Polkadot From the Beginning to Today: How the Network Is Evolving. Part II

In 2017, Gavin Wood and blockchain researcher Peter Chaban from Parity founded the Web3 Foundation, a non-profit aimed at supporting Polkadot’s research and development as well as overseeing its fundraising efforts. The first token presale to fund Polkadot happened in October 2017 and raised $144.5 million in just two weeks. The interest was mainly from large clients and institutional organizations that wanted to support “better Ethereum” and grow with it in the long-term.

Kusama Network

In May 2018, most of the code was written and Polkadot began testing the relay chain and its support for parachains. In January 2019, they introduced their first testing network, Alexander testnet. But the most significant release came in August 2019 with the launch of Kusama. It is an entire blockchain network designed exactly like Polkadot, totally unverified and unaudited, and running at several times the speed.

The purpose of Kusama is to serve as the “canary in the mine” and see if there could be any potential issues with parachains, relay chain, governance, staking, sharding, or Substrate implementation. It’s great for testing bold design choices and seeing how the network performs in real world conditions. To encourage participation, the Polkadot team allocated 1% of their main token (DOT) supply to Kusama stakeholders.

So far the network has been running without any issues, attracting its own projects and connecting new parachains through parachain auctions. Kusama market cap is at ~$420 million in July 2022, reaching as high as $5.02 billion in May 2021, two years after the launch. This would be a massive success for any real blockchain network, let alone a test one.

Polkadot Launch Phases

Polkadot has decided on a phased strategy for rolling out its main network. In May 2020, The Web3 Foundation launched the first phase of Polkadot’s mainnet candidate. During this time most users were able to:

  • Get tokens from their Ethereum contract
  • Stake tokens and state their intention to validate or nominate.

At the end of June, the network entered phase 2, the Nominated Proof of Stake phase. This stage allowed DOT holders to claim validator slots and unlock staking rewards.

After The Foundation verified that the network was working properly, another update was issued in July. It enabled the entire management system: the control of the chain was transferred into the hands of token (DOT) holders. Future of the protocol now belonged to the community.

Polkadot has by far the biggest developer community outside of Ethereum (even before XCM v3 launch).

The parachains have been tested and optimized on both the parachain testnets and Kusama. After the code was fully tested and verified, and Kusama was proven to be a success, the Polkadot Governance System was finally launched.

Remember, all of this had to be done on a live network with a total market cap that could compete with most Fortune 500 companies.

On December 20, 2021, after 5 whole years of research and development, the first parachain slot auctions were held, the first winners were announced, and the deployment of the first 5 connected chains into the main relay chain had begun. This was the final phase in the launch of Polkadot v1. The network was now officially live. Now everything else, according to Wood’s idea, was up to the community. It now could determine, through voting, which additional features and updates should be added to the network over time.

After The Parachains Launch

Parachain auctions immediately started collecting huge sums. Acala, a DeFi network with its own stablecoin, got the first parachain slot, winning an auction with 32.5 million DOT in votes (~1.28 billion USD at the time). The second auction was won by Moonbeam, an Ethereum-compatible smart contract platform, with 35 million DOT (~1.4 billion USD). Slot auctions quickly became a battle of giants, with large communities backing each winner. The next three parachains to connect to the relay network were Astar, Parallel Finance, and Clover.

This is where the price of DOT tokens skyrocketed. From just over $15 in the summer of 2021 to $53.88 in November, at the peak of the parachain slot auction battle.

A crypto report by Electric Capital  found that Polkadots ecosystem had the second highest number of cryptocurrency developers, and was growing at a faster rate than Ethereum in its early days. Meanwhile, in February an analysis by the Crypto Carbon Ratings Institute (CCRI) proved that Polkadot had the lowest carbon footprint of any cryptocurrency.

Huge crypto winter, however, started in May 2022 with the fall of UST and LUNA. Users started to transfer their funds from altcoins, newer projects and even stablecoins (USDT lost almost $20 billion market cap in just 2 months). The price of DOT token plummeted from $25 in March to less than $7 in June.

