Polkadot connects different individual blockchains into a single network; it wants to do to the blockchain what the Internet did for solitary computers worldwide.
Polkadot was founded by Dr. Gavin Wood, Robert Habermeier, and Peter Czaban under the Web3 Foundation, a Swiss foundation dedicated to facilitating a user-friendly and fully functional decentralized web.
Wood is a Thiel Fellow and renowned technologist and has an extensive resume in the cryptocurrency and blockchain space– he is an Ethereum co-founder, founder of Parity Technologies, and the creator of smart contract programming language Solidity.
Habermeier, also a Thiel Fellow, is a reputable blockchain and cryptography developer.
Czaban is the Technology Director of the Web3 Foundation.
Polkadot was first proposed in a whitepaper on November 14, 2016, as a means to solve many of the pressing issues of the various blockchains at the time.
Why is Polkadot special?
Polkadot can process multiple transactions on several different blockchains in parallel using its “Parachain” feature. Dubbed a sharded multichain network, Polkadot can help blockchains such as Ethereum become more scalable. Further, users can add custom blockchains to the Polkadot network with little to no friction.
To better understand Polkadot’s value add, it’s best to explore the various issues that have limited and restricted blockchains. Let’s dive into our Polkadot guide.
Issue #1: Scalability.
Most popular blockchains are not scalable due to their structure.
For example, once upon a time, it cost just a few pennies to a few dollars ETH equivalent to transact on Ethereum, the world’s most popular blockchain. Today, Ethereum gas fees have been as high as $250+.
The majority of blockchains bump into scaling issues in one way or another. It’s impossible to speed up transactions, and as the demand for transaction processing increases, each transaction begins to cost more.
Bitcoin, which is established as a medium to transfer value peer-to-peer, can only process 4.5 transactions per second.
Ethereum, introduced as Blockchain 2.0, fares a bit better at about 12 transactions per second.
In comparison, Visa/Mastercard processes upwards of 2,500 transactions every second.
The slow processing of payments is one of the main obstacles for Bitcoin and other cryptocurrencies in becoming commercial methods of payment.
Issue #2: No or Limited Communication and Interchanging of Data.
Dozens of blockchains were created in isolation, and it’s not possible for them to communicate or exchange value between each other. For example, you can’t send BTC on the ETH network. Even with DeFi services that allow for working across multiple currencies and blockchains, oracle services like ChainLink must be used to get accurate real-time data on each coin’s current value.
Issue #3: Lack of Customization.
Until the arrival of Ethereum, blockchains didn’t support any customization of the transfer of value from one owner to another. Bitcoin, for example, only allowed for peer-to-peer transactions. Smart Contracts made it possible to customize and program what can be achieved on a blockchain, to a limited extent.
How Does Polkadot Solve These Problems?
Most blockchains tend to do one single thing very well. As user adoption increases, many blockchains are pushed to move away from specialization into generalization to stay competitive.
Adding new features on top of legacy blockchains tends to cost significantly more network resources and usually isn’t very effective.
Polkadot is a blockchain network that specializes in underlying processes such as interoperability and communication, security, scalability, and transaction verification.
By using Polkadot, other cryptocurrency projects with their own blockchains can focus on their core specialty, rather than building sub-par features for integration and scalability.
How Does Polkadot Work?
Polkadot leverages four primary components to accomplish its goals: Relay Chain, Parachains, Parathreads, and Bridges.
The Polkadot Relay Chain:
The Relay chain is the primary architecture that holds everything together. Polkadot uses the Relay Chain mainly to verify transactions, similar to how Bitcoin and Ethereum use Proof of Work and Proof of Stake (POS) processes to verify transactions. On Polkadot, users can stake the native token DOT to help in the work of verifying transactions.
As the central component of Polkadot, the Relay Chain level coordinates the system as a whole, performing important functions like the verifying transactions and in making decisions on how to run the entire Polkadot architecture. There aren’t many programmable or customizable options at this layer of Polkadot.
The list of Relay Chain functions includes:
- Transaction validation.
- Nomination of parties who will stake their coins for validation.
- Keeping historical data.
- Monitoring the entire Polkadot system’s health.
