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Is Polkadot really worth it to invest our money into?

Is Polkadot a Good Investment in 2022?

Last Updated: July 19, 2022

Polkadot (DOT) is a blockchain protocol with a vision to create decentralized web 3.0 and multichain interoperability. In the last bull market (2020-2021), it generated a lot of hype thanks to its unique parachain mechanism and the fame of its founder, Gavin Wood. But now the hype has slowed down, you might have a certain question in mind, is Polkadot a good investment in 2022?

Before we can answer that question, we need to understand Polkadot fundamentals and what it brings to the crypto market. And last but not least, we need to analyze how Polkadot is doing compared to its crypto competition.

Table Of Contents

  • How Does Polkadot Work?
  • Bitcoin vs. Ethereum vs. Polkadot
  • Market Analysis: Where Does Polkadot Stand In 2022?
  • Is Polkadot A Good Investment?

How Does Polkadot Work?

Polkadot is a scalable protocol that connects and secures different blockchains, granting interoperability and data transfer between different cryptocurrencies. With Polkadot, applications built on different chains are able to communicate with each other.

The reason why Polkadot is able to connect multiple chains on a native level is because of its native feature called parachain or parallel chain.

What is Polkadot Parachain?

polkadot parachains form the most fundamental structure of polkadot

Polkadot parachain is a layer-1 blockchain specifically designed to be interconnected with one another. Whereas many older blockchain projects typically only grant the ability to create dapps (decentralized applications) within the same network, parachains have the ability to allow their dapps to spread across the entire Polkadot’s multichain ecosystem.

Their main selling point is that parachains are interconnected and data from one parachain can pass freely to other parachains. On top of that, the parachains share their blockchain security, they don’t need to try to attract new validators or miners every single time a new parachain is live. 

This is a very powerful feature because new blockchain startups typically need to incentivize the miners or validators to support their newly-created chain. But when you build your chain as a parachain, you just get that security and decentralization from the entire Polkadot’s multichain ecosystem.

Another unique feature that parachain has is the ability to automatically update its software. How does it work? Well, unlike older blockchain systems where you are at risk of forks whenever you want to change something, Polkadot’s parachains can be automatically upgraded to follow the main software update. 

This makes Polkadot and its parachains to be much more future-proof and unique compared to other crypto blockchains.

Bitcoin vs. Ethereum vs. Polkadot

Before we can answer “is Polkadot a good investment”, first and foremost, we must understand where it stands compared to its competition in the crypto industry. 

Some of the crypto veterans might say that Polkadot is not a direct competitor to Bitcoin or Ethereum since all of them have different use cases. But, let’s be honest, crypto investors and traders are usually the same people, and they typically diversify their money to different altcoins. 

This is why it’s important to compare Bitcoin vs. Ethereum vs. Polkadot, since the first two are the most popular cryptocurrencies in the world.

First of all, let’s compare their consensus algorithm. Bitcoin uses Proof-of-Work (PoW), Ethereum is transitioning from PoW to Proof-of-Stake (PoS), and Polkadot is already using PoS. 

Secondly, Bitcoin’s cryptocurrency is used to incentivize the miners, Ethereum’s cryptocurrency (ETH) is given to miners for transactions and smart contract interactions, and Polkadot’s cryptocurrency (DOT) is used for transactions and ecosystem governance. 

One unique advantage that Polkadot has over Bitcoin and Ethereum is its ability to use the DOT token for parachain auctions. That means you can use your DOT tokens to vote on which project should get the next parachain slot in the Polkadot ecosystem. As a replacement, the project owners will distribute their own tokens to those who vote for their projects. 

When the project that you vote for wins a parachain slot, your DOT tokens will be returned to you months later. If it does not win, you will still get your DOT tokens back but without the reward of the project’s token.

Another important comparison between Bitcoin vs. Ethereum vs. Polkadot is the speed aspect. Bitcoin is very limited and only has about 7 transactions per second (TPS) on average. Ethereum is slightly better with about 12-15 TPS. Polkadot is much faster with about 1,000 TPS. Keep in mind that Ethereum is in the process of migrating to Ethereum 2.0, and it might significantly increase Ethereum’s TPS in the near future.

How about the use cases? Well, Bitcoin is the original cryptocurrency, so its use case is limited to just Bitcoin transfers and as a store of value. Meanwhile, Ethereum’s main use case is to build smart contracts. Polkadot has wider use cases since it aims to be the default multichain solution via its parachain concept. 

There are also some Polkadot’s parachains that are able to develop smart contracts, such as Moonbeam or Astar.

Overall, Polkadot is far more flexible compared to Bitcoin and Ethereum since it’s also a newer technology.

Market Analysis: Where Does Polkadot Stand In 2022?

Polkadot has been able to consistently stay within the top 20 crypto market cap rankings. Although it is no longer as hyped as it used to be, Polkadot is still able to steal crypto investors’ attention through its unique use cases and flexibility. During the peak of 2021’s bull market, DOT was priced at $53.88 with a market cap of $52.78 billion.

However, 2022 paints a completely different story. DOT price has been significantly going lower, just like the rest of the crypto market. On July 13, 2022, DOT was trading at $6.13, making it way lower than people’s expectations. Despite the fall, DOT is still among the top 20 highest cryptocurrencies by market cap.

And although its fall has slowed down the hype, Polkadot is still able to maintain its developer activity. According to Messari which was reported by ambcrypto, the average developer activity remains consistently higher than 11,000 per months.

This is actually a very good thing and shows that Polkadot developer community is very persistent despite the 2022 bear market. As of now, Polkadot might be behind Ethereum and even a few other alternative protocols, but the future’s still bright.

Is Polkadot a Good Investment?

Time to answer this question. The answer is Yes. Polkadot is definitely one of the top altcoins to invest in if you plan to diversify to 5-10 different coins. Even though it’s still a relatively young protocol, it has proven itself to be a unique solution to multichain interoperability issues. 

Whether Polkadot eventually becomes the most mainstream interoperability solution or not, only time will be able to tell. There are some other interoperability solutions out there, and there will be new protocols coming along in the next few years. 

Keep in mind that there is always a risk involved when it comes to cryptocurrency investments. But, once again, if you plan to diversify to 5-10 different crypto, you should consider Polkadot as one of them.

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