Polkadot’s native token, DOT, currently ranks 13th among cryptocurrencies according to CoinMarketCap, a decline from its previous top 10 status during the recent bull run of 2020 and 2021.
During this period, DOT surged significantly, overtaking Ripple’s XRP in market capitalization and entering the top five cryptocurrencies by market cap.
Initial enthusiasm for Polkadot led to optimistic predictions from enthusiast and analysts, ranging from a rise to $250 to securing a top-5 position. While some of these materialized, with DOT briefly entering the top 5 in 2021, its actual all-time high (ATH) was lower at $55.
This article will explore DOT’s ascent and descent despite its potential and examine the prospects of DOT and its protocol.
How Polkadot–and DOT—Came to Be
Polkadot’s development intertwines closely with Ethereum. Notably, its initial coin offering (ICO), conducted in October 2017, raised over $145 million in ETH. A significant portion of the Ethereum community participated, laying the groundwork for the blockchain.
Central to Polkadot’s credibility is its founder, Gavin Wood. With a PhD in Software Engineering and over two decades of experience, Wood is renowned for his contributions to the industry. He authored Ethereum’s yellow paper, developed its first functional version, and created Solidity, the language for Ethereum’s smart contracts.
Wood perceived Ethereum as a technocracy, efficient yet lacking transparency in decision-making. Concerns arose, especially regarding the controversial implementation of EIP-1057 by a select few developers, prompting his departure as CTO. His critique of Ethereum’s decentralization fueled Polkadot’s initial success.
Polkadot, in its nascent stage, vowed to enhance scalability and simplify blockchain operations. Its whitepaper introduced a groundbreaking concept: a protocol unifying purpose-built blockchains to operate seamlessly at scale. This innovation garnered widespread praise, attracting new users and analysts who saw its potential as an “Ethereum killer.”
Unraveling the Causes of DOT’s Decline
While many analysts attribute DOT’s descent from the top 10 to the broader market downturn in 2022, it becomes apparent that specific project-related issues might have contributed significantly.
A substantial challenge faced by Polkadot was the struggle to attract projects. The imposing entry hurdles dissuaded potential developers from embracing Polkadot. For instance, to join the blockchain, projects had to secure DOT through Crowdloans from interested participants.
Another potential factor contributing to DOT’s decline lies in the intricate nature of the Polkadot project. Many cryptocurrency enthusiasts found it challenging to comprehend the Polkadot blockchain concept, particularly due to its significant divergence from the EVM chains familiar to most.
From its inception, the blockchain has grappled with notable security issues. In less than two weeks after the ICO, an exploit targeted a vulnerability in Polkadot’s multisig wallet code, resulting in the permanent freezing of over $90 million of the funds raised. Despite efforts to recover the locked funds, more than 500,000 ETH remains inaccessible.
Interestingly, this incident was the second time Polkadot’s security mechanisms were breached due to a code vulnerability. The initial hack transpired earlier that year, in July 2017, and over $33 million worth of ETH was almost lost. “Almost lost” because the hack was halted by a group of hackers known as the White Hat Group.
Remarkably, neither hacking incident deterred Polkadot from attracting additional funding. Belief in the project and the team grew stronger. The Polkadot team, confirming ample funding for development, persevered and continued their efforts despite the loss of funds.
Adding to the complexity is the internal dissatisfaction within the Polkadot community, marked by reports of significant staff reductions and allegations of mismanagement.
Dakota Barnett, the founder of the Polkadot-based project InvArch, publicly accused Parity Technologies of “incompetence,” expressing concerns about the departure of development and capital from the ecosystem. He went as far as likening Polkadot to a “dumpster fire,” asserting that parachain teams are exiting, and venture capitalists are showing reluctance to invest in the ecosystem.
Polkadot’s Prospects and DOT’s Trajectory
The launch and ascent of Polkadot among the top crypto projects didn’t surprise devoted followers who anticipated it challenging Ethereum’s dominance in the Layer 1 market. Despite early challenges, Polkadot successfully established itself as a blockchain, with its DOT token accessible on reputable exchanges like Binance, Coinbase, Kraken, Huobi, and OKEx, enhancing liquidity and accessibility. Acala Network, Phala Network, and Litentry were among the initial candidates securing allocations as parachains on Polkadot’s network.
Rather than being a direct competitor to Ethereum, Polkadot has carved its own niche and future, attracting more developers than any other chain besides Ethereum, accumulating a significant number even during the bear market. Presently, Polkadot boasts one of the highest levels of developer activity.
The blockchain’s development team has also introduced new funding initiatives and technical upgrades. The “Agile coretime” upgrade transitions Polkadot from a centralized to a decentralized structure, allowing builders to reserve or instantly access block space. This shift, from renting parachain slots to an application-centric model, resembles cloud computing services, efficiently allocating server space based on demand.
Simultaneously, the Decentralized Futures Program, initiated on November 16, allocates $20 million and 5 million DOT (approximately $45 million) to teams developing on Polkadot. Fabian Gompf, the new CEO of the Web3 Foundation, is confident in the program’s ability to spur the Polkadot ecosystem, aiming to aggressively distribute funds next year to teams showcasing scalability and self-sufficiency. Gompf believes these initiatives, combined with upcoming technical upgrades, will drive increased on-chain activity, attracting applications and developers to the platform.
With the current valuation of DOT hovering around $5, one might contend that there is considerable potential for an upward surge during a bull market. Polkadot has distinctively emerged from the influence of Ethereum, charting its growth trajectory. However, there are apparent challenges.
From a layperson’s perspective, it would be anticipated that, like other Layer 1 altcoins, DOT would have experienced a surge in prices over the last month. While there was indeed an increase from approximately $3.6 to the present $5, a broader analysis suggests that Polkadot has essentially maintained the same range throughout the year, with the recent price boost preventing a further price decline.
Closing Reflections on Polkadot’s Journey
Polkadot has traversed a substantial path since its inception, showcasing resilience despite encountering challenges. The dedicated team behind the project is actively working to reposition it among the top ten cryptocurrencies. The deployment of additional funding through the decentralized futures program signals a commitment to supporting teams building on Polkadot, fostering innovation and growth.
A notable transformation involves the implementation of new upgrades aiming to democratize block time access. This shift allows more teams to build and scale parachains on Polkadot, significantly reducing entry barriers and attracting a greater influx of developers and users to the platform.
Several factors contribute to the optimistic outlook for Polkadot in the upcoming bullish market cycle. Trust in the team’s capabilities, evident in their efforts to enhance the platform, remains a key driver. The consistent growth of developer activity on Polkadot, second only to Ethereum, further solidifies its position. Additionally, the influx of new projects into the ecosystem adds dynamism and potential for future success.
While Polkadot may seem to have faded from its past glories, its current lower price compared to the all-time high suggests the potential for significant gains in the next bull run. As the crypto landscape evolves, Polkadot stands poised to emerge as one of the winners, driven by its resilience, ongoing improvements, and the support of an active and dedicated community.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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