A Parachain is a full-fledged blockchain application that lives on top of the Relay Chain. It is described by Polkadot in its whitepaper as “an application-specific data structure that is globally coherent and validatable.”
The Relay Chain, or the base layer, handles the security, validation of transactions, and governance functions of each Parachain.
The Parachain is similar to other blockchain networks such as Bitcoin or Ethereum Blockchain. Polkadot is unique in that it can contain multiple blockchains within itself. Hypothetically, it can house both the Bitcoin and the Ethereum blockchains within itself and place each one as a Parachain.
If both the Bitcoin and Ethereum blockchains are in Parachains within Polkadot, they’ll be able to communicate with each other, and can even pass transactions from one to the other– imagine converting BTC into ETH without an exchange. The blockchains communicate through a protocol called XCMP, which stands for “Cross-Chain Message Passing.”
The Parachain level only has a limited number of slots available, which are auctioned off by the Polkadot community.
Parachain’s offer a unique element of security. In theory, the Bitcoin blockchain can be hacked with a 51% attack. Such an attack could be prevented by the collective nature of Parachains under the overall security structure of the Relay Chain.
Parathreads are temporary slots on the Polkadot network, primarily used to test out ideas.
Parathreads are similar to Parachains in that they allow for the building of a special-use blockchain or application.
The difference between Parathreads and Parachains is that Parachains are more resource-intensive and more permanent than Parathreads– Parachains require a significant up-front investment to cover the high throughput.
As Polkadot puts it, “Parathreads have the exact same API and functionality as parachains, but on a pay as you go basis.”
Think of Parathreads and Parachains are like a Process and a Thread that runs in a computer’s CPU. A Process may have many Threads, and the Threads in a Process must share the resources of the process.
Similarly, Parathreads must also share resources within a Parachain because they are temporarily leased spots on a Parachain to practically test ideas in a live environment.
Parathreads also allows smaller community projects that couldn’t compete in an auction for an exclusive Parachain. The Parathreads allow these projects to experiment and demonstrate efficacy before committing to the upfront costs of a Parachain.
Since Parathreads must share scarce resources among various Parathreads running on a particular Parachain; as such, the communities on each Parathread must compete for resources with each other, and must pay for each processing block to the owners of the hosting Parachains.
Parachains that have decreased in community size and don’t use validation resources can be moved to become Parathreads to free up the limited Parachain slots while preserving functionality.
Chains that would otherwise be unable to compete in an auction of a Parachain of their own or do not think that to be economically viable can share the Polkadot security resources by paying for processing each block to the hosting Parachains.
Bridges, or the ability for an individual blockchain to communicate and transfer value to another, have been lacking in traditional blockchain technology.
Say you want to purchase an NFT priced in ETH, but you only have BTC. Traditionally, you’d have to convert BTC into fiat and then convert into ETH, or buy ETH for BTC on an exchange. You simply can’t transfer value or data from one Blockchain to the other without an intermediary layer, whether that be an exchange or fiat.
Bridges change that restriction, and they allow Parachains, which are essentially blockchains encased within the Polkadot ecosystem, to communicate and share data.The economic sovereignty and diversity of the respective blockchains is not affected when communicating or transacting via bridges.
Bridges are available both in centralized or decentralized versions, perhaps leading to a path of communication with central banks if (when) they begin minting digital fiat currency.
It is important to note that Bridges are a planned feature of the Polkadot Blockchain, and still need to be put into production. According to Polkadot, “It will be updated as more information is determined and available.”
The Polkadot Token (DOT): Tokenomics and Governance:
Polkadot utilizes its native token, DOT, for transaction processing payments and governance. DOT is also used for staking on the Relay Chain PoS (Proof of Stake) validation.
The DOT token plays multiple roles across the Polkadot network like compensating validators, as a governance token, or as a currency.
There are currently 1 billion allocated DOT tokens, up from the initial max supply of 10 million DOT due to a network redenomination.
Polkadot (DOT) Price
Unlike the Power of Work (PoW) consensus where miners use electricity to validate blocks to be added to the Blockchain, the Proof of Stake (PoS) requires users to validate blocks by staking their coins. In the PoW consensus, anyone can create a node and mine the blocks. In contrast, in the PoS, the Validators are specific participants that run the nodes (also called Validator Nodes) to propose and validate blocks to be added.
