Every day in the Crypto space there are innovations and inventions. These innovations create a sort of trend in the crypto space and remain as part of what makes up the blockchain. For example, Memecoins/Memetokens were the trend for last year, 2021, and going forward, it’d continue as an integral part of the blockchain. Impossibility is a term getting easily ignored in the blockchain ecosystem as new milestones are achieved often.
Blockchain is gradually moving from Web 2.0 to its Web 3.0 stage. Web 2.0’s limitations have become an opportunity for the evolving blockchain ecosystem. While Web 2.0 is the “writable” phase of the web, where users can interact, socially connect, and share user-generated content. Web 3.0, on the other hand, is the “executable” phase of the web, a paradigm shift from Web 2.0. because it exists on the core concepts of decentralization, openness, and greater user utility, a semantic web where computers can interpret information like humans and create personalized content for users. With Web 3.0, users can own their sites on the web, unlike its predecessor.
A major milestone reached by the blockchain is the launch of the Metaverse. Contrary to the misconception, Metaverse differs from Web 3.0. While Metaverse is a digital spectrum of augmented reality that allows users to interact with the web with 3-dimensional objects, Web 3.0 is a purely decentralized model of the internet that allows the latest innovations with blockchain technology. Within the context of the Metaverse, Web 3 is a critical building block because it would facilitate the move towards a multichain world where different blockchains can interact with each other as opposed to working in isolation at the Web 2.0 phase.
Why Do We Need Parachains?
The functioning of the metaverse is reliant on the facility that Web 3 provides but that alone Is not the entire component that is needed. Web 3 would allow the possibility of different blockchains interacting with each other; two chains can communicate by taking advantage of the multichain interface, but a bridge is needed to facilitate this communication and that is why we need Parachains.
What Are Parachains?
Parachains are multi-directional bridges. They are unique, independent, customizable blockchains, designed to fit the specific needs of the blockchain network on which they exist. So far, there are two blockchains where parachains exist, they are PolkaDot and Kusama.
According to Gavin Wood, “No single blockchain design works optimally for every use case. Each chain comes with trade-offs making it good for some applications and not others. The parachain model was created with the belief that the future of Web 3 will involve many different types of blockchains working together. Just as the current version of the internet caters to different needs, blockchains need to be able to provide a variety of services. Parachains solve this…”.
Before the launch of parachains, blockchain had settlement layer issues. What this means is that users are unable to transact cross-chain without first interacting with the initial dexes. For instance, you can’t convert your Algo coin to Shiba Inu on an Ethereum dex without first converting your Algo to Eth and converting your Eth to Shiba. Parachains, on the other hand, will allow cross-chain interactions without a third-party interface, Therefore you can convert your Algo to Shiba without having to first convert to Eth.
Where Does PolkaDot Come In?
Polkadot is a leading Web 3 blockchain built with substrate technology that allows it to be a foundation for other blockchains to coexist, earning it the name “Blockchain of Blockchains“. With Polkadot, transfers of any type of data or assets cross-chain are possible. The chains can retain their protocols and consensus mechanisms while still being able to interoperate securely. The network is also highly scalable for developers and users alike because it uses a common set of validators to secure multiple blockchains and allow the spreading of transactions across multiple parallel blockchains.
Polkadot allows developers to create their blockchains using the standard building blocks from Dot’s Relay Chain. The Relay Chain is responsible for the network’s shared security, consensus, and transaction settlements. These blockchains built on Polkadot’s network are called Parachains. By extension, being integrated into the Relay Chain will allow parachains to benefit from the Relay Chain’s base features. Every parachain can have its native token, rules, and use cases. They can also interact with one another and with other blockchain ecosystems like Bitcoin or Ethereum.
Parachains on Polkadot can take advantage of its cross-chain message passing, that is, if we have one bridge communicating with Bitcoin and another bridge communicating with Ethereum, we can build a custom interface that will permit users to interact with all three chains simultaneously.
Because Polkadot is built using Substrate; a technology similar to a blockchain SDK framework, it is highly flexible but can only support a limited number of parachains, currently estimated to be about 100, although additional slots will be allocated in batches in the coming months. The 100 slots will be allotted via auctions and Polkadot’s governance system.
Types Of Parachains On Polkadot Network
Governance granted parachains are allocated by Polkadot’s on-chain governance system and are viewed as a “common good” for the network, such as bridges go other networks or chains. They can be regarded as public utility chains, useful for their functionality, and help to remove transactions from the Relay Chain, for better parachain processing. Unlike the auction-granted parachains, they do not have to bid in any auction to vie for a slot. Also, the lease for these parachains do not expire, they can only be removed via the governance.
In Polkadot’s own words, Auction-granted parachains are granted in a permissionless auction. Parachain teams can either bid with their DOT tokens or source them from the community using the crowd loan functionality. They bid on a per-block basis to be included in the Relay Chain. When a parachain wins an auction, the tokens that it bids get reserved until the lease’s end. Reserved balances are non-transferable and cannot be used for staking. At the end of the lease, the tokens are unreserved. Parachains that have not secured a new lease to extend their slot will automatically become parathreads.
Polkadot has positioned itself to be an active agent in this next wave of blockchain evolution. So far, there are five parachains set to go live on Polkadot’s network, they are the winners of the first auction (they are Acala, Moonbeam, Parallel Finance, Astar, and Clover) and focus on a range of areas from decentralized finance (DeFi), to investments and loans. I’d say, we should all watch out for Polkadot this year.