Connecting the DOTs: The Interoperability of Polkadot

March 9th, 2023

Imagine a polka dot pattern on a piece of fabric and seamstresses sewing threads between the filled circles. Now imagine different blockchains being connected to one another through the Polkadot network.

What is interoperability in blockchain?

Interoperability in blockchain allows separate blockchains to securely and efficiently interact with one another. Although specialized blockchains have demonstrated success in various fields, they cannot transfer digital assets or information between one another without a protocol that enables interoperability. This limitation prevents large-scale adoption and connectivity of blockchain technology. Interoperability, however, increases the scalability, speed, and extensibility of blockchains. When one chain lacks a feature that another chain possesses, connecting them would be beneficial.

What is Polkadot?

Polkadot is a layer-zero protocol—the first layer among all blockchain protocols—that oversees the transfer of data between unique blockchain ecosystems. It is a cross-chain solution created by Dr. Gavin Wood to facilitate interoperability so that any data can be sent between blockchains. As co-founder of Ethereum, Gavin Wood contributed greatly to the initial research and development of the Ethereum virtual machine and the Solidity programming language. Using what he learned from developing Ethereum, Wood desired to build a more scalable and interoperable version of it. Hence, Polkadot was created.

How does interoperability play out in Polkadot?

Picture a company’s headquarters. Each department—with either salaried or hourly employees—has their own chain of command and is governed independently. The departments can also be connected to other companies through agreements. To understand how Polkadot works using this analogy, let us define a few terms.

Relay Chain: The central chain of the network that manages its shared security, cross-chain interoperability, and consensus.

Parachains (Parallelized Chains): Independent blockchains that are continuously connected to the relay chain.

Parathreads: Independent blockchains that do not require continuous connectivity to the network as they abide by the pay-as-you-go model.

Bridges: The source of connection between parachains or parathreads and external networks like Bitcoin and Ethereum. For example, a bridge between Polkadot and Bitcoin can facilitate the transfer of BTC to Polkadot as PolkaBTC.

Ultimately, a network of parachains and parathreads are connected to the relay chain. They can then interact with one another as well as external networks through bridges. Now we can revisit the analogy of a company’s headquarters: the headquarters would be the relay chain, each department with salaried employees would be a parachain, each department with hourly employees would be a parathread, and agreements with other companies would be bridges. In summary, parachains have sovereignty over their own localized set of rules, logic, and applications, but the relay chain has jurisdiction over their security.

Why is Polkadot a breakthrough in the blockchain industry?

Not only does Polkadot facilitate transferring tokens from one chain to another, but it can also transfer any type of data. All blockchains—whether public or private, permissionless or permissioned—can interoperate with other blockchains on Polkadot. For example, a real estate brokerage’s private and permissioned brokers of record can be sent to a license-verification smart contract on a public chain. Additionally, Polkadot’s network security is pooled and shared, so parachains can leverage the collective security of the relay chain.

How does Polkadot address security?

In order to add a new parachain to the relay chain, a user must stake an amount of DOT tokens—the native asset of the relay chain—through an auction mechanism that maximizes the sum of DOTs held on bond. Thus, the security of each parachain depends on the DOTs, and the entire network runs on a shared security model. On independent chains like Bitcoin, chains are secured by their own security model, so the hash power of smaller chains may not be protected against the stronger hash power of attackers. What is unique about Polkadot is that there is no disparity of security depending on the size of the chain. When a new parachain connects to Polkadot, it automatically inherits the overall security of Polkadot. The best indicator of the security of the network is the quantity of DOTs that are bonded and staked. The greater the amount of DOTs staked by honest users, the higher the minimum amount of DOTs an attacker would need to break Polkadot’s security.

How is data transferred between parachains?

Polkadot uses cross-consensus messaging (XCM), which is the format used to convey content of the messages between parachains. XCM provides instructions on composing, delivering, and interpreting messages for the destination chain to execute. XCM messages can be sent between two parachains, between a parachain and the relay chain, or over bridges.

How can developers efficiently build interoperable blockchains?

Substrate is a blockchain-building framework used by developers to create parachains on the Polkadot network. By using the Substrate SDK (software development kit), developers are not required to recreate fundamental components of blockchains including consensus, peer-to-peer networking, account management, and forkless runtime upgrades. Because Substrate was built with the vision of Polkadot in mind, it allows users to integrate blockchains as parachains to interoperate with other independent blockchains. Polkadot’s canary network, Kusama, also allows developers to test their systems on live environments before deploying on Polkadot’s mainnet.

