Over the past year, the Polkadot cryptocurrency has been on a great run. It has been among the fastest-growing Cryptocurrencies and was even tagged as the ‘Ethereum-Killer’. Experts and analysts believed it had set a higher floor and would continue to grow over the next few years.
Polkadot clocked a high price when it traded at $49.69 in May. It started the year at just $9 and has begun an upward rally since then. The price reached an all-time high after being traded at $55 in September.
With its meteoric rise, it is increasingly becoming a potential investment option, which begs the question, is DOT a good investment?
This article runs a detailed analysis of Polkadot, its potentials, the risk involved, and whether it is worth investing in.
What Is Polkadot?
Polkadot is an innovative Blockchain technology built on a multi-chain protocol known as Parachain. Blockchain technology provides a bridge through which numerous Blockchains can interact and share data among themselves.
Created by Ethereum Blockchain co-developer Gavin Wood and the Web3 Foundation, the Polkadot Blockchain provides interoperability in the open-sourced and peer-to-peer platform.
Its qualities gave it the nickname ‘Ethereum-Killer’, because it is very similar to Ethereum while also providing some capabilities that Ethereum doesn’t have. It provides a safe, innovative contract platform; a feature also possessed by Ethereum.
It doesn’t rely on a single Blockchain like Ethereum. Different Blockchains can use the Polkadot platform to verify transactions and share data on multiple chains. This feature prevents congestion of the network. Its transactions are faster whilst charging very little for transactions made.
How Does Polkadot Blockchain Work?
Polkadot’s Blockchain ecosystem works on interconnected networks that include the relay chain, parachain, and para-threads.
- Relay Chain: Polkadot relay chain controls the community of parachains on its system. A smart contract does not support it, and it is created as the hub to handle all the Parachain connected to the network.
- Parachain: Parachains are the smart contract-supported networks connected to the relay chain. However, it predominantly works independently of the relay chain.
100 Parachains is the maximum that can be connected to the relay. It brings competition among numerous crypto projects hoping to benefit from the Polkadot network. Polkadot only leases its Parachain to high-quality projects at an auction to the highest bidders. The project using Parachain pays for its slot using a DOT token. Parachain slots are scarce and very expensive.
ICO Analytics tweeted on November 12, 2021, about the first auctioning of Polkadot’s Parachain:
Parathreads: Projects may not afford the high cost of Parachain slots. A good alternative is parathreads. Parathreads are also connected to the Polkadot blockchain who wants to benefit from the features provided by Polkadot without the massive cost of Parachains.
DOT Token vs. Other Cryptocurrencies?
Being dubbed as the Ethereum Killer in social media, Polkadot gained many crypto traders’ attention. Ethereum co-founder Gavin Wood also developed it, which has given it a strong reputation. Above all that, it solves some nagging Blockchain problems with its innovativeness.
- Proof of Stake: Polkadot uses a Proof of stake, a network that Ethereum wants to adopt with the creation of Ethereum 2.0. However, it is yet to adopt the mechanism while the Polkadot blockchain was built on PoS. This network ensures faster transactions with lower charges on transactions.
- Shared Security: The more Parachains included in a Polkadot network, the stronger it becomes. It has a pooled security network where the relay chain is tasked with validating the system’s security. Therefore, it is almost impossible to hack into a parachain as the hub, which is the relay chain, controls its security.
- Bonding: As the DOT’s Blockchain, Polkadot is a hub for different Parachains. Buying a parachain slot requires raising a bond DOT token. It could be purchased if you have funds for DOT tokens or publicly through crowdfunding.
Polkadot allows a crowd loaning system where dot tokens can be borrowed by projects seeking DOT token loans. Therefore, you can lease a dot token to the parachain project and earn a certain amount of their native token.
- Decision Making: Dot token holders are also part of the decision-making. When they want to make decisions about issues regarding the Blockchain, Dot tokens are used for voting in a referendum system. The longer you lock your Dot token, the higher your voting power
- Rewards For Staking: The Proof of Stake network relies on validators who validate transactions by staking their dot tokens. The network slashes these tokens if validators are dishonest. Staking your coins has a fixed reward on different crypto exchanges. It could be a 10% increase in your token, or more.
- Upgrade: one nagging issue about Blockchain technology is how to upgrade them. Developers would have to create a new chain to upgrade Ethereum.
