I have been holding DOT since the private placement in 2019. I have experienced the ups and downs of 312, 519, 1204, etc., and have also seen the thinking and doubts of various KOLs and investors.
From holding it up to now, I have been thinking constantly, is cross-chain necessary? If necessary, why Polkadot and not another project?
And, have you developed path dependence and fell into the comfort zone brought by low-cost DOT without knowing it? Have you made excuses to rationalize Polkadot and ignored certain issues?
At the same time, investors, especially Chinese investors, generally have several major misunderstandings about Polkadot:
1. Polkadot is used for cross-chain transactions and has no value.
2. The Polkadot parallel chain is the “consortium chain”, which is ecologically blocked.
3. Using Polkadot to cross-chain, it can only become a parallel chain and participate in slot auctions.
4. Polkadot is played by Chinese people, and ecological projects are garbage.
5. Polkadot is the next EOS, and it will return to zero after the three waves.
6. V God said that the cross-chain bridge is not safe.
For many reasons, I decided to write down some thoughts about Polkadot. Welcome everyone to communicate and discuss together.
If there is something wrong in the text, criticism and correction are welcome. At the same time, this article does not serve as any investment advice and is not responsible for any investment results.
The text begins:
1. Cross-chain is not all of Polkadot
Unlike Multichain (formerly Anyswap), Polkadot is more than a cross-chain trading platform. Cross-chain transactions are one of the functions of Polkadot.
I actually prefer to divide the things that Polkadot accomplishes into several categories:
Cross-chain, shard scaling, multi-chain architecture, abstraction and others.
The next article will analyze these aspects.
2. Cross-chain – Is cross-chain just needed?
For now, yes.
1. Anyone who has participated in DeFi in multiple chains or purchased NFTs can realize how important it is for assets to cross-chain.
In addition to the trouble of cross-chain transfer, you also need to memorize multiple mnemonics such as ETH chain, SOL chain, LUNA, ATOM, XTZ, RON and so on.
2. No single chain can meet all needs, and each public chain has high-quality projects. The usage data of Multichain and the financing of projects such as Multichain and LayerZero also show that institutions are optimistic about the future of cross-chain bridges.
3. The common problem of the current public chain is that all transactions use the same resources, whether it is to transfer 0.0001 ETH or 10,000 ETH.
Imagine, bank VIP business can only achieve transfer efficiency by continuously increasing the handling fee. Paradoxically, the handling of ordinary business can even increase the handling fee to reduce the efficiency of the VIP, and even cut off the business that the VIP will handle.
Can we have a combination of two chains, they provide a unified dApp entry and can automatically identify the transfer amount.
For large amounts, use chains with stronger security, while for small amounts, use chains that are more efficient and less secure.
The two chains do not interfere with each other, and use different service methods for different users, so as to improve efficiency.
Similarly, cross-chain can provide different types of transactions, contract calls, and different customized services.
4. Logically, there will not be one chain that satisfies all needs. Because if it exists, that chain also represents the ultimate form of the blockchain, denying the existence of development.
To sum up, at present, cross-chain is just needed.
3. Sharding expansion and multi-chain architecture – why must Polkadot be used across chains
In addition to the well-known cross-chain attributes, Polkadot is a public chain that is compatible with heterogeneous and homogeneous public chains.
More importantly, as a public chain, Polkadot has completed the task that Ethereum has not completed – sharding.
Sharding is one of the troikas of Ethereum scaling, the other two are Casper (corresponding to PoS) and Plasm (corresponding to side chains). Due to the difficulty, Ethereum gave up development and turned to solutions such as Rollup.
Amber Group analyst LaoBai (Twitter: @wuhuoqiu) once mentioned on Twitter that “sharding is the holy grail of blockchain scaling”.
Personally, the decoration of “Holy Grail” is slightly exaggerated. Whether it is Rollup or sharding, they all belong to different expansion methods.
But sharding, especially Polkadot’s, has a particularly unique competitive advantage.
First, sharding can fundamentally solve a problem – state explosion. More precisely, state explosion can be solved without losing composability.
Under the premise of not losing composability, solving the state explosion problem will become a better solution than the existing Layer2.
