaction flow.

Bridges

For blockchains that are not necessarily parachains but still need to connect to the network, Polkadot features bridges, providing these chains the opportunity to be interoperable with each other, within reasonable security standards. There are methods of connecting Polkadot interoperability with Ethereum via transaction-forwarding contracts and logs. In the case of Bitcoin, despite its complexity, it is not totally unrealistic to establish a reasonably secure Bitcoin interoperability virtual parachain, but it would require efforts under an unexpected timeframe from developers in both networks. Ultimately, bridges are an important asset to Polkadot’s value proposition, as it builds on the promise of multichain communication, without necessarily being part of the network, but simply by establishing a non standardized communication path. However, the functionality and efficiency will be much more limited than with relay chains. 

 

Verdict

Relay chains, interchain communication, and bridges, are the core and necessary elements for Polkadot’s approach to blockchain interoperability, with the added features of shared security and cost-free transactions. The architecture achieves its mission of minimalism and simplicity and at the same time general and robust. Within and outside of the industry, Polkadot is a viable and elegant option for blockchains to no longer be siloed, and brings interesting incentives to new blockchains to benefit from increased security. While Polkadot shows great promise in the vision of  enabling a decentralized Internet, the main concern with this technology is that relay chains are presumed the hardest of all interoperability approaches; at the expense of not being a connected parachain to the network, custom bridge solutions require heavy-lifting.

 

Roadmap

  • Networking subsystem: This is the means by which a peer network is formed and maintained. First an altered devp2p, then libp2p.
  • Finalisation mechanism: Optimistic BFT Proof of Authority consensus mechanism. The mechanism allows the proof of misbehaviour for the dismissal of malicious validators.
  • Parallelised candidate selection: This allows multiple independent items to be agreed upon under a single series based upon subjective reception of the partial set of validator statements. Used as an input to the finalization mechanism.
  • Parachain implementation: This will include an integration with the Proof of Stake chain, allowing the parachain to gain consensus without its own internal consensus mechanism. More than likely this will include a WebAssembly-based contract execution architecture.
  • Transaction processing subsystem: An evolution of the parachain and relay-chain, this will allow for transactions to be sent, received, and propagated. It includes the designs of transaction queuing and optimised transaction routing on the network layer.
  • Transaction-routing subsystem: This introduces more specifics into the relay-chains’ behaviour. Management of the ingress/egress queues and network protocol with means of directed transaction propagation, ensuring independent parachain collators are not overly exposed to transactions that are not of interest.
  • Relay chain: This is the final stage of the relay-chain, allowing the dynamic addition, removal and emergency pausing of parachains, the reporting of bad behaviour and includes implementation of the ‘fisherman’ functionality.
  • Independent collators: This is the delivery of an alternative chain-specific collator functionality. It includes proof creation (for collators), parachain misbehaviour detection (for fishermen) and the validation function (for validators). It also includes any additional networking required to allow the two to discover and communicate.

Source: https://polkadot.network/#roadmap

 

Verdict

Project goals are clearly outlined and well aligned in regards to the technical challenges behind Polkadot’s architecture. We presume that all objectives were reached, as there is no timing information provided on the official website, and we rely on the history of Medium updates to keep track of Polkadot’s promising progress. This includes progress updates on parachains, bridges, and the consensus algorithm back in January, a first and a second live proof of concept updates in May and July respectively, and the announcement of expected full launch by Q3 2019.

 

Token Economics

Token Acronym: DOT

Distribution: 5M DOTs were sold under a Spend-All Second Price Dutch auction. This means that “tokens were offered high in the start, and lower throughout the auction period in a predefined scheduled. The auction closes once orders received at the current provisional price are enough to purchase the entire 5 million DOTs. You don’t bid on a number of DOT tokens, but rather on an amount to spend, and thus receive more tokens as the auction continues and price lowers.” Source: https://polkadot.network/Polkadot-lightpaper.pdf

Token release schedule: The ICO was issued on October, 2017

Intrinsic Token Value: The DOT has 3 purposes:

  • Governance. DOT holders have complete control of the protocol. All privileges are given to the relay chain participants, including the management of events such as protocol upgrades and fixes.
  • Operation. Under game theory situations, token holders are incentivized to behave honestly. Good actors are rewarded, while bad actors lose their stake in the network.
  • Bonding. New parachains require the bonding of tokens and the removal of bonded tokens penalizes inverse events. This is simply a form of Proof of Stake.

 

Verdict

Polkadot presents a reasonable marketcap and distribution, as it is one of the most popular projects bringing an approach to blockchain interoperability. The token’s intrinsic value directly correlates with the aims and purposes of the project, with well-established incentives across all the network’s features and functionalities.

