Polkadot is one of the alternative networks to Ethereum, with the aim to achieve scalability and speed. The mechanism for greater efficiency is the adoption of interoperable Polkadot Parachains, a similar concept to Ethereum’s shards. The Polkadot Parachains connect to a Relay Chain, which is Polkadot’s core technology.
Why Parachains?
Participants can customize each Polkadot Parachain for specific use cases, as they enhance smart contracts functionalities.
A parachain runs as a separate blockchain running with its own token and rules i.e. transaction fees, governance, rewards etc. A limit of approximately 100 parachains enhances competition among blockchain projects that compete to “win” the chance to connect their chains to the Relay Chain and consequently the entire Polkadot ecosystem. These projects compete on winning a position by bidding on a parachain slot auction. Participants bid on projects they want to receive a slot within a specific timeframe. A list of auction participants and winners to date, can be found here.
Polkadot Parachains aims to enable lower transaction costs and faster execution. In addition, there is an added layer of privacy since the independent parachains do not communicate sensitive data to the Relay Chain.
Projects that win slot, pay their slot lease with DOT tokens, Polkadot’s native token. If projects does not win a slot, it can participate by paying a lower fee amount to connect as a parathread. Parathreads allow a block by block participation, by projects claiming a share of parachain slots. Projects can participate with parathreads and still have access to the scalability and security of the Polkadot network.
Polkadot Parachains involve collator nodes that store transaction history and bundle data into blocks. These blocks are then added to the Relay Chain.
How do Auctions Work?
Participants use DOT tokens to lock up bonds to indicate their support to a project. Projects usually give out rewards to these participants in the form of airdrops. Auction winners are picked according to a timeframe set by candle auctions. Therefore, candle auctions add a degree of randomness and unpredictability regarding the time of auction selection.
Parachain slots are also available on secondary markets, from other parties who have won slot auctions.
As Polkadot Parachains dedicated website section mentions: “Parachains connect to Polkadot by leasing an open slot on the Relay Chain via auction, which involves locking up a bond of DOT for the duration of the lease.”
Interoperability between Polkadot Parachains and the Relay Chain
Relay chain is Polkadot’s core technology, since it connects the parachains with the Polkadot ecosystem. Polkadot Parachains communicate information to the Relay Chain, which is the core of the ecosystem but does not support smart contract functionalities.
The Relay Chain enables parachains to benefit from its security mechanism. The security of Polkadot network is shared, since validation depends from the Relay Chain. Therefore, malicious attacks to parachains are nearly impossible. As the number of parachains and validators grow, more DOT users are staking, which means higher degree of security for the network.
Kusama is an identical network in structure, which runs based on the concept of parachains and a Relay Chain.