1. What is state explosion?
Blockchain data is divided into: historical data and status data.
Simple understanding, historical data requires hard disk space, and status data requires CPU power. The state explosion is that the CPU is overloaded and the computer is stuck.
Jan, CTO of Nervos (CKB) and an early core developer of Ethereum, has written an article “Blockchain and State Explosion” (https://talk.nervos.org/t/topic/1515) to explain the problem. (The part in quotation marks below is quoted from the original text, and you are also welcome to pay attention to the real domestic light project – Nervos)
Historical data refers to block data and transaction data. History is the path from Genesis to the current state.
State data is the final result formed by a node after processing all blocks and transactions from Genesis to the current height. The state is constantly changing as blocks are added, and transactions are the cause of the change.
Jan pointed out that “the role of the consensus protocol is to ensure that the current state seen by each node is the same through a series of message exchanges, and the way to achieve this goal is to ensure that each node sees the same history.”
“As long as the history is the same (that is, the ordering of all transactions is the same), the transactions are processed the same way (the transactions are executed in the same deterministic virtual machine), and the current state seen at the end is the same. When we say “blockchain” “Immutable” means that the history of the blockchain cannot be tampered with. On the contrary, the state is always changing. “
Take Bitcoin UTXO as an example. Strictly speaking, the Bitcoin network records the unspent status, not the wallet balance. “If an analogy is to be made, the current state of Bitcoin is a bag full of gold coins, each with the owner’s name engraved on it.”
When Jan wrote the article, the Bitcoin historical data was about 200G, and the status data was about 3G, including 50 million UTXOs.
Since there are few contract activities on Bitcoin, mainly transaction transfers, and the data size grows linearly, there is no state explosion problem.
For smart contract platform Ethereum, the situation is quite different.
2. The state explosion problem of Ethereum
Rich statefulness is a new paradigm brought by Ethereum, which “allows one contract to call another contract” and “does not impose any limit on the number of layers of such calls.” (Understanding Ethereum from the perspective of “state” Fang and its future, Ajian, https://ethfans.org/posts/from-state-view-to-understand-ethereum-and-its-imporvement-solutions)
Maker creates DAI through mortgage, and users can use DAI to trade on Uniswap. Or, let’s say Uniswap has ABC/ETH and ETH/USDC pools, and Curve has USDC/DAI pools.
In Metamask, users use DAI to buy ABC. In fact, DAI is now replaced by USDC in Curve, and then USDC is replaced by ETH in Uniswap, and then ETH is replaced by ABC, and the contract has been called many times.
Of course, in the process, the oracle machine is also called to feed the price, etc.
Therefore, Ethereum can have all kinds of contracts, and these contracts can access each other to generate combinations, and then the “Summer of DeFi” was born.
But problems also arise. First, there is not enough storage space.
Once the state data is created, it will be permanently saved, which brings a serious burden to the node maintenance.
These states are held permanently as a burden unless the user actively releases them.
Jan gave an example, when the block height is 5700001 (May 30, 2018), the five contracts with the most status are:
(1) EtherDelta, 5.09%
(2) IDEX, 4.17%
(3) CryptoKitties, 3.05%
(4) ENS, 1.92%
(5) EOS Sale, 1.73%
Looking closely at the last one, although the crowdfunding has been completed, EOS tokens have also been circulated on the EOS chain. However, the crowdfunding record remains on the Ethereum node forever, consuming storage resources.
Second, the CPU is overloaded.
Frequent contract calls on the chain also make the state in frequent calls. As more and more projects are deployed on Ethereum, the difficulty of reading and writing will continue to increase.
State explosions can cause the following hazards:
(1) The cost of hardware storage is too high, only a few people can afford the node cost, and the network is centralized, which fundamentally affects the security of Ethereum.
(2) Status data is the bottom line of node operation. Historical data can be stored elsewhere, such as Swarm as originally conceived by the Ethereum Foundation, but state data cannot. Therefore, nodes can only resist the burden of state explosion.
State explosion is not only a problem encountered by Ethereum, but also a problem encountered by other public chains and even Ethereum alternative chains.
