Primer: THE POLKADOT NETWORK
Foreword
One year into our role as Lead Advisor to the Web3 Foundation, we thought it was time to share our learnings on the Polkadot Network - full report here. We first learned of the project in 2018, following an introduction to Dr. Jutta Steiner, former Head of Security for Ethereum and then Co-Founder of Parity Technologies.
At the time, we were in search of a blockchain platform which could support AAA video gaming and other mass market activity, and ultimately enable economies beyond gaming in “the metaverse.” We were also growing increasingly disenchanted with the private data and advertising-dollar-seeking Web 2.0, in which a small number of central actors’ control what we consider a public utility. Dr. Steiner piqued our interest with her description of a protocol that was not optimized for any one vertical or use case but was one that could act as a general-purpose host of other decentralized networks.
The Polkadot Network is named after the Polkadot Paper, written in 2016 by Dr. Gavin Wood, whose history is central in understanding it. Dr. Wood is responsible for coding the first functional implementation of Ethereum in January 2014, and he is responsible for inventing the Solidity smart contract language. He also served as Ethereum’s CTO through its successful launch. The Polkadot Paper laid out the concept for a metaprotocol, or a protocol to host and secure other protocols, not to replace incumbents. As a metaprotocol, the Polkadot Network can transmit digital assets and application logic between blockchain networks.
The Polkadot Network went live in August of 2020. We are publishing this report at a time when the network has seen accelerating growth across several key community metrics that we believe are relevant leading indicators. Since August, the number of unique addresses participating in the Polkadot Network has grown from 1200 to over 7700. And its latest annual blockchain developer activity report, Electric Capital found that Polkadot not only had the fastest growing developer community outside of Ethereum, but that it is larger than where Ethereum's was three years after its first code commit.
The Polkadot Network’s potential to scale blockchain applications for mass adoption is important as it has been built in such a way that it could become what TCP/IP was (and is) to the internet: a generalized and customizable platform for facilitating communication around current and future protocols at any scale. As we look forward to blockchain networks connecting to the Polkadot Network, we could see an acceleration in blockchain adoption far beyond what we have witnessed over the past decade.
We have come up with a thousand analogies to better explain the Polkadot Network. One that might sound a bit ethereal to developers, but which makes a lot of sense to us, is a garden. The individual blockchain networks are different plants and flowers, while Polkadot Network is the bumble bee pollinator that makes them flourish, more in collaboration than as individual potted plants.
We would like to thank Web3 Foundation for welcoming us into their team and, along with Parity Technologies, for getting us up to speed on all things Polkadot and the vibrant Polkadot Network community. We hope that you find this report informative, and please do not hesitate to contact us with any questions or clarifications.
Angie Dalton, CEO & Founder
This report is meant to be a Primer on the Polkadot Network, including its intended purpose, some key metrics since launch, the anatomy of the network, network governance, its differentiated on-chain treasury, the Substrate Development Framework, all things parachains and a few use cases. While the bulk of this report is a ‘just the facts’ document, a few key themes have emerged, which we believe are worth noting, exploring and discussing further.
A Few Key Themes
1. The Polkadot Network is a Layer-0 Metaprotocol, not an “_____ - Killer”
After a decade of siloed blockchain development, the bulk of users, developers, and liquidity currently center around two networks and their ecosystems: Bitcoin and Ethereum. Addressing the lack of interoperability that has led to this concentration, the Polkadot Network offers an alternative vision for open blockchain protocols. As a metaprotocol, the role of the Polkadot Network is to host and secure other blockchain protocols. Other blockchains that build on top of it do not need to provide their own security guarantees, or construct their own interoperability bridges to other networks, as a result. The networks that connect to the Polkadot Network are referred to as parachains and can either be bridges to existing networks or Layer-1 networks in their own right. The Polkadot Network effectively provides a way for newly built blockchains to merge onto the highway of broader Web 3.0 internet infrastructure. This allows for digital assets and application logic to transcend any single blockchain and ensures that future technological developments will not splinter existing blockchain communities.
