Inside Polkadot's bid to offer a 'multichain' alternative to Ethereum

During a bull market, it’s hard to find crypto projects that aren’t generating buzz. But it’s also hard to find one that has been buzzing louder as of late than Polkadot. 

In January, The Block Research identified a total of 126 projects currently developing on Polkadot, which launched in May of 2020. From September to November 2020, nearly 20% of decentralized finance (DeFi) projects that received venture funding were building on Polkadot. Twenty-one of those projects have raised a combined $52 million. 

Polkadot’s DOT token — which can be used to carry out governance over the network, as well as to participate in staking and bonding — is now the sixth-largest coin by market cap ($33.7 billion). It's also among the most-staked tokens.

Much of the excitement stems from Polkadot’s ambitious vision for the future of interoperable blockchain networks. Now comes the hard part: proving that vision is more than just buzz.

What is Polkadot?

Polkadot was created by Ethereum co-founder Gavin Wood after he left Ethereum in 2016. Wood co-founded Parity Technologies, a private company that aims to develop infrastructure for a more decentralized internet. 

According to Parity head of public affairs Peter Mauric, the concept behind Polkadot stemmed from disagreements between Wood and Vitalik Buterin on the direction of Ethereum. 

Both Wood and Buterin wanted to introduce a scaling technique called sharding — which essentially means dividing the blockchain’s computation and storage burden among multiple “shards.” This approach avoids having to rely on every node to process every single transaction, which is how Ethereum currently works.  

Wood envisioned a sharded blockchain network made up of a so-called “relay chain” and multiple shards that performed different functions. The relay chain would be designed to lend security to each partition and provide a way to pass messages securely between them. On the other hand, says Mauric, Buterin maintained that all shards should carry out the same function. 

Shortly after establishing Parity Technologies in 2016, Wood published a white paper proposing a heterogenous, “multichain” system in which each individual chain could be customized for a specific use case. Thus, the idea for the Polkadot network was born.  

Polkadot is a blockchain protocol designed to “unite an entire network of purpose-built blockchains, allowing them to operate seamlessly together at scale,” according to a summarized version of the white paper. It’s meant to allow for any type of data to be sent between any type of blockchain, opening the door to new kinds of inter-chain marketplaces and services. 

Polkadot calls these parallel blockchains “parachains.” The relay chain, or base layer, serves as the foundation on which parachains are built.

"Isolatability"

The white paper lists five “key failures” of current blockchain systems that the team says have stood in the way of significant real-world deployment: scalability, “isolatability,” “developability,” governance, and applicability. Polkadot initially aims to address the first two issues: scalability and isolatability.

It addresses scalability through sharding and parachains. But what is “isolatability”? One of Polkadot’s stated goals is to ensure that every parachain can be “trustlessly synchronized in isolation from the other parachains.” 

This is meant to open the door to “multichain applications” that use parts of different specialized chains. For instance, there could be a specific blockchain devoted to securing identity information that can be used by multiple apps.

“It’s like an AWS but a decentralized version, as a developer you’re picking these different services that you want to use as building blocks to build your application,” said Derek Yoo, CEO of Purestake, a platform that focuses on providing infrastructure and services for public blockchains. 

“To bet on Polkadot is to bet on this idea that it’s powerful to have specialized chains that can then be combined into ‘the whole is greater than the sum of its parts’ applications,” said Yoo.

George McDonaugh, co-founder and managing director of investment company KR1, which has invested in Polkadot, highlighted the network’s unique ability to let blockchains securely interact. 

“Currently, blockchains are like cities trading within themselves,” said McDonaugh. “Polkadot builds the roads and rails between various cities to unlock their ability to trade together, a huge breakthrough in terms of innovation, liquidity, and creativity.” 

Ethereum 2.0 shares similarities with Polkadot; both feature a base layer (the “Beacon Chain” for Ethereum and the “relay chain” for Polkadot) with shards. But the networks are designed to achieve different goals, said McDonaugh. 

“Ethereum 2.0 is more geared towards Turing complete smart contract execution at scale, whereas Polkadot tries to be more of a settlement layer and a place to spawn blockchains in a modular way,” he said. 

Pros and pitfalls for developers

Thom Ivy, chief of staff at Commonwealth, which is developing a Polkadot-based product called Edgeware (“a WordPress for blockchains”), said that one of the main reasons that Commonwealth uses Polkadot is a tool that developers can use to create their own new blockchains, called “Substrate.” 

Indeed, Polkadot’s resources for developers seem to be one of the factors drawing new projects. “One of the things I noticed right off the bat was the quality of the developer documentation and the thought that’s been put into trying to get developers to be productive,” said Yoo. “It was way ahead of other options.” 

Yoo said after his team joined the Polkadot network, they started attending Polkadot’s weekly Substrate seminars to learn how to develop using the new platform. 

“For developers, it’s very appealing when you have this rich technology stack, but also documentation, tutorials, ways to engage, an existing community of people there to help you,” Yoo said. “Things have blown way up since then, but that spirit is still there. It’s still definitely a developer-first project.”

On the other hand, learning to build using Substrate is not easy, said Yoo. He and other Polkadot users say that the team needs to do even more to educate Polkadot participants and developers about the network’s complicated features. 

“It’s so bleeding edge that we’re really struggling to get an initial round of developers,” Ivy said. “It becomes difficult for parachain teams to retain and attract experienced talent. They often have to learn on the job because it’s a new paradigm that people need to familiarize themselves with.”

This problem is something Yoo’s team has even tried to capitalize on. Purestake has developed an Ethereum-compatible smart contract platform called Moonbeam, which was built to make it easier for developers to build on Ethereum.

According to Ivy, besides improving developer education there’s also a lot of room for Polkadot to grow in the areas of network governance and staking interfaces, which are complicated and feature “idiosyncratic” rules. 

It also must deal with the competition — and not just the forthcoming Ethereum 2.0. There is also Cosmos, which is another upstart network that shares some of Polkadot’s goals.

Ivy said in that some ways Cosmos is more decentralized. “In Polkadot, because you transfer security costs away, it means all interoperability has to go through his centralized entity of the relay chain,” he said. In Cosmos, on the other hand, “you can just have peer-to-peer trusted relations with other chains directly.” 

“That’s one thing long-term where we could see some innovation in the Polkadot space: increasing decentralization of the relay chain function,” he said.