Like other PoS systems, Polkadot users can use a DOT to:
- to stake and for the owner to become a validator of the entire ecosystem’s transactions.
- nominate their DOT to other validators,
- or become a nominator themselves to share the rewards.
If a DOT holder does not wish to do the verification itself they can also nominate another DOT holder to stake their DOT tokens; it’s as if you are selecting someone to be your representative. A DOT holder can nominate up to 16 validators to stake their tokens for them. Hence, Polkadot’s consensus mechanism is called NPoS (nominated proof-of-stake.)
It’s no coincidence the same developers working on scaling Ethereum into Ethereum 2.0 are also bringing the world the Polkadot ecosystem.
In building Polkadot, the team has paid particular attention to remedy all the deficits that plagued and limited earlier blockchain systems, such as Bitcoin’s lack of customizability or Ethereum 1.0’s lack of scalability.
Will Polkadot be able to fulfill its vision of connecting the world’s blockchains into one cohesive, interoperable ecosystem? It’s quite a challenge, but the Polkadot team seems to be exceptionally qualified to do so.
Rothschild Investment Buys $4.75M in Shares of the Grayscale Ethereum Trust
Asset manager Rothschild investment Corp has acquired 265,302 shares from the Grayscale Ethereum Trust, a purchase worth $4.75 million.
According to an SEC filing on April 15, the firm also bought an additional 8,000 shares of the Grayscale Bitcoin Trust (GBTC), now owning a total of 38,346 shares.
Not The Rothschild You Think
Rothschild Investment Corp has nothing to do with the Rothschild family, but many in the community are still confused.
Founding members Monroe Rothschild and brother-in-law Samuel Karger have said the firm has no relation with the wealthy dynasty originally from Frankfurt. In 1995, New York Times published an article that clarified the differences between both branches.
Rothschild Investment Corp was founded in 1908, headquartered in Chicago. The firm holds over $1.2 billion in its portfolio and over 450 open positions in the market. Unlike the famous bankers, the firm has been accruing shares since 2017, long before traditional institutions started investing in crypto assets.
Grayscale Finally Hit the $50 Billion Mark
The recent purchase comes after Grayscale hit the long-awaited $50 billion mark. As reported, Grayscale finally holds over $50 billion in total assets under management (AUM). The GBTC alone holds $41,442 million, while the Ethereum Trust holds over $7,420 million.
Ethereum also hit a new all-time high by reaching $2500 after a parabolic run in the last five months. It soared 13.7% last week, breaking its previous resistance at $2,2007. The Berlin hard fork went live a few days ago in an attempt to reduce the high fees on the network, but many users have complained about syncing issues for the network nodes.
The crypto market was overall bullish in the last weeks but the market took a u-turn this weekend, causing mayhem across the board, liquidating over $10 billion worth of both long and short positions in less than a day.
Are we there yet? Here’s why one analyst says its not ‘altcoin season’
Few traders would argue against the fact that Bitcoin (BTC) is in a bull market, but there is less consensus on whether the market is in the midst of an “altcoin season.” A quick view of Crypto Twitter shows the schism between traders who are certain we are halfway through alt season and those who believe it has yet to begin.
Typically, traders rely on a wide swath of indicators and metrics, like Bitcoin’s total market capitalization versus the total altcoin market cap, Bitcoin’s dominance rate, and whether low-cap altcoins have rallied by a certain percentage.
As is the nature of investing, too much signal can at times produce mixed results, so Cointelegraph decided to have a chat with Ben Lilly, co-founder and analyst at Jarvis Labs, to see where he and his firm think the market currently stands and to determine the most appropriate metrics to use in figuring out whether or not an altcoin season is truly at hand.
Cointelegraph: A number of analysts claim we’re in an altcoin season, or at least right at the verge of one. Some are looking at support/resistance flips and fractals on altcoin market cap charts (isolated from BTC’s market cap) to make convincing arguments. Why do you think that we are nowhere near an altcoin season?
Ben Lilly: I believe everybody’s interpretation of what defines an altcoin season varies. For many, altcoin season might exist when both BTC and altcoins move higher. This is opposed to Bitcoin rising while altcoins remain flat or drop.