2. Customization is King
Blockchains of different designs and functionalities can connect to the Polkadot ecosystem without having to follow a specific architecture. This allows both open and permissioned blockchains to benefit from the same network effects, even if their structures are quite different. Considering that two-thirds of global enterprises surveyed by Deloitte in 2020 had concerns regarding their ability to implement blockchain solutions with proper data and compliance protocols, such an ability to customize will be critical in the wider adoption of blockchain networks in general. Moreover, the customization done by any one network can be submitted to a wider open-source library, making it progressively easier to launch new blockchains within the Polkadot ecosystem over time.
3. “Blockchain” will be Happening in the Background
We believe that the network tribalism that exists today between blockchain networks is misplaced, and that we will see a shift in competition away from the base layer to the applications themselves. This allows for uninterrupted growth of the ecosystem like growth the internet has enjoyed for three decades. Polkadot's value proposition for a decentralized, privacy-protecting, and self-sovereign Web3.0 internet is well-positioned to be an arms provider to application growth. Future end users may understand more about the inner workings of the Polkadot Network than current end users understand about internet infrastructure when they send an email, but it will be out of interest, not necessity.
4. Positive-Sum Thinking will Define the Next Chapter of Blockchain Development
Polkadot makes blockchain development positive sum by aggregating resources around a singular agnostic interoperability protocol, ultimately unlocking a long tail of blockchain use cases. Just as economic globalization is facilitated by common business languages like English or Mandarin, even when they are not the native tongue of either party in a transaction, we believe interoperability is a key to facilitate wider blockchain adoption.
5. A Challenger to Big Tech
The Polkadot Network's launch comes at a pivotal moment in the history of the Internet. The drumbeat against Big Tech has grown louder globally, and entering a new Presidential term in the US, there is growing support from all parties to expand antitrust enforcement against the giants. While Bitcoin and Ethereum have made incredible strides in disrupting money and financial services, they have not made us any less dependent on centralized tech platforms. For peer-to-peer blockchain networks to truly take on today's corporate internet platforms, they will need a scalable alternative. The Polkadot Network appears to be well-positioned to attract the developers and users necessary to serve as the foundational layer for a decentralized internet future. The upgradability, modularity, and agnostic nature of the Polkadot Network make it the likeliest candidate to support a wider universe of other blockchain networks that has been bottlenecked by scalability and security limitations.
About Us
Angela Dalton | CEO and Founder
Angela founded Signum Growth Capital, an M&A Advisory and capital raising firm, with a focus on the intersection of video gaming, blockchain, art and the emergence of digital economies in the metaverse. She has 20 years of experience in global capital markets in the Technology, Media and Telecom sectors and has long term relationships with institutional investors and companies. She has served as a Managing Director for three investment banking firms - UBS, Evercore and Guggenheim Partners, and as Senior Partner of Technology for Signum Global Advisors, a policy advisory firm. At Evercore, Angela participated as an initial investor and Co-Founder of the Equities business in 2010, building out its Research, Sales and Trading teams prior to Evercore’s acquisition of ISI. Ms. Dalton holds a BS and a BA from The University of Kansas and an MBA from The University of Chicago. She is on the Advisory Boards of the Wall Street Blockchain Alliance in New York and Mythical Games, a next generation video game company, in Los Angeles. She also serves as a Venture Partner for Griffin Gaming Partners and a Nexus Partner for Gaingels. She can be contacted on LinkedIn, Twitter, and via email.
Maximilian Fiege | Head of Digital Assets
Max joined Signum Growth Capital from Deloitte and Touche LLP where he worked in the firm’s Cyber Risk Advisory practice. Prior to Deloitte, Max served as a researcher on blockchain technology and digital innovation for the Council on Foreign Relations and the Brookings Institution, respectively. His writings on digital assets have been referenced by The Economist and published by The Block. Mr. Fiege has a BS from Georgetown University’s Walsh School of Foreign Service. He currently holds both Series 7 and 79 licenses. He can be contacted on LinkedIn, Twitter, and via email.
Disclaimer
This material is prepared by SIGNUM GROWTH CAPITAL and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date on the front page and may change as subsequent conditions vary. The information and opinions contained in this material are derived from sources deemed by SIGNUM to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by SIGNUM, its officers, employees or agents. The Web3 Foundation is an advisory client of Signum Growth Capital.
While Signum Growth Capital is monetarily compensated for its advisory work by Web3 Foundation, the views expressed in this report are solely those of Signum Growth Capital. As of the date of this report, neither Signum Growth Capital nor its members own DOT tokens.