What is Polkadot?

Polkadot is a decentralized multi-chain network, consisting of a base chain known as the Relay chain, which secures its associated Layer 1’s (L1), known as parachains.

The network was created by Ethereum Co-Founder Gavin Wood and its whitepaper was published in 2016. The Polkadot ICO took place in 2017, however its token DOT did not begin trading until August 2020.

How does Polkadot Work?

Polkadot is a sharded network, which means it relies on the communication of multiple networks to function properly. Polkadot’s ecosystem consists of its Relay chain, and the surrounding parachains.

The Relay chain is the central hub of the Polkadot ecosystem. It functions as a “layer zero” network, and is responsible for providing security and interoperability to the parachains.

In its current form, the Relay chain’s main responsibility is to anchor the ecosystem. It does not have smart contract capabilities, and runs on a Nominated Proof-of-Stake consensus mechanism (NPoS) to confirm transactions and secure the network.

Parachains are customizable L1s that exist on top of Polkadot’s Relay chain. Each chain has its own respective ecosystem that is fully interoperable with the other parachains.

This architecture is designed so that the independent networks can work together and collaborate with each other based on their specific niches, structures, and dApps in a decentralized manner.

Each parachain can then be designed for its own specialization, but gets to share the security of the entire Polkadot ecosystem thanks to the Relay chain.

The JAM Gray Paper

The Join-Accumlate Machine (JAM) is a new initiative proposed by Polkadot. The Gray Paper is Gavin Wood’s iteration of a whitepaper for JAM, which is an upgrade that will allow for the permissionless deployment of dApps as rollups on its JAM chain in lieu of the Relay chain.

The JAM chain will be introduced in a singular upgrade, and once implemented it will operate without any traditional transactions. After JAM replaces the Relay chain, the layer will become transactionless, meaning that all actions on the layer are to be run permissionlessly and without interference from a centralized party.

There is no current timeline on the release of JAM, and the upgrade is still in the research and development phase.

Polkadot Ecosystem

The ecosystem can support a maximum of 100 parachains at once. Some of the more notable parachains include Manta Network, Acala, and Centrifuge.

Many of these parachains are designed for their own specific niche. Mantra for example is focused on privacy, whereas Centrifuge is focused on real world assets while Acala is acts as a DeFi hub on Polkadot.

Messari also reported that active addresses in the Polkadot ecosystem hit an all time high in Q1 of 2024.

Active Addresses on Polkadot. Source: Messari

Polkadot currently sits at a market capitalization (market cap) of $8.1 billion making it the 17th largest token by market cap per CoinGecko.