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Look no further than this year’s rapid growth in the scorching arena of decentralized finance, or DeFi, and it’s clear why the Ethereum blockchain is dominating so many conversations right now in the digital asset industry.
The blockchain’s second largest native cryptocurrency, ether (ETH), has increased by 266% this year, double the amount of mooning bitcoin (BTC).
But many digital asset savvy investors are hedging their bets, buying tokens associated with emerging blockchains that could potentially grab market share from the Ethereum network, often referred to as a “world computer” for its versatility and programmability.
One such token is dot (DOT), from the Polkadot blockchain, whose co-founder Gavin Wood was a co-founder of Ethereum. Wood wrote the original project white paper for Polkadot in 2016, just a year after the launch of the Ethereum network.
Since it went live in mid-August on exchanges after the Polkadot network performed a 100: 1 split, the points token has increased by more than 44%. Over the same period, Ethereum’s ether only rose a little over 8%.
“Market and investor appetite has been very strong for Polkadot’s dot token,” said Keld van Schreven, CEO of investment firm KR1, which includes Polkadot in its portfolio. An initial valuation from a network’s pre-launch fundraiser was valued at around $ 3, he said. “So, trading consistently above $ 4 has been really encouraging ever since.”
Parachains and Moonbeam
At the heart of Polkadot is the concept of “parachains”, which are blockchains that can perform higher transaction throughput than Ethereum due to the more sophisticated design. According to Peter Mauric, head of public affairs at Parity Technologies, the term is short for “parallel blockchains”.
“Parachain can process more transactions than a single blockchain because the transactions are spread across multiple computers, similar to parallel processing,” Mauric told CoinDesk in an email.
A key player behind the development of the network is Parity Technologies, a European-based for-profit company that creates tools for the open source Polkadot platform.
Parity is also the company behind Substrate, a toolset for developers to build blockchain applications with Polkadot, often known as decentralized apps or dapps.
Read More: Reef Finance Raises $ 3.9 Million for Cross-Chain DeFi on Polkadot
“Substrate encompasses everything Parity core developers have learned to build, launch and maintain Ethereum 1.0, Bitcoin, Zcash and now Polkadot,” Mauric told CoinDesk. “The hope is that this creates a middle ground, where a high quality development team can build and launch their own chain without the incredibly large overhead associated with building a blockchain from scratch.”
Polkadot supporters say the software engineers also use Moonbeam, a Boston-based startup that built its own parachain to mimic a toolkit that Ethereum developers would seem familiar with.
“The purpose of the Moonbeam parachain is that we are implementing, effectively, as close as possible to the Ethereum feature set at its core,” said Derek Yoo, founder of the project, in a video conference. Yoo actively engaged with Ethereum projects to adopt the technology. “If we have done our job well, we are trying to create something that is low friction and easy to adopt for an existing Ethereum project.”
Projects bringing use cases to Polkadot include Interlay, which plans to launch a wrapped bitcoin project called “PolkaBTC” in 2021, and cross-chain liquidity provider Equilibrium, which will be the first Polkadot project to be verified by Quantstamp.
KR1’s Van Schreven says he is monitoring around 230 projects under construction on the platform.
When speaking to Polkadot ecosystem stakeholders, they discourage the term “Ethereum killer” as many like to classify it, because many see Polkadot as a complement to the overall ecosystem, not a rival.
Ethereum progression or rival?
“We are still supporters of Ethereum,” van Schreven said. “But we see the Polkadot approach as a kind of natural progression of the whole ecosystem, really.”
Polkadot’s ability to create new blockchains is attractive from an investment perspective, says van Schreven.
Despite Ethereum’s support, van Schreven thinks Polkadot’s “clean sheet” will allow him to offer entirely new capabilities in terms of scalability, purpose and governance that developers will adopt.
Learn more: Parity updates Polkadot’s underlying technology to make it easier to build custom blockchains
Bottlenecks and throughput capacity have proved to be a problem for Ethereum, as evidenced by the high congestion and transaction fees on the network in recent months.
And Ethereum’s governance seems to be centered more on its leader, Vitalik Buterin, than on the rigorous and systematized version of governance that Polkadot hopes to achieve, according to Schreven.
All of this could lead to more developer adoption of the network – partly as Ethereum achieved its success – and Polkadot’s parachains could take things to the next level.
“We will see growth in economic activity from all of these chains due to this cross-cutting aspect of the Polkadot ecosystem,” added van Schreven. “Obviously, some of these will take Ethereum away.”
