Polkadot token (DOT): A cryptocurrency for Web 3.0 future

ProductDec 01, 2022
Polkadot token (DOT): A cryptocurrency for Web 3.0 future

The DOT token powers a next-generation network connecting multiple blockchains. This heterogeneous environment is one of the most innovative crypto projects that shines where popular blockchains fall short on their own. Learn more about the Polkadot cryptocurrency, the lifeblood of the namesake network, in our guide.

What is DOT crypto?

According to the blockchain trilemma, single blockchains struggle to improve decentralization, scalability, and security at the same time. Resolving these limitations is part of Polkadot's mission. In the 2016 Polkadot whitepaper, founder Dr. Gavin Wood laid out his vision for a "scalable heterogeneous multichain" with "pooled security" and "trust-free interchain transactability."

During its ICO in October 2017, Polkadot released 10 million DOT tokens into circulation and raised 485,331 ether worth around $145 million. The network project materialized in 2018, the Polkadot token hit the market in August 2020, and wide-scale adoption started nearly a year later with a Coinbase listing.

Polkadot ecosystem at a glance

The architecture of veteran blockchains fails to sustain all components of the trilemma. For example, they may increase throughput at the expense of security — this is why enterprise blockchains like Hyperledger Fabric are permissioned. Ethereum, on the other hand, lacks scalability and imposes high gas fees, particularly when its traffic peaks.

Furthermore, popular networks operate independently, with little to no data exchange. In TradFi, this would mean that banks have no means of communicating with one another. By enabling interoperability, Polkadot promotes the global adoption of blockchain technology and a Web 3.0 future where blockchains and applications can interact easily.

polkadot-relay-chain
Polkadot architecture. Source: wiki.polkadot.network

How Polkadot network works

Polkadot combines a core — the Relay Chain — and other blockchains that hook onto it and interact with each other. Its name reflects heterogeneity: like a polka dot pattern consisting of circles of the same size, Polkadot links blockchains together. Meanwhile, users can stake Polkadot tokens to support network security and earn rewards.

  • The Relay Chain is a host for connected blockchains as it processes transactions, ensures security, and supports cross-chain communication.
  • This agile and adaptive architecture facilitates the development of new technology, including new blockchains, on top of Polkadot. As a result, developers do not have to create their own state machines or consensus algorithms. User-created blockchains connected to the Relay Chain are referred to as parachains.
  • Polkadot provides operability between private and public blockchains, reconciling different technical protocols. Blockchains that do not need 24/7 connectivity may use more economical parathreads on a pay-as-you-go basis.
  • The Substrate framework, which underlies new blockchains, is modular and supports customization. Developers can plug in the necessary features, modify them, and bridge blockchains with other networks, such as Ethereum and Bitcoin.

All blocks, extrinsics, events, transfers, and the Polkadot price USD are traceable via a Polkadot explorer like Blockchain. Subscan also shows validators, parachain status, holder count, and other chain data.

As of December 1, 2022, recent Polkadot crypto news concerns its updates and reinforcements. In November 2022, it launched an anti-scam initiative following a peak in development activity. Currently, 66 blockchains are live on Polkadot and Kusama, its parachain startup network used as a testing ground. The entire ecosystem supports 567 projects in total. You can keep track of DOT crypto news via the official blog.

Polkadot coin supply

There is no cap on the amount of DOT in circulation. Polkadot mints new tokens at a fixed annual inflation rate of 10%. Currently, investors hold 58.4% of all DOT, and this allocation includes:

  • 50% issued in the original token sale
  • 5% of the total supply sold in 2019
  • 3.4% of the total supply sold in 2020

Of the remaining tokens, 30% are held by the Web 3 Foundation, which runs the network. It retains another 11.6% for future fundraising efforts.

Polkadot price

At press time, the Polkadot crypto is changing hands at $5.42, with a 24-hour change of +2.5% and a 30-day change of -18.3%. It is the 11th digital asset by market capitalization ($6,310,895,456.47). The Polkadot price today is supported by the total supply of 1.3 billion tokens.

The DOT price reached $6.30 in May 2020, shortly after launch, and traded between $4 and $5 throughout the rest of the year, with an all-time low of $2.70 on August 20. As you can see on the Polkadot chart, it hit an all-time high of $49.80 in May 2021, followed by a peak of $54.98 in November 2021 during the bull run.

Polkadot to USD chart. Source: CoinGecko
Polkadot to USD chart. Source: CoinGecko

This year, the price of Polkadot has moved in line with a bearish crypto market affected by macro pressures, the fallout of Terra's meltdown, and other negative news. The DOT crypto price/USD has generally followed BTC over the past 12 months. Thus, although the all-time high corresponded to the first parachain slot auction, any Polkadot price prediction should consider key externals impacting the industry overall.

What is Polkadot crypto used for?

