Crypto

Polkadot (DOT) vs Chainlink (LINK) – What’s The Difference?

DOT Vs LINK

Last updated on February 5th, 2022

If you’re interested in blockchain technology, one of the topics you must have heard about would be interoperability.

Interoperability is the ability of computer systems or programs to exchange information.

Definition of Interoperability on Oxford dictionary

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.

Polkadot uses parachains to connect between blockchain while Chainlink is an oracle that links off-chain data to the blockchain. Polkadot is building a decentralised crowdloaning network through parachains while Chainlink is focused on developing a tamper-proof “blockchain middleware”. Despite their differences, both networks aim at improving the connectivity and interoperability of blockchain.

Main Functions of the Network

How does the network function? Let’s explore the technical aspect of the two blockchain networks:

Polkadot uses parachains

Parachains are parallel chains containing their own runtime logic and benefit from the shared security and the cross-chain messaging provided by the Polkadot Relay Chain.

Definitions of parachain by Polkadot

Imagine each chain as a train. Each train runs on its own track. What Polkadot does is provide the train tracks and train stations that connect the different train services.

Right now, the different blockchains are like trains without an interchange station.

The trains can function on their track but don’t communicate or exchange with the other train services

Trains to represent polkadot
Polkadot connects the different blockchains, like providing the train tracks for different train services.
Source: Tina Nord from Pexels

Parachains allow for very fast transactions as the distribution is efficiently spread to handle workloads. 

– The ability of Parachains, according to CoinMarketCap

Polkadot aims to be the internet of blockchains.

Polkadot helps to connect the different chains into one system, which makes it a Layer 0 solution. 

Layer 0 is the network that runs beneath blockchain and connects blockchain. This increases the scale of the current blockchains.

This solves the scalability problem in many blockchains.

Layer 1 is the basic and usual chains that we know of, such as Bitcoin and Ethereum. Layer 2 is built upon Layer 1. Layer 2 helps Layer 1 to scale better while enjoying the security that Layer 1 offers.

Some examples include Polygon (MATIC) and Arbitrum.

An oracle is a blockchain middleware that creates a secure connection between smart contracts and various off-chain resources that they need to function.

– Definition of a blockchain oracle by Chainlink

Even though blockchain applications have many functions, they may still need certain data that is outside of the blockchain system.

This is also known as off-chain data.

2 chainlink theory
Data is gathered from external sources such as banks and retail payments. Then, through Chainlink, this information can be brought into the blockchain.

For example, the Uber app needs Google Maps to track the location of the car and guide the driver to the destination within the app.

This location tracking from Google is a set of data from outside of the Uber app.

Usually, this process of connecting data is simple since they operate on the same computing system.

They record data and transmit data in the same way, which makes them compatible to connect data across the platforms.

uber GIF
Uber requires Google Maps to locate drivers.

However, if Uber was on the blockchain, there is a problem translating the Google Maps data into data that the blockchain can understand.

In this way, Chainlink can help to connect the external data (in this case, Google Maps) and apps on the blockchain (our blockchain Uber).

So, what’s the difference?

Both are about connecting different chains to one another.

Chainlink focuses more on connecting our current network to the blockchain network.

On the other hand, Polkadot tries to connect one blockchain to another.

Chainlink focuses more on the external connection to the current Internet system while Polkadot is more on developing an internal system within all the blockchain networks.

Besides the function of the network, let’s discuss the function of the coins.

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Main Function of the Coins

Coins function like a currency on the network. For these two networks, their coins are DOT and LINK.

Polkadot (DOT) – Vote for Changes in the Network

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
  • Nominate
  • Validate

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.

Polkadot users can vote to choose the next logo
The voting results of the Polkadot logo
Source: Polkadot

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.

Polkadot on their campaign

Nominate and Validate: Getting rewarded as a good network user

There are many ways to stake Polkadot.

You can stake on:

  • Polkadot-JS UI (which is what we are explaining in this section.)
  • Parachains
  • Ledger Live
  • other staking platforms

There are two contributors to staking on Polkadot-JS UI: Validators and Nominators.

Validators are the ones who are actively producing blocks on the chain, running the network. 

Nominators take up a more passive role. They vote for who they want to be the validators. To do this, they have to do their own due diligence on the validators.

nominator and validators relationship
Nominators vote for the validators
Source: Web3 Research

If the validator is doing a good job of producing the blocks, they get to keep their stake. This means that they are validating the correct transactions.

However, if the validators try to harm the network, they will forfeit a fixed percentage of their staked coins. For example, a bad validator may run modified software, hack the network, or be unresponsive.

