Blockchain 2021: A Leap from Concept to Application Year

As 2021 draws to a close, looking back at the development of the Blockchain industry over the past year is quite exciting. From the DeFi boom to the global popularity of NFTs, and then to the explosion of GameFi, blockchain technology seems to be gradually stepping out from behind the scenes and entering the public eye in various application forms.

It is worth mentioning that the Blockchain industry has developed to a new stage. People are no longer asking "What is Blockchain?" but are more focused on how specific applications and products are implemented. This may be the most significant progress in the past year.

However, returning to the blockchain technology itself, we still face many challenges. For example, the high fees of the Ethereum network, the balance between on-chain security and efficiency, and transfer delays still exist. In addition, cross-chain interoperability remains one of the focal points of the industry.

Fortunately, at the end of the year, Polkadot has finally ushered in the long-awaited parachain slot auctions. This means that the long-criticized cross-chain operations may undergo significant changes with the introduction of parachains. The bottleneck of information not being able to intercommunicate between chains also seems to be broken. So, can Polkadot's parachains really bring about such a huge change?

Let's explore the changes that may occur in the Polkadot ecosystem after the launch of the parachain, and the possible impact of these changes on the entire Blockchain industry.

Overview of Polkadot Parachain Slot Auctions

What is a Polkadot parachain slot auction?

The auction of parachain slots is essentially a leasing mechanism. 80% of the slots will be allocated through market auctions, while 20% will be reserved by the Web3 Foundation to support community and ecosystem development. The lease term for each parachain is 6 months, and participants can choose to bid for one or more adjacent periods, for a maximum of 2 years. Participating in the auction requires locking DOT tokens, which will be released after the lease term ends.

Polkadot uses a combination of candle auctions and random parameters for slot auctions. The auction is divided into two phases: during the secure period, projects can freely stake DOT; after entering the random period, the system will end the auction at a randomly selected time point, determining the end time using a VRF-based random beacon retrospective.

To win a slot, projects need to stake enough DOT before the random period. This mechanism effectively prevents "auction sniping" and encourages projects to participate in the bidding at a reasonable price early on.

Why conduct parallel chain slot auctions?

First of all, since the operation of parallel chains consumes network resources, and the Polkadot relay chain currently only supports 100 slots, these limited resources need to be allocated through an auction process.

Secondly, Polkadot, as a scalable heterogeneous multi-chain system, relies on the synergy between the relay chain and parallel chains in its unique architecture. The relay chain is responsible for the consensus and security of the entire network, while each blockchain can connect to the Polkadot ecosystem through slots, sharing network security and achieving cross-chain interaction, thereby expanding its own business.

In addition, slot auctions serve as a screening mechanism. Acquiring a slot requires a higher cost, and longer lease terms also impose demands on project stability. Therefore, only high-quality and well-capitalized projects can prevail. These projects can join the Polkadot network to form strong alliances, enhance the composability among projects, stimulate ecological innovation, and ultimately bring new value to the Polkadot network.

The Impact of Normalizing Parallel Chain Slot Auctions

impact on Polkadot

When Polkadot enters the normalization phase of slot auctions, it means that its ecosystem has successfully launched and passed the initial stage. Multiple ecological projects can begin to deploy decentralized applications, and Polkadot will gradually develop into a large cryptocurrency economy.

The economic system of Polkadot can be divided into two main sectors: internal economy and external economy. The internal economy includes three levels: the assets of Polkadot itself, the assets of parachains, and the assets of parachain ecosystem projects. The external economy refers to external economic entities that connect to the Polkadot ecosystem through cross-chain bridges.

As slot auctions become normalized, the economy within the Polkadot ecosystem will steadily develop. The official focus may shift to parallel thread development and the development of public benefit parachains (such as cross-chain bridges).

Next, Polkadot may adopt a "two-step" strategy: on one hand, supporting the development of public benefit parachains such as cross-chain bridges, and on the other hand, promoting economic development within the ecosystem through hackathons, improved funding programs, and supporting more teams to join the Polkadot ecosystem.

Regarding the issue of slot auction costs, as auctions become normalized, competitive pressure will gradually decrease, and costs will correspondingly decline. In addition, projects can also address cost issues through the Crowdloan method. The introduction of parallel threads will also provide more options for projects. Therefore, it cannot be simply assumed that high slot auction costs will affect ecological development.

impact on ecological projects

For projects that have obtained slots, there will be a two-year assessment period. To ensure the renewal of the slots, these projects need to operate more diligently. The mechanism of Polkadot inherently possesses a survival of the fittest characteristic, which is beneficial for retaining high-quality projects and preventing the situation where bad money drives out good money.

When multiple parallel links connect to Polkadot, it is beneficial for each project to develop its own ecosystem and explore cross-chain scenarios. However, the Polkadot ecosystem still faces niche competition, and how to quickly become a leader in a certain field will become the key goal for these projects.

For projects that have not yet acquired slots, as auction costs decrease, they need to strive to gain more support to participate in the bidding. Another option is to focus on the development of parallel threads, first connecting to Polkadot for their own development, and considering bidding for slots after their strength has increased.

For application-based projects, the normalization of parallel chain auctions has brought tremendous opportunities. They can adopt a multi-chain deployment strategy, deploying applications on multiple high-performing Polkadot parallel chains, which can rapidly expand their presence while also promoting the development of the Polkadot ecosystem. Thanks to the characteristics of Polkadot, these multi-chain deployed applications can also achieve cross-chain information aggregation, providing users with a superior experience.

impact on ordinary users

Slot auctions have normalized and provided users with long-term participation opportunities in "new token offerings," with DOT becoming the proof of stake for participating in these opportunities.

In addition, various parallel chain projects may launch ecological incentive plans to attract high-quality DeFi projects for multi-chain deployment or to introduce capital. These plans will also provide ordinary users with investment opportunities. Users can choose high-quality parallel chain projects to participate in their growth, thereby making it easier to obtain development dividends.

Conclusion

With the ongoing Polkadot parachain auctions, we expect to witness the official operation of parachains by the end of the year. This may bring new solutions to cross-chain issues.

Although the specific performance of Polkadot's parachains after their launch is yet to be observed as a brand new cross-chain approach, we remain optimistic about its prospects considering the professionalism and focus of the Polkadot team in this field. With the arrival of 2022 and the rise of the Web 3.0 concept, Polkadot may showcase the true charm of "multi-chain interconnectivity," bringing new possibilities to the blockchain industry.