Polkadot

A case for DOT

Overview

  1. Polkadot (DOT) presents a fundamental redesign of blockchains and an alternative to smart-contract platforms such as Ethereum. Gavin Wood is the founder of DOT and was also a co-founder and the original CTO of Ethereum.
  2. Wood believes the future will contain not just one dominant but many differing blockchains. This is primarily based on the observation that no matter how well a general-purpose system is built, eventually it will perform sub-optimally when compared to special-purpose systems in at least some use cases.
  3. DOT’s primary focus is to make interoperability between vastly differing blockchains easy. The DOT Layer-0 protocol is like a “federal government” that can support arbitrarily many custom Layer-1 “state governments” called parachains. The DOT protocol has a basic “constitution” outlining how these parachain “states” can interact. It also defines ways that the DOT common “constitution” can be amended by vote as needed without risking a hard-fork in the network. This provides much more flexibility than can be found on more static systems such as Ethereum 1.0 or 2.0.
  4. Specifically, DOT allows parachains to share security and governance solutions across the entire DOT ecosystem. As these are very difficult to implement correctly, sharing these solutions makes them much more likely to be done well. These solutions can be changed on a particular parachain if desired.
  5. Because the central DOT protocol contains only the minimum subset contract in common to allow all parachains to function, it is smaller and faster to build than many Layer-1 systems. However, once built it makes building Layer-1 parachains much simpler.
  6. DOT has a sister-chain called Kusama which is used to test features before bringing them to DOT. Unlike other projects, Kusama is a real functioning blockchain with real value attached to it. However, that value is much less than DOT and understood to be more fast-paced and open to experimentation. Because most features are first tested by trying them live with real value at stake, developers can be more confident of the correctness of their code than is possible by just deploying to a testnet that holds no real value.
  7. Wood is expecting that if this Layer-0 protocol or “constitution” is built, companies and entrepreneurs will build many special-purpose Layer-1 parachains on top of DOT for different purposes. To this end, DOT also provides extensive tooling to help make designing a custom parachain as simple as possible for developers.
  8. DOT can also connect with other blockchains that are not running as part of the DOT network. It does this through oracles that carry data back and forth between blockchains. Chainlink, the largest system of oracles in blockchain, is developing deep integrations with DOT.
  9. The DOT team has created solutions for supporting Ethereum. First, it is supported by a parachain that is able to run code written for Ethereum or the Ethereum Virtual Machine (EVM). This Layer-1 parachain is called Moonbeam and it is able to run Ethereum code with minimal changes. Second, DOT also supports running Ethereum code on a system called Plasm, which is a Layer-2 protocol that is able to offer even greater performance than is possible on Layer-1. Third, DOT can interact with code running directly on the Ethereum blockchain through oracles.
  10. Additional parachains are also being built on DOT including one capable of running smart contracts with Web Assembly (WASM). Web Assembly is a secure and stable runtime existing for several years and built for web browsers. Using WASM for running smart contracts can make developing some applications much easier than is possible in the EVM. Crucially, Web Assembly can support code written in almost any language. This can allow much more participation in creating blockchain technologies by developers who are not blockchain experts.

Major Bullish Arguments

  1. Wood’s observation that many special-purpose systems can outperform a general-purpose system is true in many areas of technology and real life. This suggests that the many-blockchain future is very likely to occur. DOT makes operating in a future with many different blockchains much easier than was previously possible.
  2. DOT has achieved extraordinary popularity with developers since even before its launch. The DOT token has been in the top 10 cryptocurrencies by market cap for much of its existence, showing immense popularity with investors as well.
  3. By first focusing on solving the minimal subset of common blockchain problems in their Layer-0 protocol, DOT has a chance to deliver a production-ready platform to market long before the upgrade to ETH 2.0 is complete. This is particularly true as many Layer-1 projects are already building protocols on DOT before work on Layer-0 is fully completed.
  4. DOT has provided robust solutions for democratically solving governance disputes directly through its protocol. This will likely protect DOT from many technical and idealistic hard-forks (splintering) within their community.

Major Counterarguments

  1. Other blockchains have built better performing Layer-1 solutions than have yet been built on DOT.
    • While that may be true for some Layer-1 projects today, other projects are taking advantage of the greater flexibility on DOT to allow for more niche applications that would not be practical to build on other systems.
  2. Other blockchains have built better performing smart contract platforms than DOT has created.
    • It may be true that other blockchains have engineered a better technical solution for the smart contract use case than DOT has yet created. However, DOT’s solution to smart contracts still strives to be amongst the very best yet available. Additionally, the general-purpose smart-contract engine is, unlike other smart-contract platforms, only one parachain in DOT’s overall ecosystem. Custom tailored Layer-1 parachains will run special-case smart contracts with higher performance than is possible on any general-purpose Layer-1 system for some use cases.
  3. Other blockchains have also been built to make blockchain interoperability easier.
    • This is true. A few examples of blockchains that also facilitate interoperability include Chainlink and Cardano. Polkadot does not need to be the only solution for interoperability in order to achieve mass adoption.
  4. Other blockchains have also provided robust solutions to governance disputes on-chain.
    • This is true. However, DOT will still be able to reap the likely benefits of a more unified community and plan because of this decision.
  5. Since DOT is focusing on the Layer-0 core protocol, other teams are creating many of the Layer-1 parachains. These other teams are frequently not as technically skilled and thus errors will be more common on the DOT system than competing Layer-1 options.
    • While this may be largely true for now, developers and entrepreneurs are becoming more proficient with blockchain technology all the time. A system that makes many experiments in blockchains easy with a “move fast and break things” ethos can create many casualties. However, though Darwinian survival of the fittest eventually robust and mature solutions often are born out of such systems.

Price Potential

  1. DOT can act as a smart-contract platform such as Ethereum. However, much of its use cases are likely to come through more specialized use cases of blockchain. Overall, DOT can be expected to enable an even greater variety of use cases than are possible or practical to run on Ethereum or other smart contract specialized platforms, less those which run worse on DOT than competitors. One example of a system that may run poorly on DOT is one that has no use for the extensive interoperability DOT requires. Such a system could perhaps be better serviced on some competing platform. In any case, it seems reasonable to assume that the total value of DOT will be proportional to the total economic value both stored and in transfer on its parachains. This in turn might likely prove proportional to the total value in transit via smart contracts. Unfortunately, it is likely too early in the development of the industry to supply a more accurate pricing model.
  2. DOT also is subject to the yet-ambiguous question of precisely how much value will be captured on the lower-level protocols vs the applications built on top of them. As DOT is a lower-level protocol compared to ETH and thus further removed from the application layer, does this imply a lesser portion of value will be captured on it? Or, will the greater customization it allows create so many more use cases as to become much more valuable as a token? Time will provide these answers.

Major Risks

  1. Due to the ease of experimentation on DOT, many protocols and projects are likely to make fatal mistakes. However, gems are also likely to rise out of such an environment. A similar argument can be made for all platforms that facilitate smart contract development.
  2. The DOT blockchain is significantly different from existing blockchains at a technical level in many ways. While much of the research and experience from other project can be translated over to DOT, the process is not always easy. DOT will face and need to overcome unique problems and challenges, some of which have not yet been solved or fully proven in the industry.
  3. DOT, like most crypto projects, has not yet fully specified how they plan to solve all technical hurdles in their system. For example, difficult and unique situations can arise on DOT not seen on other systems such as parachains with too different economic values or network usage overwhelming lesser chains, etc. However, many such yet unsolved problems have been acknowledged, clear goalposts have been outlined, much work has been done, and steady progress is being made.

Additional Resources

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