Everything You Always Wanted to Know About Parachains* (*But Were Afraid to Ask)

This is the first part of a two part series. Today we will look at what parachains are and what their function is.

What is a Blockchain?

In the simplest terms, a blockchain is a time-stamped series of records managed by a cluster of computers which are not owned by a single entity. Block of data are secured and bound to each other using cryptographic principles. The information in a blockchain is available for anyone to see.

A blockchain is a secure, simple way to transfer information from A to B. The progression of a transaction through a blockchain is initiated by one party creating a block, which is then verified by thousands, if not millions, of computers distributed throughout the net. Once the block is verified, it will be stored across the net, as a unique record with a unique history (Rosic, 2021).

However, blockchains are limited on their own, as bottlenecks can quickly develop, limiting the number of transactions that they can process. This is where Polkadot comes in.

Polkadot and Parachains

When blockchains are connected together by a relay chain and run in parallel with each other, this is called parallel processing. This allows transactions from all chains in the network to be processed simultaneously, and in Polkadot, these blockchains running in parallel are called parachains.

The Polkadot relay chain is the heart of the relay network. All blockchains on Polkadot are connected in the relay chain. The relay chain provides a secure way for chains to communicate with each other. Polkadot’s cross-chain messaging allows chains to exchange any type of data, such as tokens and account balances. This enables innovation on new types of services that leverage the specific capabilities of different chains e.g. decentralized finance (DeFi) applications.

The biggest benefit of Polkadot is that it can connect diverse blockchains together, allowing them to communicate with each other at scale in a decentralized way, making blockchain technology accessible and practical for teams innovating real-world applications. This allows software developers, start-ups, and enterprises to make efficient use of blockchain technology. Polkadot makes blockchains scalable and customizable, unlocking cross-chain communication, transparent blockchains, and the ability to upgrade blockchains, which is what makes them perfect for solving real-world problems. Speed, transparency, efficiency and low-cost are all aspects of Polkadot that appeal to people across the world.

Additionally, whilst other blockchains often have small group of stakeholders making crucial decisions for the entire network. Polkadot is governed by all stakeholders who wish to participate by proposing and voting on referenda using Polkadot’s token – DOT.

Furthermore, Polkadot enables forkless on-chain upgrades, meaning teams can bring in new upgrades more easily and faster (Adriana Hamacher, 2021).

Why Parachains are so useful

When building a project, increasingly, developers and investors are wary of becoming involved with projects that are governed and easily manipulated by a handful of people. Since a parachain can be constructed to have its own rules for governance, for example it can have its own tokens, require or not require permission and can be fully customised to a certain set of requirements, it is a great way to ensure security within a project. The only thing that all parachains must be able to do is generate its own blocks for the relay chain, which are verified by validators in the system assigned to that particular parachain, and once verified are returned by the relay chain as a “finalised block” (Rübe, 2021).

Most parachains are constructed using a modular framework called Substrate. This enables blockchains to be built very quickly, often within only a few hours. The benefit of having one main way of constructing parachains is that any Substrate-based blockchain can easily be connected to the network you are constructing.

Each parachain usually has its own ecosystem and community (CoinListBlog, 2021). As a network of parachains is formed, a “community of communities” is pieced together, with each community having the ability to interact with the others.

Fundamentally, each parachain has its own specific function, and when these are connected a customisable project can easily be constructed, specific to the aim of the project. Because of this, many projects consider becoming a parachain; users can interact directly with the chain’s logic, making the process easy and fast.

Parachains and Kusama

While Polkadot currently is a very popular system, there are other systems being developed using Polkadot’s parachain system. One of these is Kusama, launched in May 2019 (Walters, 2020), and it is marketed as being “an experimental development environment for teams who want to move fast and innovate on Kusama or prepare for deployment on Polkadot” (KusamaNetwork, 2021). Just like Polkadot, Kusama is owned and governed by a community of network participants, meaning developers can be secure in the knowledge that the system will not be manipulated easily by a select group of people. However, in contrast with Polkadot, Kusama has looser parameters which allow developers to test new ideas and also gain visibility amongst community members (Jackson, 2021). Essentially it is a testing area for parachains.

As a superior concept to a testnet, Kusama is expected to be the go-to place for testing before deployment on Polkadot. What distinguishes Kusama from a testnet is that it is, in its own right, a viable, fast-paced network that many developers will choose to stay on rather than moving to Polkadot. This will serve to diversify the growing ecosystem of Kusama, solidifying its position within the parachain family.

One of the common misconceptions about Kusama was about it being a Polkadot testnet. Interestingly, the KSM token began trading before the DOT token of Polkadot, in December 2019 at a price of $1.71. In response to the launch of Polkadot, KSM steadily grew in price, reaching its maximum price of $60.04 in September 2020, before retreating to less than half that value in October 2020.

At the time of writing, KSM was $470.84 after hitting an all time high of $566.41 on the 29th of March. Polkadot (DOT) today hit an all time high of $47.63.

What next?

The future of KSM and DOT is as uncertain as the majority of the crypto market, however their popularity is growing and their use is potentially greater now than the more well-known Ethereum.

What is certain is that parachains aren’t going anywhere. As a fantastic tool for building secure, diverse systems, the adoption of parachains is likely to skyrocket in years to come, whether that is through Polkadot, Kusama, or another network. We will have to wait and see!

Check out part 2 of this series, coming soon, in which we will discuss scalability. interoperability, governance, and parachain slot leasing.

References

Adriana Hamacher, D. P., 2021. What is Polkadot And How To Buy It (2021). [Online] Available at:[ https://decrypt.co/resources/what-is-polkadot-how-to-buy-it [Accessed 17 April 2021].]

CoinListBlog, 2021. CoinList. [Online] Available at:[ https://blog.coinlist.co/a-deep-dive-into-polkadots-parachain-auctions-and-crowdloans/] [Accessed 17 April 2021]

Foundation, W., 2021. What are Parachains?. [Online] Available at: https://coinmarketcap.com/alexandria/article/what-are-parachains-2 [Accessed 17 April 2021]

Habermeier, R., 2017. Polkadot: The Parachain. [Online] Available at: https://medium.com/polkadot-network/polkadot-the-parachain-3808040a769a [Accessed 17 April 2021]

Jackson, R., 2021. Polkadot Lays Out Its Plans for Parachain Rollout as the Token’s Price Climbs. [Online] Available at: https://news.bitcoin.com/polkadot-lays-out-its-plans-for-parachain-rollout-as-the-tokens-price-climbs/ [Accessed 17 April 2021]

KusamaNetwork, 2021. Kusama Network. [Online] Available at: https://kusama.network/ [Accessed 17 April 2021]

Laboon, B., 2021. Parachains. [Online] Available at:[ https://wiki.polkadot.network/docs/en/learn-parachains#:~:text=A%20parachain%20is%20an%20application,them%20to%20be%20actual%20blockchains] [Accessed 17 April 2021]

Rube, I., 2021. What are Parachains in the Polkadot Ecosystem?. [Online] Available at: https://cvj.ch/en/education/basics/what-are-parachains-in-the-polkadot-ecosystem/ [Accessed 17 April 2021].

Rosic, A., 2021. What is Blockchain Technology? A Step-by-Step Guide For Beginners. [Online] Available at:[ https://blockgeeks.com/guides/what-is-blockchain-technology/] [Accessed 17 April 2021]

Walters, S., 2020. Kusama (KSM) Review: A Polkadot Experiment. [Online] Available at:[ https://www.coinbureau.com/review/kusama-ksm/] [Accessed 17 April 2021]