3. State Explosion Solution
3.1 Layer2 solution
If you have used Layer2 such as Aztec and Arbitrum, you will have the following feelings:
(1) An official cross-chain bridge is required to transfer coins between Layer 2 and the Ethereum main network;
(2) It takes at least half an hour for coins to be mortgaged from the Ethereum main network to Layer 2, and it will take several weeks to release the mortgage from Layer 2 tokens.
(3) The transaction speed of Layer 2 is really fast, and the gas is also cheap.
Layer 2 improves efficiency and reduces costs, but it does not seem to perform very well in terms of ease of use.
The reason is that the way Layer2 solves the state explosion is that after the user locks the token into the Layer2 contract, the user’s transaction in Layer2 will not be sent directly to the Ethereum mainnet.
The state generated by their mutual transactions will not become a burden on the Ethereum mainnet. Until a certain moment of settlement, Layer2 will not send the current state and signature to the Ethereum mainnet. This is why, using Layer2, you need to pledge and withdraw coins.
But in this way, the state of the transaction between the user and Layer2 cannot be called from the outside, and the composability is lost.
So, although protocols like Curve have been deployed on multiple networks such as Polygon and Ethereum, the liquidity on each network is independent.
Curve on Polygon needs to re-accumulate liquidity and cannot share liquidity pools with Curve on Ethereum.
On the other hand, users can use an aggregator on Ethereum to obtain the optimal transaction path provided by different DeFi applications such as Curve and Uniswap.
On Layer 2, this compositionality does not exist unless these DeFi applications migrate to the same Layer 2 network at the same time.
Another question is, what if Layer 2 does evil and synchronizes wrong information to the ethereum mainnet? Thus, the Rollup scheme was born.
3.2 Rollup scheme
Rollup will publish transaction data to Ethereum every time the Layer2 state is called. Based on these public data, users can trace the transaction status and solve Layer 2 security issues.
However, under the premise of ensuring security and decentralization, the Rollup call status is only internal to itself, and the status call status cannot be known from the outside.
Therefore, Rollup or Layer 2 is both a competition and a cooperative relationship with Ethereum. They need to develop their own ecology independently. On the other hand, when Layer 2 settles with Ethereum, it also consumes ETH.
Therefore, Layer 2 is more like an abstracted dApp layer, using Ethereum as the settlement layer.
3.3 Other consensus schemes
At present, the relatively popular public chains, such as SOL, AVAX, ATOM, MINA, MATIC, etc., are all solving the legacy state explosion problem in the form of an Ethereum alternative chain.
But in fact, they have one thing in common. In the impossible triangle, they tend to decentralize and expand.
Twitter @Justin_Bons, and his tweet https://twitter.com/Justin_Bons/status/1469375118036160529, elaborated on Solana downtime and concerns about the security of PoH consensus.
Similarly, other chains have had security issues.
But I have no intention of slamming it in this article.
In fact, the current market is not sensitive to the perception of security.
Previously, in the more than 20 hours that Solana was down, the price of SOL was not affected at all. While MATIC faces more serious security problems, it has not attracted the attention of the market at all.
Therefore, I cannot say that Polkadot will be successful and must be better than other projects.
Public chains are also trying to make up for various security issues. AVAX and ATOM chains have done a lot of work in terms of security. So, it is very likely that by the time the market is sensitive, these security issues may no longer exist.
Moreover, Solana is really favored by funds. Alameda Capital behind SBF, and Jump Capital with a Wall Street background are sparing no effort to develop the Solana ecosystem.
After all, the so-called success, perhaps chance is the most important factor, and the blockchain is no exception.
3.4 Sharding – Polkadot’s solution
The idea of sharding is that instead of processing all transactions, each node processes only a portion of the transactions, and then arranges these transactions together.
The reason why sharding is difficult to implement is that when multiple shards call contracts with each other, they need to solve the problems of ordering and delay.
For example, when shard A needs to call itself, shard B, C, and its own contract successively, and shard B also needs to call the contracts of A, itself, and C, as well as C, the problem is much more complicated. Imagine a scenario where hundreds of nodes call each other.
