Regulars or experts in the cryptocurrency business understand that crypto coins are different from tokens. It should be noted that every crypto coin is a native of its blockchain, i.e., Bitcoin is a native of the Bitcoin blockchain, as Ether is a native of the Ethereum blockchain. Tokens, however, are created from an existing coin blockchain network, and they need the coin as fuel for it to be transacted.
The Polkadot Blockchain
The co-founder of Ethereum is on the Polkadot project. It is a project by the Web3 foundation with a framework that enables syncing blockchains. From the project’s whitepaper, it was deduced that it is aimed at offering scalability, transparent governance, cross-chain composability, sharding, and heterogeneous sharding. The Polkadot blockchain is sharded, such that its partitioned database spreads the entire workload across a P2P network. Polkadot is a sharded blockchain. Sharding is database partitioning that spreads the computational and storage workload across a peer-to-peer (P2P) network so that each node isn’t responsible for processing the entire network’s transaction load – allowing networks to scale more efficiently.
The Polkadot Token
DOT isn’t exactly a new token, though. The project launched in 2017 and has been developing for over three years. Most recently, there have been a lot of changes following a notable event in the project’s history that enabled holders to transfer their coins easily. This feature got the DOT token the listing on exchanges it had anticipated. With the transfer option active, DOT’s market capitalisation leapt, catapulting it into the top ten cryptocurrencies even prior to its redenomination. After redenomination, it reached the top five before falling back to its position in the seventh.
The market capitalisation of a token is determined by multiplying its price with the circulating supply. But while redenomination increases the circulating supply of a token, its market capitalisation remains unchanged. Thus, a DOT investor with only one token will now have 100. But while the number of their outstanding shares will have increased, the total value will be the same.
The DOT Token Essence
- Staking: Staking is a mechanism on the Polkadot network that allows the token holders to put DOT in their possession at risk in performing certain functions, which will work as a disincentive or a double checker for malicious activities on the network. The token needed for this activity would depend on the selected activity, the time frame and the quantity of the DOT token put at stake. However, there are several technical parameters to note as they would be very useful for a successful stake.;
- It was earlier mentioned how the time of a stake impacts the process; time in Polkadot is measured in eras and epochs. One epoch is now 4 hours, and the era is six epochs, estimated as 24 hours.
- The tokens need to be allocated validators to make the stake-counting rewards active. There is a cap of 16 validators for these tokens in a process called nomination. The parameters of your nomination can be modified even after you delegate your tokens (add/remove validators or change the number of tokens). The nomination can be cancelled only after 28 days (which will give you back the ability to transfer your tokens),
- The stake rewards are always calculated at the end of the era, which the owner eventually claims manually as that process is not automatic. A holder is eligible to claim rewards within 84 eras.
- Staked tokens cannot be transferred from a wallet but can be used for referendum voting. The current reward is approximately 0.4 DOT per 1000 DOTs staked during one era.
2. Bonding: The DOT will be locked during their bonding period and released back to the account that bonded them after the bond duration has elapsed, and the para chain is removed. This implies that the DOT allows the formation of new parachains. 3. Governance over the Network: DOT holders have total control over the protocol. All privileges on other platforms exclusive to miners will be given to DOT holders, plus managing exceptional events such as protocol upgrades and fixes. This function implies that holders can determine the network’s fees, the auction dynamics and schedule for the addition of parachains, and exceptional events such as upgrades and fixes to the Polkadot platform.
Early July this year, Polkadot conducted its first official governance poll for DOT holders to determine whether the token should undergo a redenomination that would essentially act as a stock split for the Polkadot coin. One-third of DOT tokens were used to power voting rights, with both the Web3 Foundation and Parity Technologies, the builders of the Polkadot network, abstaining from voting. 86% of the community favoured a new DOT denomination where 100 DOT tokens would be equivalent to a single DOT token pre-redenomination. However, according to experts, redenomination isn’t the only factor behind DOT’s meteoric rise.
The power conferred on DOT holders
Although the launch of Polkadot took place relatively recently, there are already several wallets at our disposal for storing (and staking) DOT tokens. Based on the design of the system, and the privilege of control given to holders of the coin, they further can:
- Act as a validator, collator, and nominator
- and participate in the governance of Polkadot.
- Be a collator for a para thread by making bids for block inclusion denominated in DOT.
- The ability to participate in the decision-making process concerning global upgrades or changes to Polkadot.
DOT has risen from nowhere to the seventh position in cryptocurrency by market cap. DOT saw its circulating supply inflated by ten times during the redenomination. Polkadot enables forkless upgrades, allowing blockchains to evolve and adapt as new technology becomes available.