Parachains are advanced next-generation Layer 1 blockchains that go beyond the limitations of traditional blockchains. Polkadot ecology is a diverse ecosystem composed of multiple professional and interconnected parallel chains. It is composed of independent platforms, communities and economies, subverting the previous network connection method.
This article will introduce the difference between parachains and traditional blockchains, the various forms of parachains, and the development status of parachain ecology.
What is a parachain
In the “Dotsama” ecosystem, Polkadot and Kusama are “relay chains”, and multiple “parachains” running in parallel are connected to the relay chain. Relay chains not only provide security for their parachains, but also allow them to connect to each other and pass arbitrary messages securely.
It can be said that a parachain is similar to a decentralized digital state, with its own community, rules, economy, governance, treasury, and “diplomatic” relationships with external chains. Polkadot allows them to come together, communicate and share security to enhance the entire ecosystem. Polkadot ecology is a free alliance of sovereign chains.
Traditional blockchain vs parachain
While other blockchain protocols only allow developers to build dapps using smart contracts, Polkadot gives them complete control over the underlying blockchain itself. This flexibility gives parachain developers the greatest freedom, allowing them to optimize the chain for any use case – which means better and more secure dapps and services for everyone.
Essential Oils vs Specialization
The traditional blockchain uses a single-chain design, which has many limitations in itself. A single chain cannot be optimized for specific usage scenarios, so compromises and tradeoffs must be made. The traditional blockchain tries to use one chain to cover all business types, just like requiring one employee to handle all types of work, and the result can only be done poorly in everything.
Parachains are professionally designed for different usage scenarios, which can achieve more optimized services and create a dynamic and multi-faceted economy. Polkadot’s parachain model is designed based on the idea that the future world will be multi-chain. There will be many different chains providing multiple services to meet the needs of different market segments, such as one parachain for DeFi, one for gaming, and another for identity management. This is like a large company will have different departments, such as the finance department, sales department, R&D department, and different departments are responsible for their own business.
Based on this concept, Polkadot does not propose any preset standards for the design of parachains, as long as the parachain can prove to Polkadot validators that each block follows the agreed protocol. This flexibility means that each parachain can have its own design, token and governance process, optimized for its specific use case.
Isolated vs Connected
Most traditional blockchains are like gardens with high walls, isolated from each other and unable to communicate, hindering the free flow of data and commerce. Blockchains can only communicate via bridges that rely on trusted third parties, creating the “weakest link” problem and leading to several notorious hacks.
A parachain is a rich, interconnected ecosystem where data can flow freely between chains, enabling innovative new types of interoperable services. With the help of the cross-consensus message format XCM and a series of cross-chain protocols, Polkadot enables secure communication between parallel chains, between parallel chains and relay chains, and transfers any type of data. Messages between parachains share the same high security as the entire network, and there is no need to hold funds in a centralized and vulnerable third-party custodian.
XCM is Polkadot’s cross-consensus message format, which is like a unified “language” for cross-consensus communication. XCM supports not only cross-chain communication between blockchains, but also communication between consensus systems such as smart contracts, dApps, Substrate pallets, SPREE, etc. Not only tokens, but also any type of information can be transmitted through XCM.
Difficult to scale vs scalable
The scalability of traditional blockchains is limited, and transactions are processed on a transaction-by-transaction basis, which results in essentially competition between dapps for network resources. Bottlenecks, network congestion, and high fees occur when dapp usage spikes. These problems will not only increase the cost of network usage, damage the user experience, and block a large number of users from the door, but also make some applications that rely on high scalability to achieve cannot be produced.
Parachains have higher scalability. Each parachain processes transactions in parallel and distributes transactions across the entire multi-chain network to achieve the highest scalability. The computations performed by parachains are inherently independent, which means that all parachains can be executed at once without worrying about “collisions” – if we have 100 parachains, we can perform 100 times as much work.
Difficult to upgrade vs seamless on-chain upgrade
Like all software, blockchains require periodic upgrades to keep up with the times. But most blockchain upgrades are very painful, and chain upgrades need to be implemented using forks. This makes the chain’s evolution slow, making it difficult to react in time to new technologies as they emerge.
Parachains can perform seamless on-chain upgrades without forking. Due to the adoption of WebAssembly, parachain upgrades are more like traditional app upgrades, and most upgrades can be done in the background seamlessly and automatically. This allows parachains to continuously evolve, adding new features and preventing technological obsolescence. For example, Polkadot’s first parachain, Acala, has undergone 17 runtime upgrades since its launch more than 8 months ago.
