A parachain is an individual layer-one blockchain that participates in the Polkadot and Kusama multichain networks and other blockchains. The formal name for this type of blockchain is a parallelizable chain. The security offered by Polkadot’s Relay Chain, which serves as the network’s nerve center and is responsible for overall system coordination, is accessed by Parachains. In the same vein, the computations that are carried out by a parachain are, for the most part, carried out independently. A parachain can have a variety of implementations and features, and it can be either public or private. Additionally, it can have its own functions, tokens, and governance structure.
Within the ecosystem, parallel parachains run, and thanks to Polkadot’s cross-chain composability, any data can be transferred between them. This paves the way for the creation of new use cases and opens up new possibilities. Cross-network bridges make it possible for parachains to connect to external networks like Bitcoin (BTC), Ethereum (ETH), and others. These connections are made possible thanks to these bridges.
Polkadot Architecture
Polkadot is a layer-one heterogeneous scalable multi-chain network that features shared security and interoperability. It was established in 2016 by Gavin Wood, who was also one of the co-founders of Ethereum and its former chief technology officer. This indicates that the central Relay Chain is responsible for providing scalability and interoperability at layer zero, as well as ensuring the safe passing of messages between hundreds of simpler blockchains at layer one that are connected as parachains.
But why is it such a big deal for the cryptocurrency industry, and what exactly is so revolutionary about this blockchain technology?
It is common knowledge that the majority of currently operational blockchains are made up of a number of cogs that are connected to one another. The most important component is a consensus algorithm, which is developed with the intention of achieving reliability in a network that contains multiple nodes that are not reliable. The maintenance of safety is the primary responsibility of the mechanism for reaching consensus.
The state machine is another component of the blockchain. It is responsible for transitioning the network to a new state in response to an event that originates from the outside world. The components of the chain that need to be secured are provided by the state machine.
Proof-of-work (PoW) networks, for instance, are safeguarded by Proof-of-work (PoW) consensus options, just as other networks are safeguarded by Proof-of-Stake (PoS) options. All of these networks deal with a wide variety of transactions and accounts, which is what gives their state machines their own distinct identities.
When a group of people makes the decision to create a new blockchain, they have to work on the implementation of a unique state machine in addition to some kind of consensus algorithm. This is not an easy task, and it frequently results in some insecurity and overhead issues. Additionally, it requires a significant amount of time and effort. Polkadot’s initial architecture comes to the rescue in this situation because it does away with the requirement of constructing blockchains from the ground up.
Polkadot asserts that it is a protocol that can be used by other protocols. Blockchains in this kind of network share a common environment in which they can interact with one another in a way that does not require trust so that they can concentrate on the tasks at hand. In addition, the co-founders of Polkadot designed a unique experimental environment known as Kusama specifically for software developers who are interested in rapidly bringing their concepts to life.
What is Kusama?
Kusama is Polkadot’s sister chain and is responsible for Polkadot’s early-stage deployments and experimental development. To put it succinctly, it serves as an ecosystem for innovation while also providing testnet conditions. Kusama’s primary use case is to facilitate testing, therefore it is branded as a “canary network,” meaning that it provides early unaudited code releases before it appears on the main Polkadot network. Many decentralized applications (DApps) are launching on Kusama before stabilizing their product for the main network.
Kusama, which was created as a sister chain to Polkadot, replicates the majority of Polkadot’s significant design features. Nevertheless, it accomplishes something else entirely. Kusama provides blockchain developers and engineers with the opportunity for architectural flexibility in the finalization of their blockchain projects. Kusama operates significantly more quickly than Polkadot because it only takes seven days to vote on a decision and eight days to implement changes after the vote, whereas Polkadot requires a month for each of these steps. In addition, Kusama facilitates rapid progress and growth.
Additionally, Kusama has lower economic barriers for entry than Polkadot does. As a result, launching a custom parachain on Kusama is much simpler, and becoming a validator is much simpler as well due to the low minimum staking requirements. However, in order to increase the network’s speed, it will need to provide governance parameters with a lower level of strictness and will have to sacrifice stability and security partially.
Parachain characteristics
In order to make it easier for different blockchains to communicate with one another, the Polkadot pliant architecture was developed. This would make it possible for many independent layer-one blockchains to collaborate with one another despite differences in their areas of specialization, goals, and internal structures, which would result in the formation of an environment with a greater level of diversity. Because of this, Polkadot only requires one criterion to be met before the design of a parachain can be considered complete, and that is proof that each block adheres to the predetermined protocol.