However, DOT remains the most popular cryptocurrency among institutional crypto funds besides BTC and ETH, and by a very wide margin compared with other altcoins. As of June 2022 Messari Fund confirmed that Polkadot is by far the most commonly held asset of the 82 crypto funds tracked by them.

Several post-launch updates to Polkadot have been released, including the launch of Polkadot’s cross-consensus communication standard (XCM), which allows for interoperability between parachains. XCM was updated in May 2022 and now allows for easy transfer of assets between connected chains, including DOT tokens and NFTs. There were also massive upgrades to cross-chain message passing protocol (XCMP), the launch of parathreads and various governance improvements.

These and any subsequent upgrades are approved by Polkadot’s on-chain governance community once development, testing, benchmarking, and audit are all complete.

Today, the market cap of DOT, the network’s main token, is over $6.7 billion, which makes it one of the top 10 cryptocurrencies in the world. Kusama, a token for the “canary” network, is worth more than $420 million. Some of the parachain tokens are worth $100-$300 million. Overall, even at the peak of crypto winter, the ecosystem holds more than $10 billion in value.

…And Beyond. Where The Project Is Going

Polkadot vs Ethereum 2.0

In the private token sale before Polkadot launch The Web3 Foundation gathered $60 million at $1.2 billion valuation, making it a unicorn years before the release. All 500 thousand DOT tokens (5% of the total supply) were sold, and investors wanted more than were available. Before that, the company raised $144 million through a public sale of 10 million DOT tokens in October 2017.

Company now uses the proceeds from DOT sales to fund ecosystem initiatives and back projects developing their products on Polkadot (see: the Polkadot Ecosystem Fund). The fund gave grants to over 100 Polkadot projects in 2021 alone. Meanwhile, new parachains are continuing to be released and connected, and the development of dApps for each of them is just now starting…

First launchpad fully supporting XCM functionality, Polkapad, is expected to launch this autumn. With it users will gain the ability to freely stake assets from any parachain and receive allocation in projects from any other. That would help not only investors, but also startup developers who want to launch on one of the parachains. Whole ecosystem could support any product, no matter where it decides to launch. This would make Polkadot even more attractive for new projects, especially smaller dApps.

In an interview in December 2021, Gavin Wood detailed the second chapter of Polkadot, which we can call Polkadot 2.0. According to Gavin, the focus of Polkadot 2.0 is on increased scalability, interoperability, financial management, and easier parachain onboarding. The research right now also concentrates on:

  • Economics and networking within parachains
  • Horizontal and vertical scalability; maximum number of parachains which could effectively support horizontal scaling
  • Linking multiple relay chains together through parachains. How will XCM work in this case? Will validators be able to validate blocks on various relay chains?

The first version of Polkadot currently supports up to 100 parachains. Assuming each of them can handle at least 10 TPS (transactions per second), a total throughput of the network would be 1000 TPS. Polkadot 2.0 will be designed to allow each parachain to function as its own relay chain, with more parachains being attached directly to it. This would form a tree structure that can enable theoretically infinite capacity. At some point the main relay chain might become a bottleneck, but only for validation of some input queue processing — afterall, parachains, due to XCM, can communicate directly with each other. According to one estimate, the tree structure of Polkadot 2.0 will allow the network to scale up to 10,000 times compared to any single Proof of Stake blockchain.

As Gavin has mentioned in many interviews, this feature alone could be the key to the mainstream adoption of Polkadot. Users will never have to suffer high fees or delays in their transactions when interacting with truly permissionless and decentralized applications. Theoretically, one Polkadot network is capable of supporting any number of projects, thousands or even millions of dApps, without having any throttle issues like Ethereum currently does. In theory, this could indeed become a solid foundation for Internet 3.0, as the early blockchain enthusiasts envisioned all those years ago.

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