What is Polkadot (DOT)?

Polkadot is a next-generation blockchain protocol which aims to support multiple chains within a single network. The multi-chain protocol claims to return control to individuals, building on the revolutionary promise of existing blockchain technology and going beyond to offer several additional advantages.

For instance, it aims to overcome a problem in the current blockchain landscape whereby hundreds of blockchains exist in isolation with little ability to communicate. To explain, Polkadot is built on the premise that blockchains should be able to securely communicate with one another.

While Polkadot was a later entrant in the blockchain space, it has grown exponentially. This is thanks to its aim: To grow the ecosystem with additional solutions beyond networks like Ethereum and Cosmos. However, Polkadot is designed to coexist and interoperate with other blockchain networks rather than compete with them. But how? Let’s explore:

What is Polkadot?

Polkadot is designed to operate three types of blockchains. The ones, called parachains, are the independent, specialized blockchains that connect to Polkadot. Others, called bridges, connect Polkadot to other networks such as Bitcoin and Ethereum. Lastly, the Relay Chain is what brings all the parachains and bridge chains together into a shared interoperable ecosystem.

How Does Polkadot Work?

Polkadot’s ecosystem comprises of a few key parts. From its consensus, to its dedicated parachains, Polkadot is a unique ecosystem with interesting mechanics determining its operations. Let’s explore how it works:

Polkadot’s Consensus Mechanism

The Polkadot Relay Chain is the backbone of the network. It secures the entire network and provides the basis for the parallel transaction processing that makes Polkadot highly scalable. It uses a novel type of the Proof-of-stake consensus mechanism called Nominated Proof of Stake (NPoS). This standard was designed to decentralize control of the network for better security, fairness, and efficiency. 

Parachain, Parathreads and Bridges

Parachains are independent blockchains that connect to the relay chain and provide chain-specific features to the Polkadot network. Each parachain can have a specialized design and is maintained by its collators. Collators are responsible for collecting parachain transactions into parachain block candidates and passing them to validators, who secure and finalize transactions on the relay chain.

Another component are parathreads, which are parachains that connect to Polkadot under a ‘pay-as-you-go’ model rather than leasing a long-term parachain slot.

Bridges, on the other hand, are a type of specialized parachain that connect to other blockchains such as Bitcoin and Ethereum. They allow for the transfer of tokens and functionality between Polkadot and outside networks.

Participants in Polkadot’s Blockchain Network

Several actors in the Polkadot network work to keep the blockchain operational. These are:

Validators: Much like other proof-of-stake networks, Polkadot uses validators who stake DOT tokens, validate proofs from collators, produce blocks on the Polkadot Relay Chain, and participate in consensus

Nominators: Polkadot also uses nominators who stake DOT tokens and help secure the Relay Chain by selecting trustworthy validators

Collators: In the Polkadot ecosystem it’s the Collators who create blocks to extend the parachain. Plus they also create proofs of validity for validators.

Fishermen: Finally, the fishermen monitor the network and report malicious activity. Currently, validators are acting as fishermen for the network.

How Staking DOT Earns Participants Rewards

Polkadot’s NPoS system provides a reward system for validators and nominators to behave properly. Put simply, the network slashes a portion of validators’ staked tokens for acting maliciously. And, of course, it rewards them for being honest and active. To learn more, check out the full article on slashing in crypto.

Then the punishment works as follows: If more than 10% of validators are offline and cannot be reached by the network, they will lose a portion of their stake. To explain, this mechanism ensures validators remain online to provide the network with security and data at all times.

How Nomination works on Polkadot

NPoS allows rewards for the nominators since they vote for the validators they believe will be online and available to serve the security of the network. To clarify, these nominators back validators by staking Polkadot tokens and get rewarded proportionally to the stake of the validator. Thus, Validators can also collect fixed fees to help cover the validator’s operational costs, such as hardware and software upkeep to ensure they stay active.

From there, token holders can nominate up to 16 validators who share rewards if they are elected into the active validators set. Moreover, every validator slot receives an equal reward. The amount they receive is determined by the validator with the least amount of stake in the slot.

How To Collect Polkadot Rewards

The nomination process is a single-click operation inside the Polkadot wallet. Rewards must be claimed manually via the Polkadot Explorer or Ledger Live. As long as one person claims from a validator for an era, all of the era’s nominators will receive their rewards. The person issuing the payout doesn’t even have to be one of the them! However, it’s important to note that staking rewards are avaible to claim for 84 days only. 

Therefore, nominators are an important part of the network. They participate indirectly in the consensus protocol with an economic incentive to pay close attention to the evolving set of candidates. Plus, they ensure that validators are only the most capable and trustworthy among them.

Knowledge is power – so keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video Blockchain Real Use Cases.