The ability of different decentralized networks to communicate with one another without any intermediaries goes a long way in giving rise to fully decentralized systems, and opens up new opportunities for interaction for the creation of new use cases and variations of collaboration.
Parachains like Kusama and Polkadot can see and access information across the ecosystem, engaging with one another and with external networks. The protocol’s cross-chain composability allows them to exchange tokens and other types of data, including, for example, smart contracts and off-chain information from oracles.
The issue of scalability in relation to blockchain technology is currently one of the most popular and widely discussed topics. Because of their restricted sizes and frequencies, blocks have a limited capacity to process large amounts of transaction data in a short period of time. This is because blocks have a finite number of transactions that can be processed within them. Polkadot design enables parallel transaction processing, which opens the door to a decentralized approach to increasing the scalability of blockchain networks. The throughput of the ecosystem as a whole is improved because each individual parachain contributes to the ecosystem by spreading out and processing transactions simultaneously with others.
Governance is a mechanism that manages and implements changes to blockchains. This mechanism provides a means of accountable transparency and democracy for the communities that utilize blockchains. Polkadot parachains, in contrast to Kusama parachains, are free to adopt any governance model that they deem appropriate, which significantly reduces the likelihood of a chain split. In addition, if a parachain does not wish to develop its very own governance model, it is able to access a variety of pre-built Polkadot on-chain governance models and can choose to implement any one of those models instead of developing its own.
Use cases
The range of possibilities presented by the Polkadot design is comparable to the extensiveness of the diverse use cases that are possible with the parachain.
One of the most important applications for blockchain technology is in decentralized financial transactions (DeFi). The primary objective of many different types of parachains is to use cryptocurrency to model conventional financial institutions like banks and exchanges. They may provide users with solutions that enable them to manage their digital assets, such as the ability to buy, sell, and transfer those assets. It could be a multi-chain DeFi solution provider, a hub for cross-chain DeFi, a project with its own stablecoin or decentralized application (DEX) capabilities, or a cross-chain money market. Additionally, it could be a project that provides a cross-chain money market.
Another use case for parachains is smart contracts. These use cases are represented by projects that enable Ethereum developers to migrate their contracts onto Polkadot, thereby opening up the Polkadot ecosystem for a wide variety of popular DApps and a large number of developers. A self-upgrading WebAssembly (WASM) smart contract platform and a community-led platform that mirrors Ethereum’s accounts, keys, subscriptions, and logs are already part of the Polkadot ecosystem.
Within the Polkadot ecosystem, a number of interoperability bridges are currently under construction. There is a trustless bridge that connects Bitcoin and Polkadot, as well as a decentralized cross-chain bridge that connects Polkadot and Ethereum, and there are also ones for other chains that are not homogenous. In addition to that, it features a bridge between blockchains based on Substrate and others, such as Ethereum.
Polkadot’s design also allows for the implementation of privacy protocols, which ensure that data processing can be carried out reliably while maintaining users’ anonymity.
Some ecosystem projects deliver decentralized data storage. When using these kinds of protocols, data are not kept in a centralized location; instead, it is possible to encrypt the files or break them up into smaller parts before the files are distributed across a decentralized network.
Polkadot’s data economy can be powered by the implementation of data infrastructure protocols that aim to build cross-chain platform parachains. These protocols will provide dependable and easily coordinated data sourcing and analytics.
In addition to that, the Polkadot ecosystem is designed to accommodate projects that make use of specialized use cases. For instance, there is a platform called parachain for decentralized social networks that are resistant to censorship, and there is also an open-source solution for the Internet of Things (IoT) and robotics that connects robots as a service for end-users with a decentralized system that monitors their activities on a global scale. Both of these solutions are futuristic in nature.
Parachain types and ways to allocate slots
To be integrated into the system, a parachain needs to take up residence in one of the vacant slots, and any endeavor that satisfies a significant unmet need has the potential to be an excellent candidate for a parachain slot. Polkadot only has the capacity to support a limited number of slots, which are estimated to be around 100. It is likely that more slots will be added to the system gradually over time. This number is expected to rise in the near future as a result of potential optimizations. The availability of those slots will be determined in a number of different ways.
What are Common Good parachains?
To begin, slots within the system are set aside for functionality that will be of use to the entire Polkadot ecosystem. As a result, the existence of common-good parachains is a precondition for it. Common-good parachains serve one of two purposes: those of a system-level chain or a public utility chain. Both of these purposes are described below.
