What is Polkadot?

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What is Polkadot?

Polkadot is an open-source, decentralised blockchain platform designed to enable cross-chain interoperability and scalability. Launched in 2020, it aims to connect multiple blockchains into a unified network, allowing them to process transactions in parallel and exchange data securely. Its native cryptocurrency is called DOT, which is used for transactions and to pay network fees associated with applications built on the platform.

Created by the Web3 Foundation, Polkadot was developed by a team led by Gavin Wood, Robert Habermeier and Peter Czaban. The trio envisioned Polkadot as a platform to overcome the limitations of existing blockchain networks, such as scalability issues and lack of interoperability. Polkadot provides a framework for blockchains to interconnect, share information and operate seamlessly together. DOT consistently ranks among the largest cryptocurrencies by market capitalisation. As of October 2024, it was in the top 15 on platforms like CoinMarketCap.

Polkadot vs Ethereum: what are the key differences?

Polkadot was originally created to improve upon the foundation of Ethereum. However, since Ethereum's transition to proof-of-stake with ‘The Merge,’ their similarities and differences have evolved.

Here are some key comparisons:

How does Polkadot work?

Polkadot is designed to connect various blockchains into a unified ecosystem. At its core is the relay chain, which serves as the central hub responsible for the network's security, consensus and cross-chain interoperability. The relay chain coordinates the system, ensuring that all connected blockchains can communicate and share information seamlessly.

Running parallel to the relay chain are parachains, which are independent blockchains tailored for specific purposes. Each parachain can have its own unique features, tokens and governance structures, allowing for customisation and optimisation for particular use cases like finance, gaming or supply chain management. By processing transactions simultaneously across these parachains, Polkadot significantly increases scalability compared to traditional single-chain networks, reducing bottlenecks and improving overall network performance.

Polkadot employs a consensus mechanism known as Nominated proof-of-stake (NPoS). In this system, validators are responsible for verifying transactions and adding new blocks to the relay chain by staking DOT tokens as collateral, incentivising honest behaviour. Nominators support validators by staking their own DOT, contributing to the network’s security and earnings rewards for doing so.

A standout feature of Polkadot is its cross-chain interoperability. Through specialised protocols called bridges, Polkadot can connect with external networks like Ethereum and Bitcoin, enabling the transfer of data and assets across different blockchains. This interoperability allows developers to build decentralised applications (dApps) that leverage services from multiple blockchains, creating a more interconnected blockchain ecosystem.

What’s the polkadot (DOT) price history?

Polkadot (DOT)’s 2017 initial coin offering (ICO) raised approximately $145 million. However, a vulnerability in the Parity multi-sig wallet led to the loss of more than half of these funds, casting a shadow over DOT’s early days.

In 2018 and 2019, Polkadot focused on development, releasing several testnets and refining its core architecture. The progress attracted attention from developers and traders, laying the groundwork for its mainnet launch in 2020.

Past performance does not guarantee future results.

In 2022, global economic uncertainties, including inflation, interest rate hikes, and regulatory developments, led to a broader crypto market downturn, and the DOT price was affected. Despite this, Polkadot continued to evolve in 2023, with increased adoption of its parachains and cross-chain messaging features, even amid ongoing economic uncertainty.

By 2024, despite significant price fluctuations, DOT maintained a stable position in the crypto market rankings. Polkadot’s focus on interoperability and its multi-chain architecture continued to attract developers and investors alike.

Which factors might influence the polkadot (DOT) live price?

Polkadot is influenced by a variety of factors that can potentially shift its price in the cryptocurrency market. Understanding these factors can help traders make more informed decisions.

Here are some of the key price drivers that could move the DOT price.

Technological advancements and network upgrades – successful implementations of network upgrades, such as the launch of new parachains and interoperability improvements, may boost trader confidence and increase demand for DOT. However, delays or technical issues in upgrades may lead to uncertainty, possibly causing the price to decrease.