This forfeit is also known as slashing

When bad validators lose a portion of their staked coins during slashing, nominators also lose a portion of their staked coins. 

This staking system adopted by Polkadot is called Nominated Proof of Stake (NPoS).

Thus, to prevent losing their coins, both validators and nominators have to follow the network rules. This 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. 

If you run a blockchain app that needs Chainlink as a middleman, you will have to use LINK tokens to pay for the transaction fees.

As a retail investor, there are limited uses of the coin. This is because Chainlink is mainly for businesses to perform transactions, rather than people like you and me.

Instead, you can invest in the value of the coin by trading and holding. If more people adopt Chainlink to make payments, the value of the token may start to increase!

Another way is to operate a node to earn these transaction fees paid by these businesses.

Perhaps you heard of mining cryptocurrencies, but you cannot mine Chainlink tokens. However, you can operate a node to collect transaction fees, which are paid in LINK tokens.

This will be discussed in the next section, the investment value.

So, what’s the difference?

DOT is more focused on consumers, while LINK is more focused on businesses.

DOT has a lot more functions and platforms for consumers. As retail investors like you and me, there are projects that involve DOT. However, that also means that the staked DOT is scattered between all the projects.

LINK is useful if you are a business owner who is integrating their normal internet code to software on the blockchain. However, as a consumer, the best option is to buy and hold the tokens.

Earning Through Staking Coins on Platforms

A great way to earn passive income is to stake coins on platforms and receive interest. It is also easy to set up and beginner-friendly.

Let’s compare the interest rates across the different platforms: 

Staking DOT on platforms

PlatformsInterest Rate (per year)
Binance11.51%, DOT locked for 30 days
14.21%, 60 days
16.62%, 90 days
Crypto.com6.0% 14.5%,
depending on the staked amount and staked duration
Kraken12%
Ledger Liveabout 10%, after deducting validator’s fees
GeminiNot available
Yearly interest rates of DOT on various platforms

There are many ways to stake Polkadot on the native platform. The most notable platform here is Ledger Live as it is directly affiliated with the Polkadot platform.

However, the minimum amount of staked Polkadot on Ledger Live is 120 DOT, which is a higher minimum than usual. Currently, 120 DOT is close to US$3000.

Screenshot 2022 01 05 at 4.02.29 PM
Conditions to stake Polkadot on Ledger Live
Source: Polkadot

The other platforms offer similar rates without having to stake a minimum of 120 DOT but have other conditions.

For Binance, it is about how long the coins are staked on the platform, from 30 days to 90 days.

As for Crypto.com, it depends on 2 conditions:

The most straightforward option would be Kraken, which offers 12% for DOT stakes, without additional conditions.

PlatformsInterest Rate (per year)
Binance0.2% – 4.0%, depending on staked duration
Crypto.com0.5% – 5.0%, depending on staked CRO and fixed stake duration
KrakenNot available
Ledger LiveNot available
Gemini1.35%
Yearly interest rates of LINK on various platforms

When compared with the same platforms as DOT, the rates for staking LINK are lower. The highest interest rate for DOT is around 16%, while LINK’s highest interest rate is 5%.

Although LINK is not available on Kraken, you can lend LINK on Gemini for 1.35% without conditions.

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 Chainlink networks. 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.

Polkadot parachain vs ICO
Comparing ICO to parachains
Source: HoldPolkadot

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.

Another way to earn crypto is to run a node. You can do this on Chainlink.

An example of a node
You can track other nodes on this website.

You do not need extensive hardware to run a node.

However, you need to download the necessary software on your computer and ensure that you have enough storage and processing speed to run the node efficiently. 

Here are some technical requirements to run a Chainlink node:

  • Download Docker-CE
  • The computer should run on at least 1 core and 1 GB of RAM
  • You will need to have a connection to an Ethereum client. The different types of clients can be found here.

Setting up a node is extremely technical, and it requires much more effort compared to being a liquidity provider on Uniswap. However, the rewards for operating a node are much higher!

The daily revenue of running a node can be up to $2000 USD per day! These returns are much higher than providing liquidity on Uniswap.

If you would like to read more about it, here’s a guide by Chainlink to help you set up your first node.

Future Developments

If you intend to invest in the coins for the long term, it is crucial to know the roadmap and products for the coin and network. Here are some key future development for both network and coins:

Polkadot – Future Plans

The most exciting development on DOT is the launch of parathreads.

Building on the parachain network, parathreads allow chains to participate without needing a dedicated parachain.

This is done through economically sharing the scarce resource of a parachain slot among several competing resources (parathreads).