These valuable parachains are governance-granted, which means that they are not distributed via the parachain auctions but rather by the on-chain governance system. This is because the on-chain governance system is the entity that grants them. Only through proper governance was it possible to terminate their lease.
What exactly are these “parachain auctions.”
Second, there are parachains that are granted through auctions. If parachain teams decide to go with this option, they have the option of either placing their bids with the native tokens of Polkadot (DOT) or Kusama (KSM), or they can source the tokens from the community through the use of crowdloans. Crowdloans are when contributions are solicited from DOT holders in exchange for some type of reward.
If a blockchain doesn’t meet the requirements for the common good but still wants to keep participating in the system, it can lease a slot on the Relay Chain by successfully bidding on and winning a slot in a parachain slot auction. The teams are required to post a significant amount of DOT or KSM as a bond in order to secure this lease for the duration of its term.
The total time allotment is restricted to a maximum of two years and is broken up into periods of three months each. The dedication of this interval mechanism came from the wish to make room for a greater variety of plant and animal life within the ecosystem. Its purpose is to prevent large and well-funded blockchains from hoarding slots, and to gradually make it possible for smaller blockchains to occupy the time durations that are not yet filled. In addition, parachains have the ability to lease more than one slot at once and can lease a slot for any combination of time periods that fall within the duration of the lease.
When projects enter a parachain slot auction, they are agreeing to lock up the quantity of DOT or KSM that they have bid on for the duration of the lease period that they have selected. After the conclusion of the lease period, the entire quantity is unlocked. After that, the project may decide to either run as a parathread or place another bid for another slot. Tokens are held in escrow in the original account during the lease period; however, they cannot be staked, transferred, or used for any other purpose during this time.
Crowdloans have been organized by some projects within the Polkadot ecosystem in order to collect the stake needed for the auction bid. Holders of DOT or KSM have the ability to select which projects they wish to back using this method. The specific project will determine whether or not the lessee will receive compensation for the forfeiture of staking rewards during the term of the lease.
Notably, crowdloans is arguably a model for the distribution of tokens that is more just and secure than those that have been seen in the past. Prior to this, users were required to send their tokens to the teams behind the projects in the hope that they would receive valuable tokens in return. For example, participants in StakeDrops and DeFi airdrops were rewarded with the tokens of a new project.
Users who take part in crowdlending do not permanently give up their tokens; rather, they allow them to be temporarily held in a reserve while they participate in the crowdlending activity. This places the responsibility squarely on the shoulders of the project teams to deliver a product that does not put the user in any unnecessary danger. On the other hand, crowdloans enable projects to obtain special privileges in the form of a constrained number of the desired parachain slots as well as access to the system’s security and interoperability features.
What exactly are “parathreads”?
Last but not least, the system claims that while parachains and parathreads are comparable from a developmental standpoint, they are distinct from one another from an economic point of view. The connection between Parathreads and Polkadot is handled with a pay-as-you-go model that includes an auction for each block. It is strongly recommended that projects use the parathread template, especially if they are only going to participate in the Polkadot system for a short period of time, do not require constant connectivity to the network, or are unable to acquire a full slot in the parachain.
The block time for parathreads will be significantly longer than that of parachains, but they will have the same high level of security and interoperability features as parachains. Any blockchain also has the ability to switch between being a parachain and a parathread, depending on the requirements at the time and the number of slots that are available on the Relay Chain.
The current state & beyond
By the end of the year 2020, the Rococo testnet for parachains and the teams had begun deploying test parachains. In February of 2021, the first messages that were successfully sent between parachains on Rococo were cross-chain messages.
On Kusama, the first ever parachain auction was held at the beginning of June 2021, and it was controlled by on-chain governance. One of the five available spots on the Kusama parachain was put up for auction one at a time, and there was a new auction approximately once every two weeks. Karura is now onboarded as Kusama’s first non-common-good parachain, and it has received more than 200,000 KSM in crowdloan funding as a result of its victory in the first parachain auction. In addition to this, Moonriver and Shiden were successful in securing several of the subsequent slots.
After the successful conclusion of Kusama’s auctions, it is anticipated that Polkadot’s auctions will begin shortly thereafter. After that, the launch of the system will be officially finished in accordance with its initial vision and design, with parachains functioning normally on the primary network.
After the code has been completely developed and checked, governance will be able to facilitate upcoming upgrades such as the addition of parathreads. The community of Polkadot will be the ones to decide, from that point forward, what the future holds for the ecosystem of Polkadot.