I think this is a fair view of altcoin season, but it’s not necessarily one I subscribe to. Simply because if this is a definition for altcoin season, it’s not a compelling reason for me to move away from Bitcoin and into altcoins from a risk-adjusted perspective.
Because in that definition of altcoin season, Bitcoin is still the preferable asset to own.
We think of altcoin season as market movements that take people by surprise or at least make traders rethink what is normal.
CT: So, altcoin seasons are not reflecting a macro-level trend shift in the market direction of Bitcoin’s momentum?
BL: Well, getting back to what I said earlier, support and resistances are helpful ways to explain. We can view these as areas that, when broken, create fast price action. It’s the type of action you want exposure to, assuming you’re on the correct side of it. While anything in between these supports and resistances can almost be assumed as “expected” or normal — in a loose sense.
To figure out where this area might be, we can look at a Bitcoin dominance chart. This lets us know the percentage of the market Bitcoin represents. Right now, it’s trading in a range, which is to say an “expected” range. And because it’s trending down, this is good for altcoins as Bitcoin concedes some dominance to other coins.
While many might point to this and say it’s an “altcoin season,” I’ll point out that this type of activity tends to happen in a bull cycle because new money is moving in.
In fact, we’ve been trading in this range of expectation from the middle part of 2019, which coincides with when Bitcoin found its low and began to turn bullish.
Oddly enough, we recently jumped out of this range in late 2020, and when we did, Bitcoin went on an absolute tear. During this run, altcoins lost value. And similar to how Brent Johnson describes his dollar milkshake theory, Bitcoin sucked up the market’s liquidity as it ran higher.
We have since returned to this range of expectation, also known as the normal area of the market.
Now, if the opposite happens and we break this expected range to the downside, in our point of view, this will signify that altcoins are the asset to be sitting in, as they will generate outsized returns relative to Bitcoin. That’s when things will get wild.
CT: For years, traders have pinpointed the shifts in dominance rate between BTC and altcoins as a relevant indicator of when altcoin season begins. As the theory holds, when Bitcoin’s price consolidates or is in a downtrend and its dominance rate drops below a certain percentage, altcoins capitalize on Bitcoin’s range-bound action by rallying higher. What thoughts do you have on this?
BL: Similar to what I explained previously, it’s all about expectations. As soon as the market creates a change in view of what’s normal, then “altcoin season” will appear.
Another chart I’m frequently leaning on is the ETH/BTC pair. When Ether gains in relation to BTC, this is generally a good sign for altcoins. And recently, there’s been some bullish momentum on the chart within its current range of expectation.
The ETH/BTC pair is currently forming what we can describe as the Livermore Accumulation Cylinder. For more than a month, we have been discussing this in our free “Espresso” newsletter from the Jarvis Labs Substack, and what is clear is that the chart is taking form and is at the later stages of its trend.
If ETH/BTC breaks up and out of this cylinder, it’ll be another moment where expectations of what is normal will be adjusted. This is when we will see fast price action, and likely an altcoin season.
CT: While a rising tide does lift all boats, altcoins have been the top performers in the market when compared with Bitcoin. A quick look over CoinMarketCap shows that at least 50 have made moves that are well above 100%, and the altcoin market cap has risen from $250 billion in January to nearly $900 billion today. In your opinion, what is the primary signal that the market is in a proper altcoin run?
BL: Now, this is a bit different than an altcoin season, in my opinion. That’s because a proper bull run for altcoins is when investors are more likely to walk further out on the risk curve of crypto versus simply buying Bitcoin, not necessarily outsized gains compared with Bitcoin.
Based on this definition, we can make the case that whenever Bitcoin dominance is falling while crypto as a whole is in a bull market (like today), then this is a bull market for altcoins.
While investors might not have outsized gains relative to Bitcoin in a proper altcoin bull run like they would in an altcoin season, it is wise to begin building exposure to these higher-risk assets in this environment.
CT: Does on-chain data have any value in determining when alt seasons begin?
