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What Is Polkadot? DOT and Parachains Explained

Polkadot is a network of blockchains joined by a relay chain, and DOT is its token for staking and governance. Its mainnet launched in May 2020.

Vahe HakobyanEditor-in-chief Updated Oct 6, 20263 min readFact-checked

Illustration: World-Crypt

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How does Polkadot work?What is DOT used for?Who created Polkadot?How is Polkadot different from Ethereum?What are the risks and legal issues?FAQ

Key takeaways

Parachains keep their own governance and transaction rules.
DOT carries voting power and secures the network.
The white paper appeared in 2016; the mainnet launched in 2020.

Short answer

Polkadot is a blockchain network that links chains called parachains, and DOT is the token native to it. DOT is used for staking, governance and bonding network space.

The question usually comes up when someone sees DOT on an exchange. Polkadot lets independent blockchains exchange data and assets without a middleman.

How does Polkadot work?

Polkadot at a glance

Launched: May 2020
Native token: DOT
Runs on: Nominated proof-of-stake consensus

Polkadot is not one blockchain. Its main chain, the relay chain, secures connected blockchains called parachains, which exchange data through a standard called XCM. Developers build a parachain with the open-source Polkadot SDK.

Chain roles
Criterion	Relay chain	Parachain
Security	Shared with all parachains	Comes from the relay chain
Rules	Sets core network rules	Keeps its own rules

What is DOT used for?

DOT pays for security, carries voting power, and is the deposit a project locks for network space.

Staking: nominators lock DOT behind validators.
Governance: holders vote on network proposals.
Bonding: projects lock DOT to hold a parachain slot.

Who created Polkadot?

Gavin Wood, Robert Habermeier and Peter Czaban created Polkadot. Wood published the white paper in 2016, and the October 2017 sale raised more than $144.3 million.

How is Polkadot different from Ethereum?

Ethereum runs one main chain and scales with rollups, while Polkadot spreads work across many parachains and pools their security.

Polkadot and Ethereum
Criterion	Polkadot	Ethereum
Structure	Relay chain plus parachains	One main chain
Extra activity	Runs on separate parachains	Runs on rollups

What are the risks and legal issues?

US regulators have not settled whether DOT is a security, so its status can change with court rulings or agency decisions. The IRS treats crypto as property, so buying DOT with dollars is not taxable, but trading it for another crypto or paying with it can be. A 2017 flaw in Parity Technologies wallets froze about $150 million of ether.

Frequently asked questions

A blockchain that connects to Polkadot and takes its security from the relay chain instead of running its own validators. That lets many chains share one security pool.

Kusama is a separate network with similar software and its own token, KSM, and developers often try changes there first.

You nominate validators from a staking wallet. Your DOT stays locked, and a validator that breaks the rules can cost you part of it.

Browser extensions and hardware wallets for the network, plus some exchange accounts. Check that DOT is listed before you send any.

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Written byVahe HakobyanVahe Hakobyan is the editor-in-chief of World-Crypt. He covers bitcoin, markets and regulation, and leads the newsroom that fact-checks every story before it goes live.