What is Polkadot Parachains and why you should care?

Debuted as Ethereum killer, Polkadot (DOT) is an open-source, decentralized blockchain developed by the co-founder of Ethereum Gavin Wood. After observing the slow pace of Ethereum’s tech. development, Gavin resigned from the role of CTO and shifted all his energy to Polkadot.

Fast forward today, Polkadot has successfully launched its first Polkadot Parachain auction that brought the project to life. Polkadot has one of the complex architectures which comprises several components like relay chain, validators, collators, bridges and parachains.

Before understanding the role of Parachains in the Polkadot ecosystem, it’s important to put some light on Polkadot architecture –

Polkadot Architecture:

Relay Chain:

Built on Substrate (product by Parity.io), Relay chain is the backbone of Polkadot. It is responsible for network security, consensus and interoperability among different chains.

In order to attain consensus, Parachains rely on the relay chain by delegating the validation process. This in turn helps it attain faster processing speed and transaction finality.

Relay chain provides layer 0 security to all Parachains

Parachains:

Parachains are blockchains that are connected to the relay chain. More on Parachains will be discussed later in the post.

Collators:

Collators are chains in the Polkadot architecture that connects Parachains with Relay chain. Any communication between these chains is handled by the Collators.

Bridges:

Bridges help connect parachains with other blockchains like Cardano (ADA), Ethereum (ETH) etc. It makes the network interoperable.

Polkadot is called blockchain of blockchains

What are Polkadot Parachains?

Polkadot Parachains or parallelizable chains are a simple layer 1 blockchain that attaches itself to the relay chain for security and consensus. Each parachain within Polkadot can work independently and perform a different set of operations.

Parachains can communicate with each other as well as with other blockchains like Cardano, Ethereum etc. These features allow parachains transmit any type of data or asset in the network, thus opening up the space for new use cases and applications, making parachains scalable, interoperable and secure at the same time.

Let’s explore the top features of a Parachain –

Scalability:

Polkadot allows parachains achieve scalability at layer-1 than waiting for layer-2 solutions. By delegating the transaction validation to the relay chain, parachains can process transactions in parallel over specialized layer-1 blockchains, improving scalability and throughput. To put things in perspective, Polygon MATIC is layer-2 scaling solution for Ethereum.

Interoperability:

The best part of running a parachain is interoperability. Each parachain is interoperable in two ways. First is among themselves which means each parachain can communicate with each other and transfer data seamlessly without interruption.

Second is interoperability with other layer 1 blockchains like Ethereum, Avalanche (AVAX) and more. Both interoperability and scalability were the top concerns when Ethereum became successful. Fortunately, Polkadot addressed it and solved the same by providing these features to the parachains.

Governance:

Governance is the essential feature of DEXes like SundaeSwap Cardano DEX or PancakeSwap crypto DEX. It allows users to participate in the key proposals that can help shape the direction of the project. Polkadot Parachains are free to opt any type of Governance model that can prove beneficial for its long term growth.

It can harness the power of community which can help shape the direction of the project and also act as a feedback mechanism for the whole network. A clear decision-making process keeps the process transparent and trustworthy.

Parachain Slot Leasing:

Companies or projects that wish to run a parachain need to lease a slot on the relay chain by participating in the parachain slot auction. The bids are placed in DOT for Polkadot and KSM for Kusama. The slot can be leased for a minimum period of 6 months to a maximum period of 2 years.

An innovative way to raise funds can be done through donations via crowdloans in exchange for rewards.

Parachain Slot Auction:

Acquiring parachain slot is essential in order to add parachain to Polkadot. The parachain slot is sold in a candle auction, explained below –

Candle Auction:

Candle auctions are open auctions where bidders submit bids that keep on increasing and the highest bidder will be considered the winner at the end of the auction. Candle auction dates back in the 16th century when the bidders bid for the sale of ships until the flames of the candle runs out.

Parachain auctions are slightly different from the online candle auction which uses random numbers to decide the opening and closing of the bids. Instead, parachain auction has a known open phase and retroactively determine the closing phase at some point in past during the submission of the bids.

This means that the bids which are submitted at the later stage of the auction will have higher chances of rejection and vice-versa. More details can be read from the official auction page.

Should you invest in Parachains?

Parachain is as good as the team who is owning it. Each parachain differs in the project scope, usability and target audience. It’s like investing in different blockchains altogether. The Polkadot relay chain is the only architecture that bridges them together for validation.

Acala, Ajuna Network, Clove Finance are some of the projects on the parachains. I suggest reviewing each one of them before making an investment decision.

This completes my post on Polkadot Parachain. Make sure to read our in-depth article on Polkadot crypto (DOT). In the next post, I will talk about Stellar Lumens partnerships and AAVE V2 Protocol. If you’re a fan of blockchain technology then please do share this post on your social handles and educate everyone around you. Do remember to subscribe to my YouTube channel for more informative content, released every week.

DISCLAIMER:

Cryptocurrency is a highly volatile market. All the information shared in the post is for knowledge purpose only. By no means, it’s financial or investment advice. Readers are responsible for their own investment decisions and should only invest in cryptocurrency after proper research.

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