What Is Polkadot (DOT) and How Does It Work?

Feb 1, 2024

When you see a polka dot pattern on a dress or a handbag, what comes to mind? 

This iconic, whimsical pattern of repeated dots is meant to convey a sense of infinity — something that lies at the heart of the Polkadot network.

You can visualize each individual dot as a blockchain. It runs on its own rules and consensus mechanism, but it doesn’t exist on its own. It coexists with a huge network of other “dots” it can talk to and trade assets with, allowing it to tap into the expertise of its peers.

In this article, you’ll gain a deep understanding of what Polkadot is and how it promotes interoperability across independent blockchains.

What Is Polkadot?

Similar to Cosmos, Polkadot is a network of independent yet interoperable blockchains. This is made possible via its sharded architecture, which allows multiple blockchains (known as parachains) to run in parallel and communicate with each other through a main Relay Chain

The Relay Chain is responsible for the security, consensus, and cross-chain communication of the whole network and is also where the Polkadot native token (DOT) is used for governance, staking, and bonding.

How Does Polkadot Work?

Polkadot uses a nominated proof-of-stake (NPoS) consensus algorithm [also known as the Blind Assignment for Blockchain Extension (BABE)]. 

NPoS is a hybrid consensus between the traditional proof-of-work (PoW) and proof-of-stake (PoS) models, where a network of validators stake DOT tokens to secure the Polkadot network and process transactions.

To create a dynamic and decentralized security model, validators are not fixed to just one parachain. Instead, they are randomly assigned to different parachains at different times. Validators are also incentivized to act honestly and correctly, as this will earn them rewards for validating transactions and blocks. Conversely, they will lose their staked DOT tokens for misdemeanors.

Polkadot has also extended beyond its ecosystem, building bridges to connect with external networks like Bitcoin and Ethereum. In this regard, Polkadot aims to create a more open, diverse, and collaborative web where different blockchains can share information and value without intermediaries or centralized authorities.

History of Polkadot

Founded in 2016 by Gavin Wood (Ethereum co-founder), Robert Habermeier, and Peter Czaban, Polkadot was built as a scalable, interoperable, and decentralized platform for the next generation of the web (Web3).

Led by the Web3 Foundation, Polkadot raised over $144 million in its initial coin offering (ICO) in October 2017, while another private sale in 2019 raised an additional $43 million. Polkadot’s native token, DOT, was released with the launch of its genesis block in May 2020.

Since its inception, Polkadot has been recognized by investors, developers, enterprises, institutions, and enthusiasts as one of the most ambitious and innovative projects in the blockchain space. 

It has also forged key partnerships with many prominent projects and organizations in the crypto industry, including Chainlink, Acala Network, Moonbeam Network, and Ocean Protocol.

Why Should You Invest in Polkadot?

Polkadot symbolizes a diverse and interconnected future for blockchain. Instead of juggling a multitude of use cases like smart contracts, decentralized applications, gaming, and finance under one blockchain, networks like Polkadot facilitate the cross-transfer of value and information between purpose-built blockchain networks. 

This enables developers to build innovative solutions that leverage the best features of different blockchains without being limited by their drawbacks.

Here are some reasons why you should consider adding Polkadot to your investment portfolio by buying its native token DOT:

Polkadot Promotes Interoperability Across Blockchains. 

As mentioned, Polkadot enables cross-chain communication and compatibility, allowing different blockchains to interact with each other seamlessly and securely. This opens up new possibilities for collaboration, innovation, and efficiency across various sectors and industries.

Polkadot Solves the Blockchain Scalability Problem.

Polkadot enables multiple blockchains to run in parallel, each with its own speed and capacity. This translates into Polkadot being able to process more data and transactions than a standalone blockchain without running into congestion or high fees.

Polkadot also supports horizontal scalability, where new parachains can be added to the network without affecting the performance of existing ones.

Polkadot Is All About Deep Customization. 

Polkadot gives developers the freedom to personalize their parachains with unique rules and features via the Substrate framework. Substrate is a set of tools and libraries that simplifies the process of building blockchains and connecting them to Polkadot. It also allows developers to choose their own consensus mechanism, governance model, transaction fees, and other parameters.

Polkadot Never Scrimps on Security.

Polkadot has one security standard for multiple parachains. This is achieved via the Relay Chain, which sets the common security standard of Polkadot’s validator network. 

These validators are assigned to validate different parachains at different times, creating a dynamic and decentralized security model. With this model in place, no one validator is able to monopolize the validation of any parachain.

Polkadot Emphasizes Transparency and Inclusivity in its Governance.

Democracy is key to the Polkadot network. DOT holders can propose changes to the protocol, vote on proposals, delegate their voting power to others, or veto harmful proposals. Additionally, Polkadot has several technical committees that can fast-track urgent or non-controversial proposals.

Is Polkadot Better Than Ethereum?