BL: Absolutely. On-chain is very valuable if you know how to filter out all the noise that comes with it. With crypto, there’s so much transparency in seeing transactions on-chain. This creates a trove of data that can be looked at in hundreds of different ways, many of which are somewhat meaningless.
At Jarvis Labs, we filter out all the data to find the data that matters. Then we run it through algorithms to create trade signals. It’s high-value data analytics and tends to be used in place of in-house analysts.
In saying that, on-chain is still an evolving space outside of Bitcoin and Ethereum. We’re on half a dozen blockchains watching these signals evolve and generating a variety of reliable signals will better pinpoint exactly when trend shifts take place and altcoin seasons begin and end.
One simple thing traders can follow in order to see the progression of an altcoin season is USDT flows.
When an altcoin season arrives, we’re likely to see USDT flow into other layer-two protocols such as Polkadot, Cosmos and Solana. That’s because many small-cap assets that are very far out on the risk curve, which tend to be bought in these types of environments, will exist on decentralized exchanges rather than centralized exchanges.
As investors start buying up these small-cap assets, liquidity will arrive, and USDT is the most ubiquitous form of liquidity in the market.
So, when USDT enters these ecosystems by the hundreds of millions, you can be sure it’s altcoin season, as investors will be chasing these assets only found on DEXs native to their protocol (i.e., Serum).
CT: Is it possible that the narrative may be changing and that some altcoins are breaking away from their reliance on the performance of Bitcoin, shifting what an altcoin season may look like?
BL: The changing landscape of risk is how I view this particular question.
And as other assets begin to grow in market cap and age, the network effects will grow. This, in turn, will insulate many crypto assets from Bitcoin since a lot of value will be attached to them.
In this way, over time altcoins will slightly deviate away from BTC’s performance.
Ethereum will be the first asset to do this, simply because of where it’s at in terms of its life cycle and development. But in terms of being immune to Bitcoin’s price, this won’t happen for many years. In fact, I think there will always be some correlation to an extent.
That’s due to macro reasons. Simply put, commodities as a whole tend to have a correlation to one another, equities as a whole have correlation, and even currencies tend to move in tandem with one another (i.e, USD, CHF, JPY). In saying this, crypto as a whole is likely to move in tandem with one another for at least most of this decade if not longer.
Disclaimer: Cointelegraph does not endorse any content or product on this page. While we aim to provide you with all the important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as investment advice.
COINQVEST and Anclap introduce inflation free cryptocurrency payment processing for Argentina
COINQVEST, a licensed virtual currency service built on the Stellar Network that allows merchants to accept, manage and disburse cryptocurrency payments, today announced its collaboration with Argentina-based Anclap, a Peso Argentino anchor and financial technology service provider, to bring blockchain-based and inflation-free payment processing to merchants and enterprises in Argentina.
Anclap provides real-time bank account integration in Argentina and helps businesses protect themselves from the inflationary nature of the Argentine Peso.
The COINQVEST platform offers Argentinians secure payment processing of transactions in BTC, ETH, XLM, and other major cryptocurrencies or stablecoins with settlement to international and local fiat currencies. Merchants can on and off-ramp funds from digital wallets or brick-and-mortar bank accounts.
Benefits of COINQVEST include non-custodial settlement, reduced costs and settlement times, crypto wallet and fiat bank payouts, customer invoicing, and compliant record-keeping.
“Argentinian merchants can now settle sales in USD and maintain a USD balance sheet to protect themselves from the depreciation of the Argentina Peso. Settled funds can automatically be exchanged into ARS using payment rails provided by Anclap in real-time.”
– Marcin Olszowy, Co-Founder at COINQVEST
COINQVEST’s service offers solutions for developers and non-developers alike. A hosted checkout interface was created for lean businesses without web development personnel. For enterprises with a dedicated development team, COINQVEST’s powerful and well-documented API with white-label capability is available for greater control and customization.
“COINQVEST is redefining the digital payments industry. It brings countless benefits for Argentine businessmen and entrepreneurs. Anclap participates in this process connecting e-commerce with the local financial system through Argentine Pesos, providing an on-/off-ramp to the network, and allowing access to new global financial services instantly and safely, maintaining full compliance with PLA/FT regulations.”
– Ivan Mudryj, Co-Founder at Anclap
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