Polkadot, on their parathread

Simply put, it is a pay-as-you-go model where chains can use parachains by blocks.

Future plans Polkadot
Polkadot’s roadmap and future upgrades
Source: Polkadot

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.

The most exciting development on Chainlink is developing a common protocol for smart contract development.

They are creating an open-source standard for cross-chain communication, called the Cross-Chain Interoperability Protocol (CCIP).

Here are some reasons why we need this protocol:

  • Quickly promote the innovation of application developers on the blockchain.
  • Able to combine the abilities of different blockchains and unique assets into one application

CCIP aims to establish a universal connection between hundreds of blockchain networks, both private and public, unlocking isolated tokens and empowering cross-chain applications for all on-chain ecosystems.

Chainlink introduced their latest project, CCIP

The main problem that they are solving is similar to that of Polkadot. However, they are using a different approach.

chainlink CCIP diagram
CCIP standardises the method by which two different chains send messages to each other.
Source: Chainlink

This sets a standard for blockchains and increases the interconnectivity and productivity of the networks.

So, what’s the difference?

Both projects are solving similar problems in the interoperability of blockchains. However, the key difference is in the way they solve it.

In comparison to Polkadot that is trying to build a platform for the different chains, Chainlink is providing the guidelines for the smart contracts.

To look at the value of a cryptocurrency, it is important to consider its management team, who are in charge of the development of the coins.

Let’s look at the companies behind these coins: 

Founders of 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

Gavin Wood, on Parity Technologies and Polkadot

Polkadot is managed by Web3 Foundation based in Zug, Switzerland and built by Parity Technologies.

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:

Polkadot ICO
Breakdown of Polkadot’s Initial Supply
Source: Messari.io

To breakdown the allocation further, here is a table to better examine the coin supply:

Percentage allocatedCoin allocation
50%Sold to token investors
30%Assigned to the Web3 Foundation for the immediate development of the Polkadot network and other undisclosed Foundation activities.
11.60%Reserved by the Web3 Foundation for future fundraising 
5%Sold to 2019 private sale investors
3.40%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.

The CEO of Chainlink is Sergey Nazarov, while their CTO is Steve Ellis. 30% of the coins were allocated to the team members and founders.

Chainlink ICO allocation
Breakdown of Chainlink’s ICO token sale allocation
Source: icodrops

 The parent company of Chainlink is Smart Contract, and the founders have been involved in the space since 2014. They are considered one of the early movers in the blockchain scene.

Many other team members from Smart Contract also moved to Chainlink. With their experience, they can better help develop Chainlink in the long run.

Adding to Chianlink’s credibility, former Google CEO, Eric Schmidt, joined Chainlink Labs as their strategic advisor.

With a strong and experienced team, Chainlink has a strong foundation to build better infrastructure and more value for its users.

Final Verdict

Polkadot (DOT)Chainlink (LINK)
NetworkParachainsOracle
InterconnectivityConnects different blockchains into oneConnects on-chain  and off-chain data
Coin FunctionVote, nominate, validatePay for transaction fees on the blockchain
Interest rate for stakingHighest among the options:
16.62% on Binance,
staked for 90 days
Highest among the options:
5.0% on Crypto.com,
with staked CRO and a fixed duration
Earning through the networkStaking on parachainsOperating a node
Future plansParathreadsCross-Chain Interoperability Protocol (CCIP)
Year of establishment20162014
Background of foundersWas a co-founder of EthereumWere founders of Smart Contract
ICO allocation to company and founders30% to Web3 foundation and founders30% to team members and founders
Summary of DOT vs LINK

So which of the two is more suitable for you?

Choose Polkadot if you prefer more staking options or a high degree of decentralisation

There are more than four ways to stake your DOT through the network. You can choose to stake your coins as a nominator, as a validator, on parachains, on auctions and other platforms.

DOT is one of the most decentralised networks and the team is highly dedicated to ensuring that it stays decentralised.

However, the coin is less intuitive than most consumer-oriented coins. There are many functionalities and some technical background is helpful to navigate through the website.

Essentially, Chainlink is a business-to-business (B2B) solution on the blockchain.

However, it may be overwhelming for a beginner to get started on the Chainlink network directly. Experience is needed to set up a node. Since it is a network adapted for businesses, it is more difficult for a consumer to understand and relate to.

Conclusion

Both of these networks solve an immediate problem in blockchain – interoperability.

Polkadot enhances the interchain connections while Chainlink improves on and off-chain communication. These are relevant and important projects in the next 5 years of blockchain development.

With experienced teams leading the projects, it is exciting to see how these networks and coins will grow!


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