Polkadot is a blockchain protocol designed to help other blockchains work together in a single network. Polkadot aims to let different blockchains quickly communicate value or information between each other without an intermediary.
For example, Polkadot allows Bitcoin and Ethereum to transfer data to one another. It accomplishes this by using parallel blockchains, known as parachains, that take the burden of processing power away from the main blockchain. Proponents believe this could solve some existing cryptocurrency challenges of interoperability and scalability by processing many transactions on parachains at the same time.
The Polkadot network can process more than 1,000 transactions per second. By comparison, Ethereum can process about 30 per second. Some believe Polkadot could get even faster as it adds more parachains, eventually being able to process a million transactions each second.
Developer Gavin Wood, founder and former chief technology officer of Ethereum, launched Polkadot in 2017. Polkadot token (DOT) is the native token of the Polkadot blockchain. Continue reading this DOT crypto guide to learn more.
Related: What is a blockchain explorer?
How Does Polkadot (DOT) Work?
Unlike some other types of crypto, DOT cryptocurrency has two main functions: holders can stake their DOT with validators who confirm transactions on the network and produce new DOT tokens, or they can use their DOT to nominate delegates who will have a say in the future of the protocol. In the second case, DOT works as a governance token.
The Polkadot blockchain uses a consensus mechanism known as Nominated Proof of Stake (NPoS), which is a variation of Delegated Proof of Stake (DPoS). In NPoS networks, nominators can use their staked DOT tokens to back validators whom they believe will act in the best interest of the blockchain. One of the key differences between NPoS and DPoS, according to the official Polkadot website, is that NPoS punishes nominators who nominate bad validators.
Developers created the NPoS system to deal with one of the biggest problems that DPoS networks have faced in the past: the potential for some delegates to wield disproportionate control over how the network works. The most famous example of this problem might be the Steemit and Justin Sun debacle in early 2020. Sun took control of the Steemit network by acquiring large amounts of its native token and using them to back delegates (or “witnesses”) of his own choosing.
Developers hope that with NPoS, people will have an incentive not to take such actions since there currently aren’t any crypto regulations around such activities.
DOT Coin Price
At the time of writing, the price of DOT was $48.60. DOT has a market cap of just under $48 billion. Daily trading volume is currently $3.2 billion. Having begun the year of 2021 trading at $8.85, DOT is up nearly sixfold.
What Can You Use DOT Coin For?
DOT holders can speculate on the price of the cryptocurrency, trying to buy low and sell high. They may also choose to stake it to earn a regular payout in the form of DOT. Or, they may use DOT to nominate validators of the Polkadot network, who will then influence future developments of the protocol.
Benefits of DOT Token
Some potential pros of the Polkadot cryptocurrency include:
- DOT holders can stake it to earn more DOT.
- Users can play a role in the governance of the Polkadot network.
- It offers exposure to crypto assets that empower interoperable blockchains.
- Rather than being full validator nodes, users can also be collators or fishermen. These roles require less technical expertise. Collators keep track of valid parachain transactions while fishermen report bad behavior on the network.
- Developers can also use Polkadot and DOT coin to create and launch new kinds of blockchains.
Disadvantages of DOT Token
Some potential drawbacks of DOT include:
- The NPoS consensus mechanism is new, making its future uncertain.
- Altcoins can suffer deep price declines when a new competitor emerges or if investors lose interest.
- To directly participate in network activities like staking or governance requires large amounts of DOT.
- Becoming a validator requires substantial technical knowledge and time commitment, so nodes could wind up becoming controlled by a small number of people.
How to Buy DOT Coin
The process of buying DOT is similar to that of purchasing other digital assets. Doing so involves a few simple steps.
- Step 1: First, select an exchange that supports DOT trading.
- Step 2: Sign up for an account on the exchange of your choice.
- Step 3: Fund your account. Make sure the exchange supports a trading pair of the currency you deposit. For example, if the exchange only supports BTC/DOT, you will have to deposit Bitcoin. If they only support USD/DOT, you will have to deposit U.S. dollars.
- Step 4: Place a buy order for DOT. This step could work slightly differently depending on the exchange. Beginner-friendly exchanges like Coinbase and Kraken allow users to simply place an order for a certain amount of DOT, which they execute at the current market price. Other exchanges require users to select an existing ask or sell order from the order books and buy at that price.
- Step 5: Optionally, users can then move their DOT off of an exchange, into their own cryptocurrency wallet.
After acquiring some DOT, users can either hold it and wait for the potential future price appreciation, or do one of the things mentioned in the “what can you do with DOT” section.
The Takeaway
Polkadot is a type of cryptocurrency built on a blockchain protocol that facilitates communication between other blockchains. Trading DOT can involve buying and selling, staking the coin, or using it to influence its future development.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA, the SEC, and the CFPB have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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12 benefits of cryptocurrency in 2021
Crypto is a relatively new asset class that began with the creation of the Bitcoin blockchain in 2009. The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology is that they don’t have a central authority, payment processor or company owner.