 

Team & Leadership

Polkadot was initiated by the Web3 Foundation and commissioned to Parity Technologies to build the Polkadot Network. Web3 Foundation leads the vision of a serverless, decentralized Internet, with Polkadot as their sole and leading project moving forward. “The Web3 Foundation nurtures and stewards technologies and applications in the fields of decentralized web software protocols, particularly those which utilize modern cryptographic methods to safeguard decentralization, to the benefit and for the stability of the Web3 ecosystem.” Source: https://web3.foundation/

The council behind the Web3 Foundation features:

  • Dr. Gavin Wood, President
    • Co-Founder and Director of Parity Technologies, as well as former CTO and Co-Founder of Ethereum
    • Designed state-of-­the-art analysis tools and programming languages, as well as co­-founded several technology start­ups
    • Ph.D. in Computer Science from the University of York
  • Dr. Aeron Buchanan, Vice President
    • Head of European Operations and Regulatory Compliance for Ethereum
    • Doctorate from the Robotics Department of Oxford University in the field of Computer Vision
    • Designed algorithms for UAVs, started tech companies building light-show controllers and blockchain technology
  • Peter Czaban, Executive Director
    • Masters of Engineering degree at the University of Oxford
    • Worked across defense, finance, and data analytics industries, working on mesh networks, distributed knowledge bases, quantitative pricing models, machine learning, and business development
    • Contributed to the Parity Ethereum Client development, in particular looking at consensus algorithms
  • Reto Trinkler
    • Chairman and Co-Founder of Melonport AG
    • Background in mathematics from ETH Zurich
    • Advisor to the Multichain Asset Management Association
  • Ryan Zurrer
    • Principal and Venture Partner at Polychain Capital
    • Active investor and miner in the blockchain ecosystem since 2012
    • Worked in investment banking with a focus on financial technology

 

Verdict

Polkadot, led under the vision of the Web3 Foundation and the execution of Parity Technologies features one of the industry’s leading teams. The teams are experienced, both technically and in business, with a strong understanding of the blockchain industry and of how to execute developments in the Polkadot roadmap.

 

Partners

Besides the fact that the team is a combination of the Web3 Foundation and Parity Technologies, Polkadot features numerous industry relevant technical partnerships to integrate Polkadot interoperability, including:

  • Zcash, the first permissionless cryptocurrency utilizing zero-knowledge cryptography.
  • Melonport, a crypto asset management platform.
  • OmiseGO, a next-generation financial network and decentralized economy.
  • Grid Singularity, an open, decentralized energy data exchange platform.
  • Waves Platform, a platform to store, trade, manage, and issue digital assets.
  • Shard, a decentralized community publishing for video game developers.
  • Colony, a platform for open organizations.
  • Gnosis, new market mechanisms to enable the distribution of resources.
  • BlockEx, a digital asset exchange platform.
  • BigchainDB, a database with blockchain functionalities.
  • Soramitsu, a blockchain company focused on digital identity management.
  • Slock.it, a blockchain enabling the economy of things.

 

Verdict

Polkadot partnerships include some of the largest and most reputable names in the industry; they are seemingly sufficient in the goal of bringing Polkadot interoperability integration across a wide variety of decentralized applications and services.

 

Marketing & Social

Twitter: 23.8K followers, and 810 tweets since July, 2013.

Riot: 3.3K members with daily discussions.

Medium: 912 followers with a good flow of articles, including recent ones, with hundreds of claps.

GitHub: Used only as storage for documentation; does not feature any relevant code.

 

Verdict

Moderate activity online, with relatively low follower given how long they’ve been active, but the team maintains active, daily conversation and updates. Despite the lack of presence on GitHub, Polkadot has provided a series of praised developer updates since their proof of concept launch.

 

Red Flags

  • Extremely heated and competitive space of blockchain interoperability. Will take a lot of effort to prove leadership position.
  • Relay chains is the most relevant form of interoperability today, but also the most difficult to implement. Polkadot bridges are an alternative, but they’re no better than most other interoperability initiatives.
  • It will be difficult to convince existing blockchains to enable Polkadot interoperability standards into their architecture. This will only happen if Polkadot is ubiquitous across the industry.
  • A global effort towards setting an interoperability standard could also make Polkadot obsolete.

 

Conclusion

Polkadot features a comprehensive architecture, clear token economics, an experienced team, and a wide variety of highly reputable partners to bring on their vision of the decentralized Internet. As one of the leading names in interoperability, Polkadot’s integration of relay chains, parachains, and bridges is a viable and elegant alternative to siloed blockchain networks, and presents incentives for blockchains to work together in return for more interesting real-world applications and shared security. In conclusion, we believe Polkadot will come to be one of the leading names behind the vision of the decentralized Internet, but likely not the only one.

 


 

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Disclaimer: This is not investment advice, merely our opinion and analysis on the project. Do your own research.

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