DOT is the native token of the Polkadot network.
Polkadot is a unique network which allows the transfer of data, money and assets between different blockchains.
Polkadot is different from other networks such as Ethereum, as it uses various blockchains instead of smart contracts, allowing developers a more granular approach to design. DOT tokens are the native currency of the Polkadot ecosystem and are used for proof-of-stake and governance.
|Circulating supply (approx. as of January 2021)||954 million|
|Maximum supply||1.04 billion|
|Purpose||Proof-of-stake and governance|
How does Polkadot work?
At Polkadot’s core is a universe of blockchains, both public and private, which can all interact with each other through a process known as interoperability. Instead of using smart contracts to run applications, Polkadot uses parallel blockchains, known as parachains, to serve a similar purpose. Whereas a developer on Ethereum would use a collection of smart contracts to program a dapp, developers on Polkadot use parachains instead.
By programming individual blockchains to host dapps instead of smart contracts – which are bound to the parent blockchain’s rules – developers are able to exercise greater control over design, including key features such as speed, fees and whether data is public or private. Smart contracts are still supported on Polkadot, although they must exist within a parachain.
For example, a bank might want to host customer data on a private blockchain that only employees can alter. Customers could then access this data using a third-party payments app which operates on a public blockchain. Permission to access either parachain could be moderated by a digital ID held on a smart contract parachain.
Tying these parachains together is the relay chain, which can be thought of as the central blockchain within Polkadot. By managing a network of parachains from a central relay chain, friction is reduced, enabling a faster and more efficient network for both the user and those that operate it.
What does the DOT cryptocurrency do?
The Web3 Foundation, which is responsible for developing Polkadot, categorises the function of the DOT token into three categories: Governance, Staking and Bonding.
Governance is the process whereby DOT token holders are given the ability to vote on how the blockchain is managed. For instance, token holders may vote on things like protocol upgrades and changes to the relay chain. Votes are proportional to the amount of DOT token a user has staked.
In the event that a DOT token holder does not exercise their right to vote, their stake will be allocated to a special council of 6-24 members who are elected to vote on behalf of absent DOT holders.
Polkadot uses a proof-of-stake mechanism which means that DOT holders can lock up their tokens and help secure the network, in return for staking rewards.
Staking can be performed in one of two ways, either by acting as a nominator or a validator. Both nominators and validators receive rewards for their participation.
Nominators will be the most common type of stakers on Polkadot, as their role is essentially limited to electing validators.
Validators on the other hand perform a critical role in the health of the network. Validators run a node which operates 24/7 to validate transactions on the network and ensure its efficient operation.
Additional tokens will also operate on the Polkadot network, similar to how Ethereum supports tokens such as the famous ERC-20 token standard.
Lastly, DOT can be used to launch new blockchains on the network, known as parachains. In order to launch a parachain, DOT must be deposited in a process known as bonding. If a parachain is retired, DOT tokens are returned.
What to watch out for
Polkadot is a relatively new blockchain, which employs novel technology that has not yet been tried and tested compared to more established chains like Ethereum or EOS.
While the consortium of projects behind the development of Polkadot is highly experienced, the commercial success of the platform remains to be seen. Furthermore, Polkadot operates in a saturated marketplace against operational projects which have had several years to capture market share.
How to buy DOT
Here’s a step-by-step guide to one way of buying DOT. Note that there might be other options available, so you may want to compare cryptocurrency exchanges to find the one that’s right for you.
More guides on Finder
How to buy Cardano (ADA) in Canada
Cardano (ADA) is an entirely new cryptocurrency network built from scratch. See what makes it unique, and where you can buy it.
Dogecoin (DOGE) price prediction 2021
Where is the price of Dogecoin headed in 2021 and beyond, and what are the factors affecting the value of this iconic cryptocurrency?
Review: Celsius Network cryptocurrency lending and borrowing platform
An in-depth review of one of the most popular lending and interest earning platforms in cryptocurrency.
Ethereum (ETH) price prediction 2021
What affects the value of Ethereum (ETH) and how might the price of ETH fluctuate in the year ahead? Find out in this comprehensive guide.
AscendEX (BitMax) Cryptocurrency Exchange Review
A complete review of the AscendEX exchange, covering trading and DeFi features, associated fees, regulation and security. Is AscendEX right for you?
Axie Infinity guide: How to play and earn
Axie Infinity is an RPG game that is currently dominating the NFT sector. Discover what Axies are, what makes them unique and how you can earn money simply by playing.
Binance Futures guide: How to trade BTC, ETH and more
Learn how to trade futures contracts on Binance with this visual step-by-step guide.
What is Yearn Finance?
Learn how to use DeFi aggregator Yearn Finance to earn interest on your cryptocurrency.
How to stake Ethereum
Learn how to earn ETH coins by locking up ETH with this guide.
Cryptocurrency staking guide: How to stake coins for rewards
Staking is one of the most popular ways to earn an income with cryptocurrency – learn how to get started with this guide.
Ask an Expert
You must be logged in to post a comment.