Will Polkadot save decentralized funding from Ethereum’s scaling problem?

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Web3, interoperability, and Layer 0 are all terms that get jumbled up when describing Polkadot. But what do they mean and how will they affect the internet and cryptocurrency market? The new report from Cointelegraph Research examines how Polkadot is tackling the scalability of distributed ledgers and centralizing the web at the same time.

First, imagine a world where Facebook is being replaced with a decentralized social media application based on Polkadot. This is what projects like Subsocial build into their platforms, allowing users to determine what data they want to keep and share private. Users can benefit from selling their data stored on the blockchain to third party companies by minting Ocean Protocol tokens, OCEAN, and selling them on a decentralized exchange such as Polkadex.

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Aren’t you happy that the bank charges overdraft fees when your balance is below $ 0.00? Well, a Polkadot-based project called Acala has developed an automatic onchain scheduler that is similar to a decentralized version of Stripe. This allows users to automatically transfer staking rewards to their wallet address, which can be linked to a physical credit card. That means a person can be paid to secure a decentralized monetary and banking system, and the money they make can be sent to a credit card and used to buy a coffee at Starbucks.

This report includes:

  • How Polkadot enables blockchains with different structures in an interoperable environment with shared security.
  • How the slot auction system allows projects to compete for the right to stay connected to the network.
  • How the ecosystem around Polkadot resulted in a variety of decentralized products, from social networks to cloud computing and prediction markets.

Download the full report with charts and infographics here.

Does Polkadot deliver what Ethereum promised?

Ethereum’s consensus mechanism forces all nodes to validate all transactions. In contrast, the Polkadot blockchain breaks stacks of new transactions into many shards and processes them in parallel. The blockchains attached to the network can have very different operating rules, transaction processing and capabilities, which gives the whole system much more flexibility.

Polkadot seeks to achieve scalability without compromising the security of the network. This famous problem, known as the “blockchain trilemma,” was explained by Ethereum’s founder, Vitalik Buterin.

In contrast to Ethereum’s single blockchain design, Polkadot has many different blockchains, known as parachains, that plug into a main blockchain, also known as the relay chain or layer 0. Similar to the hub-and-spoke model often used in airport design, different blockchains are used over the central relay chain provides a way to send messages and transactions over multiple blockchains without slowing down traffic on the transaction highway. Layer 0 refers to the concept that Layer 1 protocols like Bitcoin and Ethereum Spokes and Polkadot could be the hub. For example, the NFT project Bit.Country is a substrate-based blockchain that uses a bridge with Ethereum. This allows assets to flow between Ethereum and Metaverses, which are based on the TEWAI blockchain from Bit.Country.

No smart contracts on Polkadot

Since Polkadot’s relay chain doesn’t have smart contracts, it’s up to the blockchains that are put into Polkadot to enable smart contracts. For example, a parachain called Moonbeam is fully compatible with Ethereum contracts. The developers of Moonbeam created a way to interact with digital currencies based on Polkadot via Metamask, the popular web browser wallet for decentralized finance. This means that tokens based on the substrate of Polkadot, a blockchain development tool, can be sent seamlessly to Ethereum wallets and smart contract addresses.

The next layer of the Polkadot ecosystem includes the projects that build on the blockchains built on top of the relay chain. Ocean Protocol, for example, is in the process of making its smart contracts available on the Moonbeam blockchain. By being built on top of Moonbeam, the OCEAN token will be compatible with both Polkadot and Ethereum blockchain applications.

Reconstruction of the Ethereum network on Polkadot

Polkadot’s increased scalability enables many projects to overcome Etheruem’s high transaction fees and low number of transactions per second. Similar to Ethereum’s decentralized data storage projects such as FileCoin, Sia or Storj, Crust Network is building a similar solution on Polkadot. Unlike Ethereum-based projects, Crust Network is not limited by Ethereum’s scalability issues. Many of the applications that we have come to love on Ethereum are rebuilt on the Polkadot network or integrated via chain-independent gateways.

The Polkadot ecosystem appears to be full of projects ranging from decentralized cloud computing with Phala Network to cross-chain depot wallets like the browser-based Math Wallet. The hardware-based virtual private network project Deeper Network has already sold over 10,000 physical devices on Indiegogo, Amazon and BestBuy. Deeper’s blockchain solution coordinates all devices and routing while maintaining privacy, holds device registration (in the form of a public key infrastructure) and manages staking and reputation subsystems.