Polkadot (DOT): What It Is, What It’s Worth and Should You Be Investing?

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Polkadot is a relatively new cryptocurrency quickly gaining popularity. Bitcoin still tops the list for cryptocurrency and isn’t at risk of being dethroned anytime soon. But it is rising in ranks and threatens other high-ranking cryptocurrencies like Ethereum.

How Does Polkadot Work?

Polkadot cryptocurrency is set up as a blockchain — a way of storing information that works similarly to a database. Blockchain technology stores information to create:

  • A permanent timeline, without the need to purge data
  • Uneditable records, so Polkadot can’t be easily hacked
  • Transparency and visibility to anyone
  • Decentralized currency, not limited to control by a single bank or entity

Since blockchains are recorded but never edited, hacks can be easily traced. Even if your cryptocurrency is stolen, the blockchain continues tracing it through the system. The hacker may remain anonymous, but the cryptocurrency is easily transferred back to its rightful owner.

How Blockchains Differ From Banks

Funds in banks and the stock market typically limit access to business hours. Cryptocurrency is open 24/7, and transfers happen much more quickly than they would at a bank.

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Transferring to another financial institution from your bank may take 48 hours or more. With blockchain technology, your transaction is typically completed within 15 minutes, though it can take over an hour if many transactions happening at once create network congestion.

How Is Polkadot Different Than the Competition?

Polkadot is newer than other popular cryptocurrencies. Bitcoin was the first to emerge in the world of cryptocurrency. It offers basic abilities compared to the second-most popular cryptocurrency, Ethereum, which can complete more complex tasks.

However, there is a charge for each task with Ethereum, so the cost of more complex transactions adds up quickly. Ethereum has only one “lane” for transactions, which can lead to network congestion.

Parachains

Polkadot is different because it offers parachains, short for parallel chains, series of connected blockchains. These blockchains run alongside one another in a way that speeds up transactions. Having multiple lanes to complete transactions leaves less chance for network overload.

Additionally, Polkadot created protocols that allow its network to interact with other blockchains. Since its blockchain network is flexible, it has an increased ability to pivot and serve more specific needs.

Why Are Investors Choosing Polkadot?

Polkadot is gaining interest from investors because it is more interactive. Developers can link blockchains to the Polkadot system and even create entirely new blockchains. When investors see developers flocking to new technology, it catches their attention.

When it comes to Bitcoin and Ethereum, investors often have to buy fractions of coins based on their value. Polkadot is currently more affordable, making it a more enticing purchase.

The Strategy Behind Choosing Polkadot

As cryptocurrency becomes more popular, upstarts like Polkadot will take some of the market share from major players like Bitcoin and Ethereum. Ehtereum is up 266% in value this year. It is easily beating Bitcoin in growth even though Bitcoin has been around longer. Yet, many investors are turning toward up-and-coming blockchain networks like it.

As an investor, you have the most to gain from investing in a budding new opportunity that shows a lot of potential.

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Potential Benefits of Investing in Polkadot

In August 2020, Polkadot hit the stock market with a value of $2.69. In seven months, its value is up more than 1,200%. This growth is enticing to investors looking to see a return on their investment.

Some investors see Polkadot as an inevitable progression of cryptocurrency. It’s the next step in improving blockchain technology. It’s a scalable business model, leaving lots of room for growth. For investors, business growth means an increase in value.

Investor Contributions

It also has a foundation designed to reward true investors and weed out bad ones. Investors committed to its success have a real stake in the company. Not only are they financial investors, but they also contribute to decision-making for things like:

  • Network fees
  • Establishing or removing parachains
  • Network upgrades

Polkadot weeds out bad investors. If you invest in but aren’t engaged in how the system evolves, your DOT tokens are released and reinvested into the ecosystem. This leaves room for serious investors to help Polkadot improve the way it offers services.

Potential Risks of Investing in Polkadot

Investing in anything new carries risk. While something can happen to any of your investments at any time, some stocks are considered safe. If a business has a track record for steady growth or at least maintaining value over many years, you view it as a safe investment.

Polkadot was first introduced by its founder, Gavin Wood, in 2016 via a whitepaper. At fewer than five years old with less than a year in the stock market, it has no track record for comparison yet, which makes it significantly riskier.

Is Polkadot a Good Investment?

Polkadot is still very young. If you like taking risks, your investment could pay off big in the long run. But it could also go bust if a newer, better technology comes along in the form of a competitor and overtakes Polkadot.

While Polkadot has many projects in the pipeline, it will take some time for this new cryptocurrency to see true success. The good news is that it already has monetary value in exchanges, making it a stock worth watching.

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Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Katy Hebebrand is a freelance writer with eight years of experience in the financial industry. She earned her BA from the University of West Florida and her MA from Full Sail University. Since beginning to work full-time as a freelance writer three years ago, she has written on topics spanning many fields, including home building, families and parenting, legal and professional/corporate communications.

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