Polkadot and Polygon: other than their similar names, these two networks are similar in their goals to scale blockchain networks.
As the number of blockchains is growing exponentially, these blockchains are becoming more and more fragmented.
They do not communicate with each other. Both Polkadot and Polygon are working towards interoperability. In this case, they are striving to be the “the Internet of Blockchain”, making blockchains more connected. Let’s explore the difference between these seemingly similar coins, Polkadot and Polygon!
The difference between DOT and MATIC
DOT can work with any network through parachains. However, Polygon is only compatible with Ethereum networks through sidechains. DOT is a layer 0 solution while MATIC is a layer 2 solution. Despite their differences, both networks strive to make the existing blockchain more scalable.
Main Network Functions
Polkadot network uses parachains
Imagine each chain as a train. Each train runs on only one track. Polkadot provides the tracks and stations that connect the different train services.
Right now, different blockchains are like trains without an interchange station. Trains can function on their track but don’t communicate or exchange with the other train services.
Parachains allow for fast transactions as the distribution is efficiently spread to handle workloads.
Polkadot helps to connect the different chains into one system, which makes it a Layer 0 solution. This increases the scale of the current blockchains easily and hence, solves thescalability problemin many blockchains.
Layer 0 is the network that runs beneath blockchain and connects blockchains.
Layer 1 is the basic and usual chains that we know of, such as Bitcoin and Ethereum.
If Polkadot is like a train interchange, then Polygon is like expressways for cars.
Like expressways on the roads, Polygon provides a faster and alternative path than normal paths. If the Ethereum network is congested like a traffic jam, a user move their asset from Ethereum to the Polygon child chains (or sidechains) and transact there instead.
To transfer an asset such as a non-fungible token (NFT), the process takes place with the following steps:
Both networks claim to be the internet of blockchain. The key difference is that MATIC can only scale up the Ethereum network while Polkadot can scale up networks, regardless of whether it is built on the Ethereum network.
Moreover, Polygon makes use of the security and user base of Ethereum networks to value add their network.
Main Coin Functions
There is a difference between the network and coin. Usually, coins are the currency that facilitates transactions on the network.
Let’s explore the functions of the two coins:
Polkadot coin (DOT) allows you to vote, nominate and validate
What can you do with DOT?
Other than buying and holding the coin, you can also participate in the other activities on the chain.
There are 3 main activities you can participate in with DOT:
Vote: Holders get complete control over the protocol
With DOT tokens, you can vote like a shareholder in a company. DOT holders could vote to decide on the latest projects.
For example, DOT holders could vote for their latest logo.
This initiative gives DOT holders a voice in updating the Polkadot brand by casting a vote for their brand identity and logo design of preference.
NPoS creates a trusted network on Polkadot by rewarding good contributors while punishing bad contributors.
By staking as a validator or nominator, you earn an interest rate as well. This will be discussed in the investment value section below.
Polygon (MATIC) coins allow you to pay fees, validate and delegate.
While the network is called Polygon, the coin is known as MATIC.
What Is the Role of the Matic Token?
It is a method of payment on the Polygon network. To perform tasks like creating an asset on the sidechains, the users have to pay transaction fees, which are in MATIC coins.
Similar to Polkadot’s system, there are validators and delegators (which are called nominators in Polkadot). These two parties are stakers. If they violate the rules of the network, they will be punished and their coins will be forfeited.
Validators and delegators secure the network by staking their MATIC in the staking contracts, which are used to achieve consensus and ensure the security of the network.
The most straightforward option to stake MATIC is on Gemini. It offers a yearly interest rate of 2.02% without many conditions.
For Crypto.com, the range of interest rates is similar to that of Polkadot, which is around 6% to 14.0%. You can get the highest interest rate by staking 4000 Crypto.com coins (CRO) on their platform and for stake for 3 months.
As for staking on Binance, the minimum locked amount is 1 MATIC and there are limited slots for staking MATIC. The stake may be sold out, like in the screenshot below.
On MATIC’s latest collaboration with BitFinex, the staking rewards for MATIC is up to 41% annually.
Bitfinex has received 90 million MATIC from Polygon to sponsor enhanced staking rewards for Bitfinex users.
There is no minimum staking amount but there is a minimum staking reward of about US$0.50. More information can be found on BitFinex’s website.
Earning Money Through the Network
Staking is stable and less risky but the interest rates are limited. If you are looking for higher returns while willing to take higher risks, you can also earn money through the Polkadot and Polygon networks.
These two networks have the most straightforward method of earning money through staking on the network directly.
Let’s explore the options in the section!
Polkadot – Stake on Parachains
On the Polkadot network, the most common way to earn is to be a nominator or validator. Since the steps of being a validator and nominator are well described by Polkadot, we shall talk about investing in Polkadot through parachains.