While Polkadot does have some advantages over Ethereum, it isn’t helpful to compare the two as rivals or competitors. Instead, you should view the two as complementary platforms that benefit from each other’s features and advantages to create an open, diverse, and interoperable web.

Regardless, here are some advantages Polkadot has over Ethereum:


Ethereum can only process about 15 transactions per second (TPS), which is far from enough to meet the growing demand for DApps and DeFi services. As a result, Ethereum often suffers from network congestion and high transaction fees, which affect the user experience and adoption of the platform.

Conversely, Polkadot’s sharded architecture has enabled the network to average 1,000 TPS without congestion and high fees. This number is set to increase exponentially in the future, as a major network update is slated to push Polkadot’s limit to 100,000 or even 1 million TPS.


Ethereum is not known to be compatible or interoperable with other blockchains, limiting its potential to collaborate and exchange value with other networks. Ethereum also relies on third-party solutions, such as bridges or oracles, to connect with external data sources or systems, which may introduce additional costs or risks.

By contrast, Polkadot enables cross-chain communication and compatibility between different blockchains, both within its network and with external networks like Bitcoin and Ethereum. This allows Polkadot to facilitate the transfer of data and value across diverse platforms and create a more connected and collaborative web.


Ethereum adopts a one-size-fits-all approach to its design and functionality, which means that all decentralized apps (dApps) and smart contracts have to follow the same rules and standards of the platform. This may restrict the creativity and innovation of developers, who may want to experiment with different features or parameters for their applications.

Polkadot offers a solution to this problem via Substrate, which affords developers a deep level of customization over their consensus mechanism, governance model, transaction fees, and other parameters for their parachains.

What Limitations Does Polkadot Have?

Despite Polkadot’s advantages, it does have some limitations. 

Here’s an overview of Polkadot’s key limitations:

Limited Parachain Slots

Currently, Polkadot can only support a maximum of 100 parachain slots, with each slot acquired via governance or candle auctions. 

This means that not every project that wants to join the Polkadot network can do so, and the number of slots may not be enough to accommodate the growing demand for interoperability and diversity in the blockchain space.


Although Polkadot has a transparent and inclusive governance system, it also introduces some risks and inefficiencies, such as:

  • Centralization: Polkadot’s governance system is heavily influenced by the Web3 Foundation and Parity Technologies, the creators of Polkadot. They have a large stake in the network and can propose or veto changes to the protocol. They also control the technical committee, which may create a power imbalance and reduce the decentralization of the network.
  • Complexity: Polkadot’s governance system involves multiple actors and processes, such as proposals, referenda, council, technical committees, treasury, and identity. This may make it difficult for users to understand and participate in the governance process or create confusion and conflicts among different stakeholders.

Latency and Complexity

Polkadot’s sharded architecture may increase the latency of cross-chain transactions, as they have to go through multiple steps and layers before being finalized. And it may also increase the complexity of developing and maintaining applications on the network. 

Developers have to deal with different protocols, standards, and interfaces for each parachain, as well as ensure their applications are interoperable with other parachains and external networks, which may require additional tools or bridges.

Does Polkadot Have a Future?

With a clear vision and roadmap in place, Polkadot’s future is all but secured. 

Some of Polkadot’s future updates include:

  • Launching more parachains: Polkadot currently has a hard limit of 100 parachains, but it aims to increase this number to hundreds or thousands in the future.

  • Implementing governance upgrades: Polkadot will implement governance upgrades that prioritize decentralization, allowing the network to evolve and adapt to the changing needs of the community. For example, Polkadot will introduce parachain governance, allowing each parachain to run on its own governance system and rules, fully independent from the Relay Chain.

  • Supporting more use cases: Polkadot will roll out support for more use cases and applications. These include decentralized finance (DeFi), non-fungible tokens (NFTs), and gaming.

Build Your Polkadot Position Today With Bake’s Smart Bundles

It’s clear that Polkadot is a great blockchain project to invest in, as its developers and community tirelessly work to propel it towards a brighter blockchain future.

You can get started with Bake’s Next-Gen Blockchain Innovators Smart Bundle, which ties Polkadot’s native token DOT with ATOM (Cosmos) and ADA (Cardano). Together, these three tokens represent a blockchain future that promotes interoperability and seamless connections between disparate blockchains.

DISCLAIMER: Please note that the information on this blog and in any articles posted on this blog is for general information only and should not be relied upon as financial advice. Cake Pte. Ltd., Bake, UAB, and its affiliates (the “Cake Group”) are not licensed financial advisers. You may wish to approach your own independent financial advisor before making any decision to buy, sell, or hold any product and/or digital assets mentioned in this blog.

Any views, opinions, references, assertions of fact, and/or other statements are not necessarily the views held by the Cake Group. The Cake Group disclaims any liability whatsoever that may arise out of or in connection with such statements. Always do your own research before investing in any financial assets, and consult a qualified financial advisor if necessary.


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