DOT has multiple applications corresponding to different roles within the network. They include:

  • Governance through voting on protocol updates, fixes, network fees, schedules for adding new parachains, and more
  • Supporting network operations by enabling participants to become validators, collators, nominators, or fishermen (more on this below)
  • Incentivizing compliance through staking rewards for good behavior and stake cuts for misbehavior
  • Bonding of tokens to connect new parachains

As Polkadot can support a limited number of parachains, it awards slots temporarily in parachain slot auctions. All bids are denominated in DOT, and the winners have their tokens bonded for the duration of their lease. Candidates may also engage in parachain crowd loans to accumulate tokens for bidding.

Using DOT on Polkadot blockchain

DOT is crucial for Polkadot's Nominated Proof-of-Stake (NPoS). This transaction validation method lets users stake tokens to assume one of the four roles. Network security depends on the amount of locked DOT, and Polkadot staking rewards incentivize users to become active participants.

  • Validators: users running nodes to verify parachain blocks and produce Relay Chain blocks based on the consensus mechanism. Validators need significant experience in system administration, as they take responsibility for their own stake and the stake of their nominators (see below). Mistakes lead to loss of money and reputation.
  • Collators: full nodes of parachains that generate proofs to validators based on parachain transactions. They package state transitions and form parachain blocks. The term full node refers to maintaining all necessary data for authoring new blocks and executing transactions (as PoW miners do).
  • Nominators: stakers that nominate trustworthy validators and earn DOT in return. The tokens staked for this purpose are locked in a bonding process. Instead of direct nomination, users may join nomination pools with at least 1 DOT or establish their own pools.
  • Fishermen: full nodes of parachains that police for invalid transactions. This role is currently unavailable, but secondary backing checkers perform a similar function.

Where to stake Polkadot

Validators, collators, and nominators secure the core chain, and staking Polkadot on the network is mandatory for their roles. They get DOT rewards for compliant performance or have their stakes slashed for misbehaving.

Other Polkadot staking options include noncustodial wallets, liquid staking or third-party pools, and custodial exchanges. You can learn how to stake Polkadot on the official site.

How to buy Polkadot

DOT is available on both CEXs and DEXs. For example, one can buy Polkadot on CoinLoan for fiat currency or exchange stablecoins or other cryptoassets. Popular Polkadot coin exchanges accept different payment methods: debit and credit cards, bank transfers, and third-party systems like AdvCash.

Chainlink is another network aimed at the interoperability challenge. While Polkadot is an agnostic blockchain connecting others, Chainlink operates on top of Ethereum. This oracle-based environment allows other blockchains to support smart contracts and interact with external data feeds, payment methods, and events. LINK, its ERC-20 token with a lower market cap than DOT ($3.65 billion), is on the 21st position per CoinGecko.

Polkadot vs. Cardano

Unlike the multichain Polkadot, Cardano primarily focuses on Dapps and enhancing the security and sustainability of societies and systems. This third-generation blockchain platform was the first project based on peer-reviewed research and evidence-based development. ADA, Cardano's native cryptocurrency, is ahead of DOT by market cap — with over $11 billion, it is on the 9th position on CoinGecko.

Polkadot vs. Solana

Solana's value proposition is also different — providing rapid transactions with minimal fees. It operates independently instead of connecting other blockchains. SOL has a market cap of less than $5 billion, which corresponds to the 18th position on CoinGecko.

DOT on CoinLoan

You can make the most of the Polkadot value on CoinLoan, a pioneering platform for crypto lending. Transfer the coins from your Polkadot wallet or buy DOT through our intuitive Exchange to unlock an attractive yield and lightning-fast loans.

CoinLoan offers a transparent and user-friendly environment for convenient crypto management on the go. Our company is a regulated financial institution and a licensed VASP (virtual asset provider) with 24/7 customer support. We offer three use cases for DOT:

DOT yield

In addition to the staking rewards Polkadot provides, you can earn an attractive yield by keeping DOT in Interest Account on CoinLoan. Pick your interest option:

  • 5.2% APY on DOT
  • Up to 7.2% APY on DOT with CLT Staking

DOT-backed loans

Turn your Polkadot crypto into collateral to borrow other cryptocurrencies, stablecoins, or fiat. Our flexible Loans come with an adjustable term and LTV rate between 20% and 70%. Secure the most suitable conditions and get a loan in just a few clicks. No paperwork, no lock-ins, and no credit score checks!

DOT on CoinLoan Exchange

Swap DOT for crypto, stablecoins, or fiat in seconds using our Exchange. Pick the ticker symbols, enter the desired amount, and get the converted funds to your CoinLoan Wallet. We offer DOT/BTC, DOT/ETH, DOT/USDT, DOT/EUR, and many other pairs.

Final word

DOT is a unique cryptocurrency behind a multichain environment focused on blockchain interoperability. This innovative network enables blockchains to interact, which is crucial for Web 3.0. While the Polkadot crypto price has seen ups and downs, the development activity on the network is at an all-time high. Buy, collateralize, exchange, or deposit DOT on CoinLoan, and follow Polkadot news to keep track of exciting updates!

Disclaimer:

The information provided by CoinLoan (“we,” “us,” or “our”) in this text is for general informational purposes only. All investment and financial opinions expressed by CoinLoan in this text are from the personal research and open information sources and are intended as educational material. All outlined information is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in this text.

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