On Polkadot, DOT holders can stake their tokens to a parachain project. This concept is similar to that of an ICO, except that the supporters of the project can only stake DOT tokens.
DOT holders can lock in their tokens to support a project that they believe should be hosted on a parachain. The project developer will often incentivise bidding on their application by offering airdropped tokens or other rewards. However, these projects are lengthy and the staking period is usually 2 years, compared to the normal 30 – 90 days stake. If you intend to invest in DOT for a longer period, this may be a better option.
Polygon – Stake on Network
Earning money on the Polygon network is similar to Polkadot’s system. Delegators stake their tokens with a validator and both parties receive rewards.
If the participating members of the system are violating the rules, their coins get forfeited.
Simply put, it is a pay-as-you-gomodel where chains can use parachains by blocks.
This is exciting as it allows chains to be interconnected without high upfront costs, allowing smaller projects to be connected to the bigger network as well.
Wide adoption of Polygon
In an interview, Polygon’s co-founder, Jaynti Kanani, revealed that Polygon is used by the government of Maharashtra (the second-most populous state in India). Results of the COVID tests can be verified through Polygon.
So many people are using Polygon, but maybe they don’t know it.
The network has a wide adoption. Thanks to the network effect of Ethereum, Polygon has a wide reach. Thus, it has a huge potential to work on various projects and grow in the long term.
In 2022, Polygon enabled users to burn their tokens. This means destroying their coins and reducing the supply of circulating MATIC in the ecosystem.
Why would they do this?
This process, known as EIP-1559, makes the coins deflationary.
This highly-anticipated move benefits both validators and delegators.
So, what’s the difference?
Admittedly, the two networks are similar.
According to the co-founder of Polygon, Sandeep Nailwal, Polygon is working only focusing on building better interoperability on Ethereum, which is a different approach from Polkadot.
When asked about the difference, Nailwal responded with:
“We are interoperable, but within Ethereum. A good mental model is to think of Polkadot as being in the center of a nest of parachains. With Polygon, the Ethereum chain is in the center with an array of Polygon chains around it. That’s why some people call it ‘Polkadot on Ethereum.’”
Gavin Wood and Polkadot
Polkadot was founded in 2016 by Gavin Wood.
Perhaps he is not as well known as Satoshi Nakamoto or Vitalik Buterin but Dr Gavin Wood was a co-founder and key programmer in Ethereum during its early stage. He invented the Solidity language for writing the Ethereum smart contracts that we are familiar with today.
Decentralization and security are not optional in the search for scalability.
It is also important to analyse the coin supply and the allocated coins to the management. Polkadot had several rounds of fundraising and the chart below shows a general breakdown of the allocation of coins:
To breakdown the allocation further, here is a table to better examine the coin supply:
Sold to token investors
Assigned to the Web3 Foundation for the immediate development of the Polkadot network and other undisclosed Foundation activities.
Reserved by the Web3 Foundation for future fundraising
Sold to 2019 private sale investors
Sold to 2020 token sale investors
Breakdown of DOT’s initial allocation Source: Messari.io
More than 50% of the coin supply is being used for the development of the network and is owned by the foundation.
India’s first crypto billionaires and Polygon
Matic network is based in India and was founded in October 2017.
Regardless of its success in the retail sector, the Polygon network is mainly aimed at improving the experience of developers. If you are a developer on Ethereum, Polygon is extremely useful to create decentralised apps (dApps) that are faster and cheaper than on the main Ethereum network.
However, if your assets or your products are not in the Ethereum network, you will not be able to make use of the Polygon network. Polygon currently does not support dApps that are not on the Ethereum network. It also has no plans of expanding outside of Ethereum.
Polkadot and Polygon are similar projects that help to scale blockchain. In the direction of building an interoperable blockchain network, the two networks don’t have to compete with each other. Rather, they have their niches and add value to the blockchain space as a whole.
Both are promising projects that are worth keeping an eye on in the years to come!
As the number of blockchains is growing exponentially, these blockchains are becoming more and more fragmented. They do not communicate with each other.
For example, chains in the Ethereum network cannot easily communicate with those in the Binance Smart Chain. Furthermore, the codes on your current device are slightly different from those used in blockchain! Both Polkadot and Chainlink are helping to solve this issue in their unique ways.
Having interoperability connects different chains efficiently, making it easier to reap the benefits of multiple chains at once.
Let’s look at the difference between 2 types of blockchains that help to solve interoperability: Polkadot and Chainlink.
We have heard of crazy fluctuations in the crypto market. 10% drops in a day or a 20% increase in price in an hour are common in cryptocurrencies.
However, there is a class of cryptocurrencies that are stable in prices, regardless of the ups and downs of the market. These coins are called stablecoins.
A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin.