Could Polkadot with its parachains be the Ethereum killer?

Throughout these last few years, the topic of debate has always arisen as to which project will be able to unseat Ethereum as the king of Smart Contracts. With everything we have seen these years, it seems that Polkadot and its parachain technology is emerging as the main competitor. Let's see in this cryptocurrency training why Polkadot could take the throne from Ethereum...

Is Polkadot a better blockchain than Ethereum?

Certainly, the Polkadot blockchain aims to correct the mistakes of Ethereum. Ethereum co-founder Gavin Wood played a huge role in the development of Ethereum from the beginning. He was in charge of the technological part of the project, and invented Solidity, the programming language that programmers use to write Ethereum smart contracts. These complex transactions enable DeFi, NFTs, and blockchain games to function. In 2016, Wood broke away from Ethereum and began designing a new blockchain that could do everything Ethereum could do, but better. That's when Polkadot was born. 

One of the problems with Ethereum is the nightmare to scale the network. With Ethereum, there is only one blockchain with limited space to process transactions. And as demand grows, the network can become jammed. This can make transactions slow and expensive, as users pay higher fees to get to the front of the line. And things get even worse when there are millions of smart contract transactions trying to circulate through the same blockchain.

What does Polkadot contribute to these problems?

Polkadot solves this problem by splitting its blockchain into different parts, essentially creating more pathways on the blockchain for traffic to flow. First you have the relay chain, which is the core of the blockchain and only processes the transactions that keep the Polkadot network running smoothly. 

Then there are separate parachains that connect to the relay chain and execute smart contract transactions. Parachains are emerging crypto projects with their own tokens and networks. Sometimes they may have their own rules but still benefit from the security of the relay chain. Parachains, the relay chain and other external blockchains (such as Bitcoin, for example) can easily communicate with each other through bridges.

How can we gain exposure to Polkadot?​

If you are planning to invest in the Polkadot ecosystem after reading this cryptocurrency training article, we have three possible ways to gain exposure to the Polkadot ecosystem. Each has different degrees of simplicity, with different risks and potential benefits:

1. Buy DOT tokens

Just like ETH is the native token of Ethereum, DOT is the native token of Polkadot. Users need it to pay network fees, vote on upgrades, and pay for parachain auctions. The more the Polkadot network grows, the greater the demand for DOT and, generally, the higher its price.

Polkadot occupies 11th position in the ranking of the cryptocurrency ecosystem, with a market capitalization of about $7.000 billion, while ETH occupies second position with about $160.000 billion. Like most digital assets, DOT has dropped a lot in price this year, making it a great investment opportunity. DOT is trading near $6,50, down nearly 90% from its all-time high of $52.

2. Buy Polkadot parachain tokens

Early-stage cryptocurrency projects connect to the relay chain to share the benefits of the Polkadot ecosystem. And because there is value for those projects in doing that, they bid their DOTs against each other in regular “parachain auctions.” The winner of each auction becomes a parachain for 96 weeks, with the option to be renewed. Of the more than 20 parachains active today, the most interesting are Moonbeam (GLMR), Calm down (Authorization), Parallel Finance (For) Y Efinity (EFI). But keep in mind that these can be high-risk investments, as they are smaller and less established blockchains than Polkadot itself. That is why it is advisable that we continue our training in cryptocurrencies to avoid falling into projects with no future.

3. Lend our DOTs to potential parachain winners​

We emphasize that this option is the one that carries the most risk, which is why we recommend re-reading this section of this training on cryptocurrencies so as not to put our capital at risk. It is also true that it is where we can generate greater benefits if we get it right. There are over 70 free parachain slots that are still there to be acquired. And the projects competing for those slots will need to raise a lot of DOT through crowd loans from outside investors to increase their chances of winning the auction. We can also be part of the team, lending our DOT to those projects.

If the project wins a spot in the auction, our DOTs will be locked for the 96 weeks of the auction, which is a risk because we will not be able to sell or use those DOTs during the defined period. So, is the wait worth the reward? In part, yes, we are going to get free tokens for those projects depending on the amount of DOT we lend and the conditions of the crowd loan. If we lend DOT to a project that doesn't win, we will get our DOT back a few days after the auction.

It is a complicated process to do all this through the Polkadot blockchain, but the parachains.info page can help us navigate through them. Cryptocurrency exchanges like Binance or Kraken may offer an easier way to participate, but may keep a portion of the token rewards in exchange for the service.

So, will Polkadot be the Ethereum killer?

We continue to believe in Ethereum for the long term, as we have previously written in cryptocurrency education articles such as this. We already know that Ethereum is far ahead of other blockchains, but it is worth taking a closer look at projects like Polkadot, such as Cardano (ADA), Avalanche (AVAX), Solana (SOL) or Near (NEAR). As a recommendation, the most efficient thing would be to distribute our capital in the main blockchains that we have mentioned to diversify our bet on the possible successor to the Ethereum network.