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>>>> What is Polkadot? What is a Parachain? How do parachains auctions work?

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Avatar for jaimewilliam
Written by   3
5 months ago

Why is DOT doing a x10?

For those who do not know what Polkadot is, this is a protocol that allows data to be transferred between blockchains, it can be seen as a layer 0 that allows connecting different blockchains and "exchanging information" and operating with each other.

This multi-chain framework solves one of the three main problems of Blockchain technology: Interoperability. As we know, it is not possible to send bitcoins and receive ether, at least not in a decentralized way; because thanks to Polkadot, this interoperability will be possible between the blockchains that participate in said network. This is thanks to parallelizable chains called parachains.

What is a Parachain?

The way in which these blockchains connect with each other is through the so-called "parachain", another type of blockchains that in turn connect to the main network called relaychains. In this way blockchains can "communicate with each other" and operate.

That's a simplistic way of explaining it, obviously, for a more complete explanation read the whithepaper.

So far Polkadot will host only 100 parachains, which means that there will be 100 interconnected blockchains which will make up the polkadot network.

This project is also characterized by its scalability and performance in transactions, as well as not requiring forks to update.

The DOT token

The DOT token is the currency of this project and has three uses:

1) The first is governance, which means that to vote for changes and decision-making within said network, the dot token is used.

2) This token is also used to reward the validator nodes.

3) The most important use of this token is as a necessary token for projects to access the parachains: This is done through auctions, the projects that collect more dots may be part of the polkadot ecosystem for a period of two years.

How do parachains auctions work?

The project that wishes to access a parachain must collect the highest number of DOTs in the auctions, the interesting thing is that said DOT used in the auctions is not granted to any entity, but is blocked for two years.

You could participate in the parachains auctions by betting your DOTs on the projects that seem promising to you, these projects when winning the auction will reward your participation with their own tokens, while those DOTs will be blocked for two years and at the end of that period they will be automatically returned to your wallet.

It is worth clarifying that the dynamics of the auctions are made up of rounds where 5 positions are auctioned for said network. Which means that there will be 20 rounds of auctions.

So as the auctions progress, more tokens will be blocked and fewer will remain in circulation.

Why do I think DOT will do a x10?

The first round of 5 parachains auctions has just finished and more than 100 million DOTs have already been blocked. Almost 10% of the DOTs blocked in the first auction round!

By the way, I forgot to mention that polkadot has another testnet called Kusama, which works in a similar way to polkadot, it is practically a copy, only that is where changes are first implemented and tests are carried out. It is a test network.

Well, it turns out that Polkadot has had a similar behavior to Kusama only on a scale 10 times smaller. If we review the first kusama auction, it is similarly blocked approx. 10% of your tokens in your first auction round.

If polkadot follows the same pattern as Kusama, which has been similar so far, in the third round of auctions it will be able to block up to 30% of the DOTs.

Remember that there are 20 rounds of auctions.

How many DOTs will be blocked in the 20 auction rounds?

To state a number would be too speculative, but keep in mind that kusama blocked 30% of its tokens in only 15 auctions out of 100.

Beyond that, it is worth noting that the true value of Polkadot is in its technology and everything that can be done with the so-called layer 0:

The interoperability of this network will allow, just to mention one utility, the creation of a new generation of decentralized exchanges where all types of cryptocurrencies can be exchanged, including Bitcoin and Ethereum, in a totally decentralized way.

The more projects join, the more valuable said interconnected ecosystem will become.

Some cool projects within Polkadot and kusama:

-Subsocial: Anyone can create their own social network.

-Phala: decentralized cloud computing.

-Bit country: Anyone can create their own metaverse.

-Nodle: Internet of things using smartphones and Bluetooth.

-Coinversation: any asset outside the crypto ecosystem (gold, Oil, shares, etc.) may be represented by a synthetic token.

-Among many others that by being able to interconnect with each other will make polkadot a very attractive and valuable ecosystem.

Finally, remember that this is not investment advice and that everyone is responsible for where they invest their dollars.

Greetings!


 

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Comments

I always found that Polkadot confused me the most when learning about new cryptos. This article really helped me further understand Polkadot's mechanisms and massive potential. Thanks!

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