What is a Polkadot Parachain?

A Polkadot parachain may sound like jewelry you’d inherit from an eccentric grandmother, but it's actually one of the more exciting blockchain projects being constructed today. The parachain is just one of the features of the Polkadot ecosystem, which like most blockchain projects, seeks to improve the speed, efficiency, and scalability of cryptocurrency and Web3 applications.

What scaling solution does Polkadot use? Instead of a single blockchain, the network uses a variety of subchains known as Polkadot parachains in order to keep traffic flowing smoothly and efficiently, much like a well-devised highway system. It’s an innovative solution to the blockchain trilemma of speed, security, and decentralization, but how does it stack up to its competitors in the cryptocurrency community?

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How Does the Polkadot Parachain Ecosystem Work?

Think of traffic on a blockchain network as you would traffic on a busy, single-lane road. When too many people attempt to take the same road, traffic gets backed up, and getting from Point A to Point B takes much longer than it normally would. There are no offramps or backroads - you simply have to wait your turn in traffic, which can burn a lot of gas and waste a lot of time.

Blockchains function in a similar fashion, and yes, they also burn gas when traffic gets congested. However, the gas burned in blockchain transactions is the fee paid to the network and a more efficient network will bring down the price of these transactions. Enter the Polkadot ecosystem.

Polkadot focuses on the interoperability of blockchains by running simultaneous parallel chains, known as (you guessed it) parachains. Instead of forcing all transaction congestion through a single pathway, these parachains allow transactions to be processed quickly and with less energy usage, thereby reducing the fees paid by users. Parachains can communicate with each other, allowing private and public blockchains to intermingle via the Polkadot relay chain.

The relay chain is the main thruway of the network, a simplified blockchain system that doesn’t support smart contracts or decentralized applications. Instead, the relay chain functions as sort of an air traffic controller, directing the various parachains without suffering from congestion from too many transactions. One of the many benefits of parachains is the ability to run complex applications on the sidechains yet use the secure and reliable relay chain to finalize transactions. Developers can then utilize Polkadot’s ‘bridge’ system to link to outside blockchains, such as Ethereum or Solana.

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Polkadot Parachain Auctions

Parachains offer efficiency and affordability to developers and investors, but since the network is still relatively new, space on these parachains is at a premium. To provide fair access, parachain slot auctions are held to divide up the spots. 

In a parachain slot auction, prospective teams bid their Polkadot tokens (known as DOT) for a chance at landing a space. The collateral can be the developers' own tokens, or they can crowdsource the project to up their bid. Spots are also rewarded through governance. If the project is deemed a “common good,” the validators can choose a parachain slot without an auction.

The native token of the Polkadot multichain network is the DOT token, which currently has a market cap of just over $7 billion in terms of USD, making it the 11th largest cryptocurrency in the world. Over 1.1 billion DOT tokens are currently in circulation. Like Ethereum, Polkadot uses a ‘proof-of-stake’ (PoS) system to validate transactions. DOT holders stake their tokens to gain access to transaction processing, being rewarded with more DOT tokens for successfully processing legitimate transactions. DOT holders can become nominators by staking their tokens to a particular validator. However, since Polkadot uses a delegated PoS system, nominating a bad validator can result in the loss of their staked tokens.

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Exploring the Polkadot Ecosystem

On the development side, the Polkadot ecosystem has two main avenues for developers to build and test their projects: the Substrate platform and the Kusama platform.

• The Substrate Platform - The development tool of the Polkadot ecosystem is known as Substrate. It allows participants to code their own blockchains to their specific terms while keeping them connected to the relay chain. Any chain using the Substrate tool will automatically be compatible with Polkadot’s parachains and relay chain.

• The Kusama Platform - If the Substrate platform represents the nuts and bolts of the development process, Kusama is where they can go to experiment. Like Substrate, Kusama is its own platform that’s only loosely connected to Polkadot. However, it's faster and cheaper, allowing for more outside-the-box projects to be devised. However, there are sacrifices in security and governance on Kusama that aren’t present on Substrate or Polkadot.

The Polkadot multichain system doesn’t attempt to reinvent cryptocurrency technology; it simply wants to make interoperability more feasible between diverse and separate blockchains.