No financial institution vs on-chain treasury
Traditional blockchains rely on centralized organizations to fund activities that benefit the network, with no financial institutions for the entire community.
Parachains can use the on-chain treasury, which allows the decentralized community to have financial institutions that are usually reserved for corporations and governments in the past. The treasury funds on the chain can be spent in various ways, such as spending proposals, reward tasks, small rewards, etc., and can be used to fund various activities that are beneficial to the network, such as infrastructure construction, software development, community and educational activities, Parallel chain lease renewal, etc. The rational use of treasury funds can greatly promote the ecological development of parallel chains.
Under the current governance system, expenditures from the on-chain treasury are primarily approved by councils elected by holders. Under the new governance system Gov 2, the treasury spending decision-making process will be more decentralized and will be decided by a referendum composed of all holders.
No clear decision-making process vs customized governance
Most traditional blockchains do not have a clear decision-making process, and most use off-chain governance, i.e. any protocol change resolutions are decided through an informal community discussion process. Individual token holders often have no power to propose changes, and decisions are made by opaque internal groups. For some contentious changes, there are often protracted tug-of-war between different interest groups that may eventually lead to forks.
Parachains can use Polkadot’s built-in highly transparent governance functions, or create their own governance systems to build systems that are most suitable for their own communities. At present, almost all parachains have their own on-chain governance systems, which gather the wisdom of the community to make decisions and jointly determine the future development direction of the chain.
Polkadot’s governance is not only a simple one-coin-one-vote, but also allows users to gain greater voting weight by locking their tokens, and the proposal will be automatically executed after the vote is passed, avoiding the situation where the decision cannot be implemented. The upcoming Gov 2 governance system further improves decentralization and decision-making efficiency, giving token holders greater power.
Development and maintenance are expensive and time-consuming vs. convenient development and maintenance
Traditional blockchains are difficult and expensive to develop and maintain. Developing a traditional blockchain usually takes years of hard work and large teams of experts. Chain maintenance is expensive and time-consuming. Whether it is PoW or PoS, ensuring the security of a blockchain requires a lot of resources. This creates a high threshold for creating new chains and leads to competition among chains for scarce resources.
Parachains can use the Substrate blockchain framework to greatly simplify and accelerate chain development and maintenance. Substrate includes many blockchain development modules (called pallets in Substrate), such as account, governance, NFT, privacy and other modules. Developers only need to select and combine according to the usage scenarios of their own chains, or create new modules to quickly Develop blockchain. In terms of security, the parachain only needs to successfully shoot the slot and connect to Polkadot, and it will automatically obtain reliable built-in security without deploying miners or validators for its own network.
High transaction fees vs low transaction fees
The fees of traditional blockchains are often unpredictable and fluctuate according to short-term network congestion. Transaction fees can be surprisingly high when the network is congested, raising the threshold for users and hindering the long-term development of applications.
The transaction fee of the parachain is low and transparent, the transaction fee can be known in advance, and the user can use the local token of the parachain to pay the transaction fee.
Limited transaction types vs arbitrary data types
Traditional blockchains and smart contracts are often limited to a small set of basic transaction types, such as sending funds or triggering a contract. Transactions between chains are often limited and require a centralized service to deliver.
Polkadot’s XCM cross-consensus message format allows any type of data to be sent between dapps and between parachains, creating an interoperable blockchain network where developers can deploy their applications across multiple chains and contracts, creating Unprecedented new services.
Various forms of parachains
Parachains are suitable for a variety of blockchain use cases, from DeFi to identity, supply chain, gaming, NFTs, IoT, and DAOs, to name a few. Parachains can also take various forms depending on their respective functions, including:
- Independent token economics: Parachains can have their own token, fee structure and economic ecology.
- Public interest parachains: Public interest chains designed for the benefit of the entire Polkadot ecosystem usually use Polkadot’s native token DOT.
- Bridge Parachains: Bridges allow Polkadot parachains to connect to external networks such as Kusama, Bitcoin, and Ethereum.
- Parachain Hubs: Parachains that provide a range of functions to serve a wider community or use case, such as DeFi Hubs and Governance Hubs.
- Smart Contract Parachain: A platform for building and hosting smart contract-based dapps and services, supporting Wasm Virtual Machine and EVM.
- Parathreads: For early networks and pay-as-you-go parachains that don’t require a constant connection to Polkadot.
How to become a parachain
Since the number of parachains that Polkadot and Kusama relay chains can access is limited, parachains need to win “slots” if they want to connect to the relay chain. In simple terms, a slot is an opportunity for a parachain to connect to Polkadot for a period of time. Parachain slots are leased instead of purchased. Project parties who want to become parachains need to lock DOT during the lease period to win the slot in the parachain slot Auction and get the right to connect to Polkadot during the lease period .
