Entering text into the input field will update the search result below

Polkadot: Networking For Blockchains

Mar. 08, 2021 11:38 PM ETPolkadot (DOT-USD)7 Comments
Richard Durant profile picture
Richard Durant


  • The Polkadot blockchain aims to provide interoperability and security to other blockchains, helping to solve issues like scalability.
  • In a multi-blockchain world, interoperability could be a potentially valuable function. If a small number of blockchains becomes dominant this value proposition will be significantly weakened though.
  • Polkadot is currently the leading interoperability blockchain, but its value is uncertain and dependent on how the blockchain ecosystem evolves in the future.

Polkadot (DOT-USD) is a third generation blockchain which aims to provide security and interoperability to other blockchains. If the smart contract market is fragmented across a number of blockchains, which are focused on specific use cases, Polkadot could become an integral part of the blockchain economy. I believe DOT offers significant upside from current prices, but is a risky investment due to the early stage of the project and the uncertain demand for Polkadot's functionality.

First generation - payments

Second generation - smart contracts

Third generation - scalability and interoperability

Figure 1: Blockchain Technology Generations

(Source: Created by author using data from coingecko)


Potential blockchain applications include the Internet of Things (IoT), finance, governance, identity management, web decentralization and asset-tracking, but adoption is currently low and one of the main reasons is that there are still fatal flaws with existing blockchains. They suffer from a lack of extensibility, scalability and interoperability and there is a need for open and closed networks to have trust-free access to each other.

While there are a number of proposed solutions to these issues, including second layer solutions and network upgrades, interoperability blockchains are one promising solution. Interoperability becomes necessary if there is not one dominant blockchain and a proliferation of successful blockchains will increase the need for cross-communication over time.

The main problems addressed by interoperability blockchains include:

  • Scalability - Most blockchains still struggle to process a reasonable number of transactions without utilizing excessive resources (processing, bandwidth and storage).
  • Isolatability - Different parties and applications can have divergent needs that must be addressed under the same framework.
  • Security - It can be financially feasible although not necessarily profitable to launch an attack on smaller blockchains due to a lack of resources securing the blockchain. An interoperability blockchain can provide security to smaller blockchains, lowering

This article was written by

Richard Durant profile picture
I have been managing my own investment portfolio for the past 9 years with a focus on fundamental research and deep value investing over long time horizons. My primary interest is finding early stage innovations which will create long-term value. I have a Bachelors degree in finance, an MBA and have completed the CFA and CMT exams.richarddurant.substack.com

Analyst’s Disclosure: I am/we are long DOT-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.