In the third quarter of 2023, the Polkadot ecosystem witnessed a dynamic rise, with five new parachains launched and DOT supply reaching 663 M and counting. Judging by the percentage of the rise in staking, which touched 55.67% at the time of writing, it is not an understatement to quote that parachains are turning red hot. In this article, we shall cover everything that you need to know about parachains and how Polkadot parachains will benefit the crypto space under its Polkadot 2.0 roadmap head. But before we do that, let’s dive deep into understanding parachains and their necessary subsets. 

Parachains are independent blockchains running parallel to the Polkadot blockchain to inherit its security while remaining interoperable and highly scalable. But in order to do that, the parachains need a connecting layer that helps them get access to the greater Polkadot ecosystem and use its security standards. To fulfill this objective, the parachains are linked to the Relay chain, which is the central chain housing all the validators to validate the transactions of the parachains, as demonstrated in the image below. 

As you can see, para-chains are connected to the relay chains that help them access the greater Polkadot ecosystem, which allows them to access other blockchains via bridges. At the same time, you can also see the parathreads, which act similarly to parachains, but they share a common validator node to validate the transactions, which makes them a little slow in comparison to parachains. 

Before 2020, there were only a handful of blockchains serving different purposes. However, as a growing technology, blockchains were expected to scale; but  remain independent islands of their own nonetheless, non-accessible, and with limited liquidity, severely hampering  massive adoption. 

Why? 

It is certain that once technology matures, blockchains will see the same fate as the Internet, requiring massive multi-level interoperability. However, if there is no infrastructure available capable of connecting different blockchains together for the exchange of liquidity and features, mainstream adoption becomes a farce. 

However, while maintaining interoperability and inter-chain communication, no applications wanted to pay the price of sovereignty, such as the inability to have their own tokens, consensus mechanism, network speed, and governance simultaneously. 

Polkadot’s parachains solved this problem. These parachains provided flexibility to Dapps to run as an independent ecosystem, but while doing so, they can still remain interoperable and tap into other dapps hosted on other chains to access their liquidity and use cases. However, as adoption triggered, it exposed multiple points of failures nonetheless,  requiring an upgrade at an architecture level. 

As we have already explained in the section above parachains were created to not only allow specific customized environments to develop custom applications but remain interoperable alongside. However, the old structure of the parachains demanding slot auctions to run chains independently made it into a chain-focused ecosystem. However, when you are building an ecosystem, it should be customized to meet everyone’s needs. For example, there could be small startups with no investor backing and big ones with resources to spare. But both should be given equal opportunity to build their respective solutions and host on top of blockchains. 

For that matter, the Polkadot parachain auction has included a series of upgrades under its Polkadot 2.0 roadmap. The first is the upgrade in the parachain auction mechanism using the candle mechanism and VRF. In this, the auction bid is not shown to the participants so that they remain increasingly competitive. 

How does it benefit, if you may ask?

Suppose there are two parachain slots, Alice and Bob. Both want to win, but if Bob has more revenue to spare, he can outsmart Alice. To make the parachain auctions transparent and non-biased, Polkadot 2.0 is adding the Vickrey Auction Mechanism, which will hide the bid to the last to ensure ethical  bidding and entertaining every bidder without the obligations of locking in their tokens for months; on the contrary, use the pay-as-you-go method. 

However, that raises some questions, like how the ecosystem will address the high demand for parachain thread auctions when the design specifics of the ecosystem force most of the resources to remain idle.

The answer: CoreTime Upgrade and Asynchronous Backing 

CoreTime upgrade will make the Polkadot ecosystem from a chain specific ecosystem to application-specific by abstracting processing functions in the given ways. 

As you can see in the image above, CoreTime will interchangeably answer to all the pay-as-you-go demand instead of sitting idle in the Polkadot ecosystem because, in the former setup, the protocol was designed so that irrespective of the network demand, a block was produced, which might contain fewer or even no transactions. 

In the new model, these cores can be dedicated to other pay-as-you-go clients on the bidding status instead of compelling them to lock tokens. However, this massively strains the Relay chain to validate and back every translation for block insertion. 

In this regard, the Asynchronous backing provides an added edge, abstracting the dependency on the Relay chains for validation using erasure coded chunks in a different way from other unincluded elements or chains or candidate parablocks. 

This practice significantly abstracts dependency on the relay chain for block building by collators and allows more than 1 parachain block to be bolted on the Relay chain with even a higher throughput and finality rate. 

As you can see in the image below, more than two to three parablocks can be bolted on the Relaychain all at once.

This practice can significantly cut the processing and finality time from 12 seconds to 5 seconds and include 4X more data on the parachain blocks for meeting with elastic scaling. 

However, when you look at this, they sound more or less similar to what ALT L1s and Rollups are doing for their respective blockchains. So, why do we even need Polkadot parachains in the first place? 

One might very well say that shards, rollups and even ALT L1 provide the same degree of scalability as a Polkadot Parachain, but why are they still relevant in this age? Well, the reason for the same is that parachains allow developers to customize their blockchains in their own way and remain highly interoperable because of its STF or State Transition Function and runs standardized communication  across all the WASM-compliant Polkadot ecosystem and beyond via bridges. Put simple, think of it as someone as an interconnecting layer undertaking 10 different languages and compiling them all as one for understability. 

However, if you are doing that with an ALT L1, you have to build everything from scratch like consensus and bridges to connect with different chains. Moreover, if you are thinking of an L2 way or Ethereum on these chains, you cannot go for heterogeneous shared chain execution, which can significantly impact the network performance and speed. 