Therefore, sharding must have a trusted middle layer.
In the Polkadot system, the main network is the middle layer, and the shards are the parachains.
Polkadot has innovated on the basis of traditional sharding ideas. The randomness of BABE consensus is used to select nodes in discrete time, and the determinism of Grandpa is used to reduce block forks and improve efficiency. Reuse the PoS penalty attribute to ensure the security of node consensus.
Polkadot adopts a layered architecture, with consensus and computing separated.
The Polkadot mainnet is a consensus layer and does not provide smart contracts itself, ensuring maximum security and decentralization. This Polkadot provides two attributes:
- The consensus and calculation are separated to ensure high TPS, and in theory, as the number of shards (parachains) increases, the TPS will increase accordingly.
- Projects built on Polkadot do not need to consider security issues. That is to say, when the project party completes the development through the Polkadot Substrate framework, it can go online directly through XCMP (Polkadot Cross-Chain Communication Protocol) (without going through a slot auction), and achieve cross-chain.
There is no need to consider how nodes are constructed, how the token model motivates nodes, etc., and even Polkadot’s NPoS consensus can be directly used without considering consensus issues. It can even simply be a chain without issuing coins.
As Arrington XRP Capital wrote in the article “Deep Analysis of Polkadot Parachain Design Concept and Operational Mechanism”:
“Polkadot’s goal is to be a blockchain within a blockchain, separating state from application, allowing each Layer 1 to focus on the customizability of its own chain.
This shared security system unlocks (1) the customizability of parachains without sacrificing their security; and (2) the inherent interoperability between different parachains. “
Polkadot composability is guaranteed by cross-chain communication between parachains.
Polkadot parachains are public chains, and each parachain has its own ecological project. Between public chains, liquidity can be shared through XCMP (Polkadot’s native cross-chain communication protocol).
That is to say, when DeFi projects on Moonbeam have accumulated liquidity, Acala, Zenlink, and Bifrost ecological projects can all share these liquidity pools.
At present, the expansion plan of Ethereum, or alternatives including Solana, Avalanche, Mina, etc., are all solving the legacy problems of Ethereum.
On the one hand, at present, all projects are limited by the impossible triangle (decentralization, security, and scalability do not coexist).
In fact, Polkadot also faces the impossible triangle problem, and the design of parachains is actually a compromise solution to this problem.
On the other hand, based on the historical context of carving a boat and seeking a sword, the one who defeats Ethereum will generally not be a better Ethereum, but a more abstract new paradigm.
Just like Ethereum abstracts the smart contract layer, creates rich state, and brings the blockchain into new territory.
Like, what beat Kodak was not a better camera or film, but a cell phone.
In Web 2.0, innovation was born at the edge and in making a certain experience to the extreme, while in Web 3.0, innovation was born in the transfer of technology levels and abstraction and application paradigms.
So, next, will it be Polkadot who will create the paradigm shift?
4. Abstraction – New Paradigm, The Value of Polkadot
You think, right now you are using the blockchain. Is it the ultimate form of blockchain development?
Or, to put it another way, do you think the blockchain will continue to develop?
With the simplest intuition, you should also feel that now is definitely not the ultimate form of the blockchain world. Because Metamask, Curve and other dApps still run on Http.
In almost all chain games, except for the interaction of tokens on the chain, almost no operations need to be chained, except that the ownership of NFT is in your hands, and the right to use NFT is theoretically not in your hands.
Therefore, the current blockchain is only a small step. In the future, there will definitely be different custom chains to solve the above problems.
The era of Wanchain customization is the era of Polkadot.
It is completely possible to develop a private on-chain browser based on the Substrate framework.
The browser runs on the chain and is encrypted, so there is no need to worry about the Trojan horse getting the wallet plug-in mnemonic.
This browser dApp, or even just a dApp, does not need to consider issuing coins to attract nodes, nor does it need to consider the economic model.
Because developers can choose to directly share the consensus and security of the Polkadot mainnet. It is also possible to directly use Polkadot’s on-chain governance after removing Sudo and achieving decentralization.
