Could Polkadot And Its Gang Of Parachains Be Ethereum’s Killer?

Could Polkadot And Its Gang Of Parachains Be Ethereum’s Killer?
Jonathan Hobbs

over 1 year ago5 mins

  • Ethereum is by far the largest and most successful smart contract blockchain, but it’s got rivals with great technology that are trying to outdo it.

  • Polkadot, founded by Ethereum’s former chief technology officer Gavin Wood, splits its blockchain into different components to make it faster and slicker than Ethereum.

  • Buying DOT, or tokens in Polkadot parachain auctions, could be good long-term plays. A more advanced strategy is to buy DOT and lend it to would-be parachain winners in exchange for tokens of those projects.

Ethereum is by far the largest and most successful smart contract blockchain, but it’s got rivals with great technology that are trying to outdo it.

Polkadot, founded by Ethereum’s former chief technology officer Gavin Wood, splits its blockchain into different components to make it faster and slicker than Ethereum.

Buying DOT, or tokens in Polkadot parachain auctions, could be good long-term plays. A more advanced strategy is to buy DOT and lend it to would-be parachain winners in exchange for tokens of those projects.

There’s always speculation about which blockchain might someday be the “Ethereum killer”, able to knock the No. 2 blockchain off its perch. And it seems like Polkadot and its parachain technology is shaping up to be a prime suspect…

Could Polkadot be a better blockchain than Ethereum?

Well, it certainly seeks to address some of its shortcomings. Ethereum co-founder Gavin Wood played a huge role in building the No. 2 blockchain from the ground up. He was the project’s chief technology officer, and he even invented the Solidity programming language that coders use to write Ethereum smart contracts – complex crypto transactions that make things like DeFi, NFTs, and blockchain games possible. But in 2016, Wood went solo to design a new blockchain that could do all the things Ethereum could do, only better. Enter Polkadot.

One of the problems with Ethereum, Wood thought, was that it would be a nightmare to scale. See, with Ethereum, there’s only one blockchain with limited space to process transactions. And as demand for that space goes up, the network can work itself into a traffic jam. That can make transactions slow and expensive, as users bid up transaction fees to jump to the front of the line. And things get even worse when you have tons of complicated smart contract transactions all trying to squeeze their way through the same blockchain.

Polkadot solves this problem by splitting its blockchain into different components, essentially creating more lanes on the freeway for that traffic to slip through. First, there’s the relay chain – it’s the core blockchain, and it only processes transactions that keep Polkadot running smoothly.

Then there are separate parachains that plug into the relay chain and run smart contract transactions. Parachains are up-and-coming crypto projects with their own tokens and networks – they can have their own rules but still benefit from the security and network effects of the relay chain. Parachains, the relay chain, and other external blockchains (like Bitcoin, for example) can all easily communicate with one another through bridges.

How do you gain exposure to Polkadot?

If you fancy buying into the Polkadot ecosystem, you’ve got three possible ways to play this, each with varying degrees of simplicity, and varying risk and reward potential.

1. Buy DOT tokens.

Just like ether is the fuel for Ethereum, DOT is the fuel for Polkadot. Users need it to pay fees on the network, vote on upgrades, and pay for parachain auctions (more on that later). So the larger the Polkadot network grows, the greater the demand for DOT, and, generally, the higher the token price.

Polkadot is now the 11th biggest digital asset, with a total market value of around $7 billion – while ether is ranked second with about $160 billion. Like most digital assets, DOT has come down a lot in price this year, which may present an opportunity: it’s trading at around $6.50 – down almost 90% from its all-time high of $52.

2. Buy tokens of Polkadot parachains.

Earlier stage crypto projects plug into the relay chain to share the benefits of the Polkadot ecosystem. And since there’s value for those projects in doing that, they bid (in DOT) against one another in regular “parachain slot auctions”. The winner of each auction becomes a parachain for 96 weeks, with an option to renew.

Of the 20-plus active parachains today, you might want to research Moonbeam (GLMR), Acala (ACA), Parallel Finance (Para), and Efinity (EFI). Keep in mind that these may be higher-risk investments, as they are smaller and less established blockchains than Polkadot itself.

3. Lend your DOT to would-be parachain winners.

This option is strictly for crypto degens, but could also lead to higher rewards if you get it right. See, there are over 70 free parachain slots still there for the taking. And projects that’ll compete for those slots will need to raise lots of DOT through “crowdloans” from outside investors to boost their chances of winning an auction. You can be part of the crowd too, by lending DOT to those projects.

If your project wins an auction slot, your DOT is locked up for the 96 weeks while that slot is taken, which is a risk because you won’t be able to sell or stake that DOT over that time. The potential upshot? You’ll get free tokens for those projects depending on: how much DOT you lend out, and the terms of the crowdloan. If you lend DOT to a project that doesn’t win, you’ll get your DOT back a few days after the auction.

Polkadot crowdloans available as shown on parachains.info.
Polkadot crowdloans available as shown on parachains.info.

It’s a complicated process doing all this through the Polkadot blockchain, but this site could help you navigate it. Crypto exchanges like Kraken and Binance may offer a more user-friendly way to get involved, but they could take a cut of your token rewards in return.

So will Polkadot be the Ethereum killer?

I’m still bullish on ether in the long run, and you can read more about my thoughts on that here. And though Ethereum is way ahead of the pack right now, there’s a range of other smart contract blockchains with exciting tech that are trying to outdo the No. 2 blockchain. Aside from Polkadot, investigate Binance Smart Chain (BNB), Cardano (ADA), Avalanche (AVAX), Solana (Sol), and Near Protocol (NEAR), which each have something good going for them. So rather than trying to find “the” Ethereum killer, you’re probably better off spreading your bets among the key suspects.

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