Instead, crypto networks are peer-to-peer, meaning people can transact directly with one another. Many of the additional benefits of cryptocurrency stem from their decentralized and peer-to-peer nature. Let’s look at some positives of cryptocurrency in this crypto guide.
Related: How to invest in Bitcoin
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Crypto transactions can be made easily, at low cost, and in a manner more private than most other transactions. Using a simple smartphone app, hardware wallet or exchange wallet, anyone can send and receive a variety of cryptocurrencies.
Some types of cryptocurrencies, including Bitcoin, Litecoin and Ethereum, can be bought with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto. Someone could buy bitcoin at an ATM using cash then send those coins to their phone. For people who lack access to the traditional financial system, this may be one of the biggest pros of cryptocurrency.
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Because they are based on cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. This might be one of the most certain benefits of cryptocurrency. Crypto security is determined in large part by hash rate. The higher the hash rate, the more computing power it would take to compromise the network. Bitcoin is the most secure cryptocurrency, having the highest hash rate of any network by far.
Using a crypto exchange is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or individuals making mistakes.
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While some people only want to invest in cryptocurrency for price appreciation, others might find benefit in the ability to use crypto as a medium of exchange.
Bitcoin and Ether transactions could cost anywhere from nickels and dimes to several dollars or more. Other cryptocurrencies like Litecoin, XRP and others can be sent for pennies or less. Payments for most cryptos settle in seconds or minutes. Wire transfers at banks can cost significantly more and often take three to five business days to settle.
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The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes. Being involved now might reasonably be compared to being involved with companies on the leading edge of the internet back in the 1990s and early 2000s. The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By June 2021, it rose to over $1.4 trillion.
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It’s no secret that Bitcoin has been the best-performing asset of the last 12 years. When it began in 2009, Bitcoin essentially had no value. In the following years it would rise to a fraction of a penny and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.
Some altcoins have outperformed Bitcoin by wide margins at times, although many of those later saw their prices collapse. Gains like these might be among the most well-known cryptocurrency benefits. (The losses, on the other hand, may be among the most well-known drawbacks.) Volatility has characterized prices in the crypto space, which has been one of the key benefits of cryptocurrency for day traders and speculators.
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Privacy can be one of the benefits of cryptocurrency, but crypto isn’t as private as some people might think. Blockchains create a public ledger that records all transactions forever. While this ledger only shows wallet addresses, if an observer can connect a user’s identity to a specific wallet, then tracking transactions becomes possible.
While it’s worth noting that most crypto transactions are pseudonymous, there are ways to make more anonymous transactions. Coin mixing services group transactions together in a way that makes it hard to pick them apart from one another, confusing outside observers. Individuals who run a full node also make their transactions more opaque because observers can’t always tell if the transactions running through the node were sent by the person running the node or by someone else.
Methods like these are for more advanced users and could prove difficult for those new to crypto. So while absolute privacy is really not one of the main positives of cryptocurrency, transactions are still generally more private than using fiat currency with third-party payment processors.
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Cryptocurrency has become known as a non-correlated asset class. Crypto markets largely function independently of other markets, and their price action tends to be determined by factors other than those affecting stocks, bonds and commodities.
Any asset that has risen by millions of percentage points over just twelve years, as a number of crypto coins have, clearly is not correlated to anything else. But it’s worth noting that during the last few years, cryptos have begun to sometimes trade in tandem with stocks for short periods of time.
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Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, are thought to be good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money, increasing the supply, things that are more scarce tend to appreciate in value.
With more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up. Additionally, the Bitcoin protocol, for example, is also designed to keep those coins scarce regardless of what happens with monetary policy.
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Cryptocurrencies have no regard for national borders. An individual in one country can send coins to someone in a different country without any added difficulty. With traditional financial services, getting funds across international borders can take a long time and come with hefty fees. In some cases, doing so might not even be possible due to regulations, sanctions or tensions between specific countries.
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Some of the benefits of cryptocurrency extend to people who don’t have access to the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate.
People don’t have to have permission from any financial authority or government to use the crypto ecosystem. (Though it’s worth noting that Bitcoin mining is banned in China.) They also don’t necessarily need to have a bank account.
There are billions of people today who are “unbanked,” meaning they have no access to the financial system, including bank accounts. With crypto, all these people need is a smartphone, and they can essentially become their own bank.
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One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction freer and censorship-resistant.
Banks or other payment processors can choose to cut off services to anyone for any reason. This can make things difficult for some journalists, political dissidents or other individuals working in nations with oppressive government regimes. Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them.
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Stock markets are only open on weekdays during the regular business hours of 9:30 am to 4:30 pm Eastern Time, in the case of the New York Stock Exchange (NYSE). During nights, weekends, and on holidays, most traditional financial markets are not open for business.
Crypto markets, on the other hand, trade 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.
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The above are just a few of the most important advantages of cryptocurrency. Of course, there are potential flaws as well, its volatility being a major downside. As with anything, those interested in buying, selling and trading crypto would be wise to do their research before getting involved in the crypto market.
Learn more:
This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA /SIPC. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB, have issued public advisories concerning digital asset risk.
Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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