It is also possible to use XCMP (Polkadot Cross-Chain Communication) resource leasing to achieve cross-chain without participating in slot auctions. (So, in the Polkadot cross-chain, it is not necessary to participate in the interrupted shooting)
This also gives birth to the possibility of new business models. That is to create a functional chain, or alliance chain, to directly complete the cold start by sharing the security and governance of Polkadot.
The chain can provide a certain function fixedly, and charge Gas according to the fixed block. The cost is the rental cost of XCMP, and the premium part is used as revenue, which goes into the smart contract and is acquired by the team.
Therefore, in the strong combination of Polkadot ecology, a variety of different blockchain forms can be born.
This composability is also reflected in Polkadot NFT and DeFi. Similarly, a chain can also be customized to specifically handle NFT equipment wearing, updating, etc.
Polkadot supports parachain gas-free transmission. Therefore, under the premise of user authorization, the chain can handle user interaction requests in the game.
The chain mode can be to B, that is, to charge the game dApp of the application.
Therefore, Ethereum abstracts the smart contract layer, resulting in rich state and the possibility of calling each other between contracts, while Polkadot abstracts the form of “chain”. Maybe some kind of new paradigm could emerge.
Additionally, XCMP allows projects within the same Relay Chain ecosystem to share liquidity. That is to say, Acala and Moonbeam ecological native projects can share liquidity.
At the same time, because Polkadot can achieve a forkless upgrade, it also avoids the liquidity fork of Uniswap V2 and V3.
To sum up, when you hold DOT, you are actually holding a multi-chain, customized chain future.
5. DOT value and fundamental sources
DOT value comes from the following aspects:
1. The rapid development of public chain ecosystems such as Acala, Moonbeam, Astar, etc., mutual secondment of liquidity between ecological projects, or other in-depth interactions, so that in the new round of slot auctions two years later, parachains will not hesitate to pay more. rewards to attract users to vote. As a result, more wealth effects are created and users are attracted to increase their positions in DOT.
2. As mentioned above, the multi-chain form and business model have developed greatly. Cross-chain projects rent XCMP resources according to the block and pay in the form of DOT.
3. On March 11, after the Polkadot Ecosystem parachains were officially launched on the Polkadot mainnet, DOT mining and other usage scenarios expanded.
4. With the development of existing projects in public chains such as Ethereum and Solana, the performance of the blockchain has encountered bottlenecks, resulting in the project overflowing to Polkadot.
6. Problems faced by Polkadot
1. For the security of the main chain, Polkadot requires a large number of lock-ups, resulting in a parachain slot, which sacrifices the user’s asset liquidity.
2. The parachain voting lock-up period is too long. At present, the liquidity solutions on the market are very rubbish, such as Binance, which adopts the BDOT exchange scheme. BDOT does not support withdrawals, and there are no other trading pairs. As a result, it is impossible to anchor the price 1:1 to DOT through arbitrage.
And the only function of BDOT is to undertake the selling of users to exchange DOT. The price of BDOT depends entirely on how much discount Binance market makers accept.
At present, the ratio of BDOT:DOT is maintained at 0.6, that is to say, it is very unreasonable for users to lose 40% of DOT tokens according to the currency standard after exchange.
3. 28 days for on-chain unlocking is too long. In order to ensure network security and prevent a large number of nodes and pledged tokens from fleeing under extreme market conditions, the same method as LUNA is adopted.
4. The implementation of XCMP technology is difficult, and the function has not been launched yet, only the XCM alternative solution is used for communication.
5. Heterogeneous chain cross-chain assets are relatively chaotic. After Moonbeam and Multichain (formerly Anyswap) cross-chain, there are too many stablecoin pools, and the native stablecoin pools of the two chains are incompatible.
7. Supplementary information
About Dr. Gavin Wood and Web3.0:
Gavin Wood first proposed Web3 in 2014
Speak on Web3 topics in 2017
Publish the Web3 Thesis Platform in 2018
Developer activity on the Polkadot chain
Understanding Ethereum and its future from a “state” perspective
Twitter Lao Bai @wuhuoqiu
Blockchain and State Explosion
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-am-i-optimistic-about-polkadot/
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