Why? 

Because on ETH L2s, the data is stored on Ethereum as L2 Call data on L1 blocks. So, when ETH holds all the data as a DA layer, it significantly increases the cost of operations when a different blockchain ecosystem wants to communicate with the base layer. 

Most of the Dapps launched on L2s are paying a lot of fees to ETH to be used as a DA layer. However, on the Polkadot Parachain ecosystem, there’s an in-house DA mechanism, and the ecosystem uses erasure coding to keep the data of the parachains without depending on Relay chain validators and protocol level sharding, improves throughput and even facilitates better interchain communication.  As a result, it significantly reduces the fees and passes the benefit to the users, which are hosted on top of the parachains on Polkadot.  

Moreover, another interesting thing to note about the parachains is the inexpensive operations that ZK-rollups and ALT L1s have failed to accomplish. For example, a 16z core running a ZK-Rollup provider would cost 1 million times more than a Polkadot parachain prover. 

However, if you wish to bypass the same and look forward to an optimistic rollup, for that reason, though they might be running very few provers than Polkadot’s parachains, they are more susceptible to hacks due to their verifier’s identity becoming public.

That doesn’t mean Polkadot’s parachains are superior to them all. Rather, every application has its own demand and resources to spare, and they choose the blockchains that can best fit into their narrative. For example, though a blockchain might be superior if it does not attract enough buildings on top of it and has been readily battle-tested, developers might refrain from using it. 

Sora Network is building a new economic system on the Polkadot ecosystem that will be working towards decentralizing the concepts of central banking. It will be providing all the tools that will be required for launching different DeFi concepts spanning across RWAs, or DePIN on the Polkadot ecosystem, like allowing atomic token swaps, bridge tokens to other blockchains, and creation of programmatic rules that will involve dealing in digital assets. 

Origin Trail is a decentralized knowledge graph built on top of the Polkadot ecosystem. It combines the knowledge graph and blockchain technology to build AI-ready knowledge assets. Through Origin Trail, one can process and refine any data from the metaverse to supplychain and acquire actionable intelligence to build next-gen ecosystems. 

Phala Network is building an AI execution layer on the Polkadot ecosystem to help developers build encrypted AI computation on blockchains. Through the Phala Network, guarantees of data protection will be provided while interacting with Dapps built around a larger blockchain ecosystem. 

Supra Network is building an ecosystem where blockchains can enjoy low-latency interoperability while securing on-chain and off-chain data. The ecosystem has been designed to solve the oracle dilemma plaguing blockchains and even optimize the network performance for better outcomes. 

Bittensor is launching on the Polkadot ecosystem to create a market for machine intelligence. In this ecosystem, all the machines/AI models can jointly collaborate and share their learnings and improvisation in a truly decentralized and peer-to-peer manner. For that reason, the project will utilize blockchain technology for scalability and interoperability, and the contributors will be rewarded for sharing their AI models and contributing to the growth of the AI ecosystem. 

The network is building a smart-contract hub on the Polkadot ecosystem where developers can undertake the task of building dapps that are EVM and WASM compatible. The trade-off of building dapps on Astar will be improved interoperability and cross-consensus messaging to tap into a wider ecosystem of Polkadot and beyond. On the Astar ecosystem, the developers are getting paid for the code that they write through a DApp staking mechanism. 

Many concerns have emerged nonetheless despite the Polkadot ecosystem remaining in the news for the last 7 years ever since its inception. 

1. The economic model has been criticized by the community and developers because the inflation rate is very high in the Polkadot ecosystem. And since the token has limited use-cases as of data, it is becoming very hard to bind users to it. 

2. Another key offsetter for using the Polkadot ecosystem is the expensive development cost. Building on the Polkadot ecosystem would involve investing a lot of money in acquiring different infrastructure and tooling, such as blockchain explorers, indexers, hardware wallets, and RPC providers. These challenges create fundamental barriers; in addition, there is a lack of standardized tools and documentation, which can further hinder expedited development in the ecosystem. 

3. Treasury on the Polkadot ecosystem has reached a new low, and a continuous decline of as high as 23% in 2024 has raised serious concerns because despite spending a lot of money on development, substantial outputs are not being generated to keep the ecosystem bonded together. 

We have already spoken about the Agile CoreTime upgrade for elastic scaling and asynchronous backing. At the Polkadot Decoded 2023 event in Copenhagen, its CEO and founder, Dr Gavin Wood, said that he wants to make the Polkadot ecosystem from a network of interconnected blockchains to a global supercomputer.

In the near future, we shall also see XCM unlocks or Polkadot’s Cross Consensus Communication Standards, which allow all the blockchains developed across different stacks to speak a common language. This objective will be massive when you are building something like a supercomputer for all the blockchains. 

Hoon Kim CTO @ Astarsays, This is huge – the possibilities are endless! When we have XCM, we have a stable and reliable interchain messaging channel that is far superior to the fragmented bridges. I can imagine a future where more and more projects use XCM to create something that was impossible just a couple of years ago.

Zeeve has two open-source Parachain builder tools: Larch (For Zombienet Automation & Monitoring) and Wrench (for launching a Polkadot Parachain DevNet). If you are looking for fully managed parachain services with all necessary infrastructure and tools, leverage our Appchain-as-a-Service to launch your parachains in the minimum possible time. 

Visit our webpage for more information about Zeeve Parachain-related services. If you have any further queries, contact our support team, and they will help you deploy your parachain on the Polkadot network.