However, that is not so for Polkadot. The system has an on-chain upgrading system where the Blockchain can be upgraded without any fork off. For an upgrade to happen, DOT token holders have to vote, and when it is approved, the upgrade is carried out.
- Multi Chain: Unlike other Blockchain single-chain networks, Polkadot uses a Multi-chain. Multi-chain reduces congestion of the network and fastens transactions
This wide variety of features have made it popular among long-term investors. They see a potential in Polkadot that can be tapped. It makes the coins keep soaring over the past few months.
Potential Benefits of buying Polkadot
- Growth Potentials: As a relatively new cryptocurrency, Polkadot is very affordable compared to Bitcoin and Ethereum. With its numerous capabilities, it has immense growth potential, and investors can make big profits from it over the long term. It has what it takes to sustain the uptrend and keep being the Ethereum Killer. Many believe it will rise meteorically over the next few years.
- Multiple Income Options: With its PoS consensus mechanism and crowd loaning system, Dot holders can profit in many ways. You can stake your coin and enjoy a 10% rise, or loan them to acquire other Parachain coins while benefiting from the upward trajectory of DOT.
Risks of buying Polkadot
Being a high-potential coin doesn’t mean it does not have its fair share of risks – every cryptocurrency business does. While some can have temporary effects, others can be damaging.
Here are two of its most imminent dangers that could have a lasting impact on the digital currency:
Ethereum 2.0: The long-awaited upgrade of Ethereum to Ethereum 2.0 could affect Polkadot significantly. Ethereum 2.0 will eventually be able to use PoS, thereby, run faster transactions with fewer gas fees. It will address Polkadot’s problems while boasting a more extensive Blockchain network. Ethereum’s upgrade may affect DOT token price and make it slump dramatically.
- Competition: Even though it is regarded as the Ethereum Killer, competition is never-ending. Its nearest competitors include Binance Chain, Cardano, Stellar, and Solana. Anyone of those tokens overtaking Polkadot could harm the coin.
Polkadot Price Predictions
Polkadot’s price bottomed in July at $10.42, the nearest it was to its $9 price at the start of the year. Since then, it has maintained an upward trajectory only to start falling back recently.
It traded at $38.68 on September 14, slipped back to $25.56 a week later. Since then, it continued to soar until reaching $55 on November 4 and then the price started to dip. All in all, Polkadot has now appreciated by 492% since the start of the year.
At the time of writing, the digital currency was trading at $45.2 after decreasing by 0.75% in the last 24 hours. At this price, the DOT Token is still steady. It currently ranks 8th in the current market cap ranking.
As we all know, different forecasters will have different views on its price over the next few years. Some forecasted a steady growth, while others predicted a dip.
TradingBeasts predicted that its price would slide down over the next few years. However, wallet investor’s prediction disagrees with TradingBeast. The former predicted that the price would clock $114.32 at the end of 2023 and $194.73 at 2025. Digitalcoinprice also indicated that its price would reach $98.07 in 2024 and $110 in 2026.
While some forecast a steady growth, others see a downslide. Market trends and happenings will determine the price of Polkadot over the next few years. Even though it could boom, it could also go wrong. Investing in the coin will be determined by how convinced you are of the projects.
Is DOT a Good Investment?
Investing in any cryptocurrency is determined by the investment goal of the investor. Therefore, investing in DOT tokens will be determined by your aims and DOT tokens’ likelihood of fulfilling them.
Starting a wild rally since the beginning of the year, Dot had given investors enough reason to invest. It had knocked a high of $55 while entering the list of one of the fastest-growing altcoins.
Therefore, looking at the price predictions, analysis commentaries, and statistics, it is safe to say, the earlier you invest in the token, the better. With Dot currently in a dip, experts believe that it could be a profitable buy over the long term.
However, it is worth noting that DOT tokens, like other cryptos, are highly volatile. Predictions by the best analysts often go wrong. Therefore, it is advised to be careful when investing in the coin. So, try to get your research and analysis right!
Do in-depth research about Polkadot and the cryptocurrency market in general. Understanding the factors that affect Dot price will help you to predict where it is going over the next few years. If you are sure that Dot is the next big thing, shoot your shot. However, always remember the risk involved and allocate a tiny part of your portfolio to the token.