Who are the stakeholders of Polkadot?

Polkadot uses a nominated proof-of-stake (NPoS) consensus mechanism, meaning that users stake an amount of DOTs to support validators they trust. This is similar to how citizens elect representatives to make decisions in the United States Senate. The responsibilities of the four main stakeholders are defined below.

Validators: Participate in consensus for new blocks on the relay chain and validate proofs from collators. Each validator gets an equal vote.

Nominators: Select trustworthy validators by staking DOTs in the ecosystem. Each nominator can nominate up to 16 validators.

Collators: Produce proof of valid parachain blocks for validators and collect parachain transactions from users.

Fishermen: Report illegal activity of validators or collators.

Having four stakeholders allows Polkadot’s network to be even more decentralized and secure as dispersed power allows them to keep one another in check.

How does consensus work on Polkadot?

Polkadot uses a hybrid consensus of BABE and GRANDPA. Unfortunately, your babe and your grandpa are not capable of collectively producing new blocks themselves. BABE (Blind Assignment for Blockchain Extension) and GRANDPA (GHOST-based Recursive Ancestor Deriving Prefix Agreement), however, can.

BABE: There must be a way to gain probabilistic finality—the ability to always produce new blocks. BABE is the block production mechanism that assigns block production slots to validators according to stake and the randomness cycle. For each slot, validators participate in a lottery that notifies them if they are the block producer candidate. Due to the randomness mechanism, a slot could hold multiple validators (they would all produce and broadcast a block) or no validators (a secondary round-robin style algorithm would be used to select validators).

GRANDPA: There must also be a way to gain provable finality—universal agreement on the canonical chain that cannot be reverted. GRANDPA is the finality gadget implemented for the relay chain on Polkadot. Unlike in Bitcoin, validators reach agreements on full chains rather than blocks in Polkadot. If over ⅔ of validators attest to a chain containing a particular block, all blocks preceding that one are finalized together. GRANDPA works as long as ⅔ of nodes are honest and can endure ⅕ Byzantine nodes.

What are some potential use cases of interoperability on Polkadot?

Interoperability creates brand-new use cases for blockchain. Here are just a few:

Real Estate: A user can browse a decentralized real estate platform, secure a mortgage through a decentralized financial institution, and purchase a house without a third party.

Non-Fungible Tokens (NFTs): A user can purchase an in-game skin inside Fortnite and use it in Roblox or Minecraft.

Healthcare: A user can find patient information on a decentralized database, send a smart contract to get consent for a surgical operation, and ensure that medicines arrive efficiently through a ledger system. A patient would not need to sign the same forms each time they go to a new doctor’s office.

Loan Industry: A user can use cryptocurrency like Bitcoin as collateral for loans on a lending institution like Centrifuge, which bridges assets like invoices and royalties to DeFi.

How does Polkadot compare to other existing protocols?

To drive home the uniqueness of Polkadot, we must discuss how it differs from other protocols. Currently, the top contender against Polkadot is the Cosmos Inter-Blockchain Communication (IBC) protocol. A Cosmos network can use a hub and peg zones, which function similarly to the relay chain and parachains in Polkadot, respectively. Unlike parachains, peg zones have to take care of their own consensus mechanism with their own validator communities. This means that each message transfer on Cosmos requires the recipient to trust the security of the sender. Another difference to note is that Polkadot can deploy upgrades without hard forking the main chain, while Cosmos cannot. Because blockchain ecosystems change rapidly, Polkadot was created with flexible upgradability options. Rather than compromising time, resources, and security to upgrade the main chain through hard forks, Polkadot adopts an automatic rollout of upgrade proposals. On Polkadot, any token holder can propose an update to the chain. Once it gets enough votes during the voting window, the code from the proposal is added to the chain and is executed by all nodes automatically.

So… why Polkadot?

Polkadot’s novel functionality will inspire a myriad of new blockchain applications and industries. When conducting business, companies will not be limited to the company’s network as Polkadot allows them to conduct transactions and utilize smart contracts on other blockchains, eliminating delay and transaction fees. Cross-blockchain technology also allows networks to monitor the transactions and events on other chains, which adds yet another layer of security. Its reach is ever-expanding, and there is no doubt that Polkadot is laying the foundation for our next digital revolution. After all, a polka dot pattern on a piece of fabric may seem never-ending.

Sources

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