Most of you may have heard of Polkadot, the interoperability project that is wanting to unite all blockchains. Or you may have heard of Kusama, Polkadot’s experimental sister chain or testnet. Right now blockchains like Bitcoin and Ethereum do not communicate with one another. And basically Polkadot wants to enable the DMs The team behind Polkadot are building a bridge between chains. Scalability is the key feature that will allow Polkadot to reside at the center of an interconnected blockchain network. And this scaling is thanks to Polkadot’s parachain architecture. Kusama uses the same parachain architecture as Polkadot.
So what are parachains?
A Parachain is basically a parallel blockchain, also known as a shard or shard chain. Polkadot is made up of one main relay chain which performs governance, staking transactions and shares security with the entire network. Smart contracts and other energy-intensive processes will take place on the other various parachains that branch out from the relay chain. The parachains frequently communicate with each other, which prevents the main relay chain from becoming congested with every single transaction that comes through the network. In the current proof of work version of Ethereum for example, every node that is connected to the blockchain has to process every transaction in its history, which makes the process slow and expensive. For this reason, Ethereum is moving to a Proof-of-Stake consensus mechanism which uses 64 ‘shard chains’ so that validators can focus their computing resources on the relevant data.
What’s unique about Polkadot’s approach is that the parachains are for sale and can be bought by other crypto projects. To secure one of these precious parachain slots, projects will have to win an auction that will take place once the parachains have been tested and are ready to be deployed. The bidding currency will be, you guessed it, the DOT token. Projects won’t know how many DOT tokens the other competing projects are offering, so they’ll need all the help they can get from DOT holders in the form of crowd loans.
Once a project has successfully gathered and bid enough DOT tokens to win a parachain slot, they will have to lock up or “bond” the DOT tokens for a fixed period that will range from 6 months to up to 2 years. Investors who loaned DOT tokens to the successful projects will likely be rewarded with a steady stream of the project's native token for the whole period in which their DOT is bonded, although projects may also offer compensation in either stablecoins or DOT tokens. This compensation is primarily to make up for the loss of DOT staking returns that participants would otherwise have been entitled to. Once a project has bought a parachain they can customize it to suit their needs.
The fact that the slots need to be won with huge amounts of DOT means that most parachain slots will go to serious projects that are prepared to run core elements of the Polkadot network, like scalability, privacy, smart contracts and cross-chain DeFi protocols. The upper limit of available parachains is expected to be 100 for the foreseeable future, although parachains can also be broken down into shared ‘parathreads’, for smaller projects that require less computational power. The Polkadot team estimates that it will take several years for all of these Parachains to be deployed, but also anticipate being able to open up more slots in the future, once the network has scaled sufficiently.
Some of the projects that will be competing for a parachain include: Moonbeam, a smart contract network that allows developers to build applications that will be compatible with both Polkadot and Ethereum. Polkaswap, a decentralized exchange developed by the Sora Network, which aims to be a decentralized central bank and DeFi ecosystem. Phala Network, which aims to bring privacy to the smart contract space. Crust Network, a decentralized storage protocol which supports a distributed cloud ecosystem. And Kylin Network, a data solution platform that brings oracles and analytics to Polkadot. Parachains will first roll out on Kusama, which is Polkadot’s experimental sister chain, and then on Polkadot.
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