What Is Polkadot and Is It a Good Investment?
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 Polkadot 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
How Blockchains Differ From Banks
Whereas a banking network is a centralized system, where a central bank oversees the banks farther down the network, blockchains are decentralized — there is no centralized oversight. In addition, banks are highly regulated by the government. Blockchain, on the other hand, is, for now, mostly unregulated, leaving it vulnerable to exploitation by criminals who use it to transfer money undetected.
Banks’ centralized networks make them easier to hack than blockchains, but your money is generally safe in a bank. That’s because the Electronic Fund Transfer Act makes banks responsible for losses due to fraudulent transfers. Your crypto wallet has no such protection, and because transactions are anonymous and irreversible, it’s unlikely that you’d recover your cryptocurrency in the event it was stolen.
Where user experience is concerned, cryptocurrency has a significant benefit over banks — blockchain transactions can be completed in less than an hour, whereas bank transactions can take a day or two.
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. And Ethereum has only one “lane” for transactions, which can lead to network congestion.
Polkadot is different because it offers parachains, short for parallel chains, which are 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. Ethereum is up 474% in value this year. It is easily beating Bitcoin in growth for 2021. However, many investors are turning toward up-and-coming blockchain networks that provide alternatives to Ethereum– “Ethereum killers,” as some have dubbed these newcomers.
As an investor, you have the most to gain, albeit at greater risk, from investing in a budding new crypto opportunity that shows a lot of potential.
Potential Benefits of Investing In Polkadot
In August 2020, Polkadot hit the market with a value of $2.69. As of Oct. 10, it’s up to about $35. 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.
It also has a foundation designed to reward those who hold its token, or coin, called DOT. Token holders have governance rights over the entire platform, Binance explains, including voting rights on:
- Network fees
- Establishing or removing parachains
- Network upgrades
Polkadot weeds out bad investors by releasing their DOT tokens into the ecosystem. This leaves room for serious investors to help Polkadot improve the way it offers services.
Potential Risks of Investing In Polkadot
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 on the market, it has no track record for comparison yet, which makes it significantly riskier. Other risks include:
- Prices can be highly volatile
- Coins aren’t backed by a tangible asset
- Government regulation could impose limits on how cryptocurrency can be used
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 crypto worth watching.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Oct. 10, 2021, and subject to change.
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- What Is Chainlink? (LINK)
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- What Is Ripple? (XRP)
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- Forbes. 2021. "‘Ethereum Killer’ Polkadot: What’s So Great About It, And Why Buy It?"
- CoinDesk. 2021. "As DeFi Grows, Investors Look to Polkadot to Be the Next Ethereum."
- Binance Academy. "What Is Polkadot (DOT)?"
- CoinMarketCap. "Today's Cryptocurrency Prices by Market Cap."