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Polkadot is a protocol designed to connect different blockchains, enabling the transfer of value and data across previously incompatible and siloed networks such as Bitcoin and Ethereum.
Polkadot’s native token, DOT, plays a crucial role in the functioning of the Polkadot ecosystem and is used for governance and staking.
What Is Polkadot?
Polkadot is a next-generation blockchain protocol designed to bring together purpose-built blockchains, allowing them to operate seamlessly and at scale. The protocol allows data to travel between blockchains, unlocking a world of real-world use cases. Polkadot brings together the best features from multiple blockchains, paving the way for new uses and decentralized marketplaces and allowing users to access services via several different apps and providers.
Polkadot is also designed to be extremely fast and scalable. This is because it uses multiple parallel blockchains called parachains. Parachains take most of the processing demand off the primary chain, enhancing efficiency, speed, and scalability. Polkadot consists of a primary blockchain called the Relay Chain and several smaller chains called parachains. It also comprises a connecting layer or bridge that allows data to be transferred between two blockchains. These bridges can also be used to connect to non-blockchain databases.
As mentioned earlier, Polkadot’s incredible efficiency is due to parachains, which process most of the data and transactions for the main chain. Thanks to parachains, Polkadot can process thousands of transactions per second. As Polkadot continues to grow, the addition of more parachains will make the network even faster and more efficient.
What Is The DOT Token?
DOT is the native token of the Polkadot ecosystem. It is used to validate transactions in the Polkadot ecosystem through staking and to bond Polkadot parachains. Besides being a utility token, DOT also acts as a governance token. This means DOT token holders can have a say in the functioning of the Polkadot protocol through voting.
DOT Token Utility
Let’s look at the three key roles played by the DOT token in the Polkadot ecosystem: Staking, bonding, and governance.
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Staking – DOT token holders can stake their tokens to secure the Polkadot network. In return, they can collect rewards in the form of additional tokens. Polkadot’s staking mechanism facilitates maximum decentralization and fair representation. Token holders are incentivized to behave honestly and in the interest of the network. Those who act against the network stand to lose their entire stake. This ensures the network remains secure at all times.
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Bonding – Bonding DOT tokens can add new parachains, and removing bonded tokens can remove outdated parachains. The DOT tokens are locked during the bonding period and unlocked and given back to the original holder once the bonding period has elapsed.
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Governance – DOT token holders play a crucial role in governance because DOT gives them complete control over the protocol. All privileges that are generally exclusive to miners are given to DOT token holders participating in the Relay Chain. This also includes managing fixes and important events such as protocol updates. It is important to remember that these functions are not formally granted to DOT holders. Instead, they are granted to the underlying code that enables token holders to participate in governance.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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