Market sentiment and cryptocurrency trends – DOT often moves in tandem with broader cryptocurrency market trends. When overall market sentiment is bullish, particularly with major cryptocurrencies like bitcoin (BTC) experiencing price gains, DOT frequently follows suit. Positive trends such as increased institutional adoption or favourable regulatory news can lead to market-wide surges. Conversely, bearish market conditions or negative news can exert downward pressure on the DOT price.

Regulatory environment – government policies and regulatory changes can significantly affect the DOT price. Regulations that support blockchain innovation can boost investment and adoption, potentially increasing the price of DOT. Meanwhile, restrictive policies, bans on cryptocurrency trading or increased compliance requirements can reduce market accessibility, which might influence price declines.

Staking and supply dynamics – Polkadot uses a Nominated proof-of-stake (NPoS) consensus mechanism, where staking plays a crucial role. When a large amount of DOT is staked, it reduces the circulating supply, which can create upward pressure on the price if demand remains steady or increases. Conversely, if a significant amount of DOT is unstaked and re-enters circulation, it can increase the available supply, potentially leading to a lower DOT price if demand does not rise to match.

Adoption by developers and projects – increased adoption showcases the platform's utility and might attract more users and traders. High-profile partnerships or successful parachain auctions that bring innovative solutions to the network can enhance its reputation and drive demand for DOT.

Macro-economic factors and global events – Broader economic conditions, such as inflation rates, interest rate changes and geopolitical events, can affect trader behaviour in the cryptocurrency market. Traders might turn to cryptocurrencies like DOT in times of economic uncertainty, potentially increasing its price. Conversely, a strong global economy might lead traders to favour traditional assets, which could reduce demand for cryptocurrencies.

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What are the polkadot (DOT) trading hours?

Polkadot (DOT) operates on a decentralised blockchain network that is active 24 hours a day, seven days a week, 365 days a year. This means you can trade DOT at any time, including weekends and holidays.

• Cryptocurrency exchanges – many exchanges facilitate 24/7 trading, allowing for continuous market participation.
• Online trading platforms – some reliable and trusted brokerages provide DOT/USD trading via CFDs.

If you choose to trade CFDs, you can follow the DOT performance live in US dollars with our comprehensive DOT/USD price chart.

Monitoring the cryptocurrency’s activity can help you to keep an eye out for any key fundamental or technical events that may affect short-term movements in its value.

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How to keep and store polkadot (DOT)

After purchasing DOT, you can store it in a cryptocurrency wallet. Options include:

• Software wallets – specialist desktop or mobile wallets like Nova Wallet, Polkawallet and imToken.
• Hardware wallets – physical devices like Ledger Nano S/X and Trezor provide secure offline storage, protecting your DOT from online threats.

It's important to ensure your wallet is secure and to keep your private keys safe.

Alternatively, if you trade on the DOT/USD price via CFDs, you don’t have to worry about storing or securing the underlying asset.

How to trade polkadot (DOT)

Polkadot (DOT) is a cryptocurrency, meaning that it can be traded directly on a cryptocurrency exchange or peer-to-peer. Traders may also choose to trade DOT via a derivative, a financial product that takes (or ‘derives’) its value from the price of the underlying asset.

You could use a contract for difference, or CFD, to trade on the price of DOT pairs. A CFD is a contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade.

You can use CFDs to trade on whether you think DOT/USD will rise (called ‘going long’) or fall (‘going short’). CFDs give you access to leverage, or margin trading, allowing larger positions with a relatively small outlay. This amplifies your potential profits, but also your potential losses, making CFD trading risky.

You can learn more about trading cryptocurrencies with Capital.com in our comprehensive guide to cryptocurrency trading.

Aside from CFDs, you can also trade DOT through instruments like futures, options, ETFs and mutual funds. Each offers an alternative to the leveraged trading of CFDs, suiting different risk profiles and investment strategies.

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