DOT holders can participate in Crowdloan and help their favorite projects win Auctions, potentially earning parachain rewards. In simple terms, DOT holders can “lent” DOTs to parachain teams, and teams can use these DOTs to bid on parachain auctions.
If the team succeeds in taking the parachain, these DOT holders will get all their coins back at the end of the slot lease. Polkadot uses the logic on the chain to ensure the security and transparency of the entire Crowdloan process. The user’s DOT is directly locked in the user’s Polkadot relay chain address and will not go through the hands of the parachain.
Crowdloan’s design is a win-win for both project owners and users. On the one hand, the project party does not need to be super rich to become a parachain, but only needs to have great ideas and examples, it is possible to obtain the funds needed for development with the help of the community, and it is conducive to the decentralization of the community; On the other hand, users can support their favored projects in the early stage in a safe way, and get rewards from parachains, and the locked DOTs always belong to themselves and can be freely used after expiration, so all they have to pay is to lock the DOTs opportunity cost.
Parachains as Autonomous Institutions
A parachain can act as an autonomous institution, acting autonomously according to the wishes of its community. That is to say, parachains represent a collection of financial assets and social assets, and each parachain can represent its stakeholders and perform many activities as an actor. For example, participating in Polkadot governance through proposals and voting, becoming a member of the Polkadot Network Council, claiming reward tasks, and distributing funds on the chain. This opens the door to new decentralized financing models — from project financing to decentralized sovereign wealth funds, and even cross-chain mergers and acquisitions.
For example, the Decentralized Sovereign Wealth Fund (dSWF) is an innovative on-chain fund management method for the parachain Acala. Similar to some countries establishing sovereign funds to manage foreign exchange, Acala uses dSWF to manage funds in the network for sustainable development.
dSWF funds come from three sources: stability fees paid by aUSD borrowers, liquidation penalties, and L-DOT liquidity release fees. dSWF will accumulate these funds and buy other network assets, such as DOT. After the first leased parachain slot expires, these reserve assets can be used for restocking parachains, etc. dSWF uses Substrate’s flexible on-chain governance mechanism to manage the use of funds in the fund by Acala’s on-chain governance.
The status quo of parachain ecology
According to Parachains.info, Kusama has listed 36 parallel chains, and Polkadot has listed 21 parallel chains. As the slot auction continues, more parachains will join the Polkadot/Kusama ecosystem in the future.
Parachains are full of diversity and cover many different fields. Among the parachains that have been launched, there are stablecoins and DeFi hub parachains Acala, EVM smart contract parachains Moonbeam and Astar compatible with Ethereum, parachains Bifrost and Parallel that release PoS asset liquidity, NFT parachains Efinity, Unique, Privacy computing parachain Phala, decentralized identity parachain Litentry, IoT parachain Nodle, etc.
We also see that more and more applications of various types have begun to be created on parachains. This reflects that the parachain, as the sovereign chain of Layer 1, is itself a platform. Applications created on parachains include: Tapio, Wormhole, Zenlink of Acala ecology, AstridDAO, Avant and Starfish of Astar ecology, Amara Finance, Beefy Finance of Moonbeam ecology, Web3Go, MycryptoProfile, PNS of Litentry ecology, etc.
With the launch of XCM, cross-chain interoperability between parachains has also begun to emerge. 23 two-way HRMP channels and 5 one-way channels have been opened between Polkadot’s parallel chains. With these channels, parachains can pass tokens and arbitrary XCM messages through them, enabling true cross-chain composability. (Data source: https://dotsama-channels.vercel.app)
Source: Moonbeam Blog
Although we have seen the rapid development of the ecology, we need to realize that the ecology of Polkadot is still in the early stages of development. In the future, based on these highly specialized parachains, unprecedented applications in the blockchain will be born. Let’s end with a quote from Polkadot co-founder Rob:
“Polkadot’s ecology is still in a very early stage, I would say that the “parachain season” is just the beginning… What we will see in the early stage will be the mirror mapping of existing applications, and everyone will look for it in the What have been successful in the Bitcoin or Ethereum ecosystem, and then try to copy or imitate in Polkadot. After a period of time, you can find some things that can be done in Polkadot but cannot be done on other platforms In fact, it is users who take advantage of new infrastructure, new tools, and new methods to build applications that rely on highly specialized, specific-purpose blockchains, not based on some very general chains, such as smart contract platforms .”
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-are-parachains-the-future-the-advantages-and-status-quo-of-polkadot-parachains/
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