Right on the DOT – Polkadot and On-Chain Intelligence

We shine a spotlight on Polkadot — one of 2021’s most exciting crypto projects thus far — and the unique value proposition it presents to cryptocurrency enthusiasts. Along the way, we dive into the details of on-chain intelligence and how the FCAS uses it to rate projects. 

What’s Up With DOT?

Polkadot has been a darling of the crypto world in 2021. In this article, we break down the basics of Polkadot: what it offers and how to compare it to other crypto projects, even those that offer very different features and tradeoffs.

Polkadot offers a solution to one of the most pressing challenges facing Ethereum: scalability. At the time of writing, the Ethereum network handles about 15 transactions per second. We can validate this with the help of Etherscan and some simple math: 

Figure 1. Ethereum Daily Transactions

A total of 1,277,890 transactions occurred this past Sunday. Divided by 86,400 seconds in a day, this yields ~14.8 transactions per second. By contrast, credit card payment systems process thousands of transactions per second. Not a good look for Ethereum 1.0.

If you’ve ever heard of sharding — this is the problem it’s intended to solve. In the current version of Ethereum, every node — that is, every computer participating in the Ethereum network — has to process every transaction in the entire history of the blockchain in order to validate transactions. 

Sharding divides the data into many specific blockchains — 64, in the case of Ethereum 2.0 — enabling validators to focus their computing resources on a specific subset of data rather than on the whole. The “beacon chain,” which currently runs in parallel to the Ethereum mainnet, facilitates communication between the separate shards. The goal is to dramatically increase the scalability of the Ethereum network, enabling it to handle tens of thousands of transactions per second.

Polkadot provides an alternative to Ethereum 2.0, although it is not a direct competitor. Dr. Gavin Wood, who co-founded Ethereum and created Polkadot, highlights a number of conceptual differences between Polkadot and Ethereum 2.0. 

In his own words, “Polkadot…is built to be a largely future-proof harness able to assimilate new blockchain technology as it becomes available without over-complicated decentralised coordination of hard forks.”  

With that said, Polkadot also uses sharding to address a number of blockchain architecture challenges. It establishes a main chain, the “relay chain,” to which separate shards or “parachains” can connect. The relay chain is a proof-of-stake (PoS) system; in conjunction with validators, it provides security to the various parachains and enables on-chain governance.

Polkadot launched in May 2020, drawing attention from well-known projects such as Chainlink. According to Dr. Wood’s year-end review of the Polkadot ecosystem, “Polkadot is now the 2nd most active DeFi ecosystem after Ethereum (and growing fast)”. Retail investors have taken note in 2021; year-to-date, DOT is up nearly 400%. 

Figure 2. DOT Price, Year-To-Date (2021)

Polkadot: A Healthy Developer Community

Each blockchain is unique, and Polkadot’s blend of complexity and innovation makes it especially difficult for non-experts to understand. One way to approach complex projects like Polkadot is on-chain intelligence, which uses data gathered from a project blockchain itself to provide rich insights and enable comparisons with other projects. For example, analyzing blockchain data enables viewers to compare the activity of developer communities. 

Figure 3. Developer Scores – Polkadot vs. FCAS 25

Looking at Polkadot, we see that its recent developer activity compares favorably to the cream of the crop — the top-ranking projects in the crypto universe. 

A high developer score means that a project has an active developer community: a large number of contributors making regular updates. While projects may vary widely in technical architecture and goals, developer activity provides a common and easily understood metric by which projects can be compared, e.g. how many people are contributing to a project’s health and feature set?

Here’s a granular look at developer contributions. The key takeaway is that Polkadot shows consistent contributions (i.e. surges of activity), indicating a dedicated developer community that stays committed to the project over time. 

Figure 4. Developer Contributions to Polkadot

Metrics, like price, are reactive — they can tell you that a large number of buyers have become interested in purchasing tokens. A better standard to examine when assessing a project is: does it have an active, engaged community of developers who are committed to making the project better by adding features and addressing vulnerabilities? 

By that standard, Polkadot is an excellent example of a project that has attracted regular developer activity over time — and is now enjoying its moment in the limelight as a result.

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