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The varied separate layer-1 blockchains that operate in parallel inside the Polkadot ecosystem are referred to as parachains (on both the Polkadot and Kusama Networks). Parachains, which are linked to and guarded by the core Relay Chain, share and benefit from Polkadot’s security, scalability, interoperability, and governance.
Polkadot’s cross-chain composability enables any sort of data or asset to be transmitted across parachains, enabling a slew of new use cases and applications. Cross-network bridges allow Parachains to link to other networks like Bitcoin and Ethereum.
Polkadot was built as a layer-0 multi-chain network, which means that the core Relay Chain offers layer-0 security and interoperability for up to 100 layer-1 blockchains linked as parachains.
Below we’ll look at Parachains and the benefits that come with them.
Parachains are flexible and niche-based
Polkadot’s parachain paradigm was created with the notion that the internet of the future would consist of many distinct kinds of blockchains cooperating. Blockchains, like the existing version of the internet, must be able to offer a range of services: one chain may be intended for gaming, another for identity management, another for financial, and so on.
As a result, Polkadot has no requirements for the design of the parachain other than the ability to demonstrate to the Polkadot validators that every block of the parachain matches the agreed-upon protocol.
Because of this flexibility, each parachain may have its own architecture, token, and governance procedure that is tailored to its individual use case (s).
Parachains may be operated as public or private networks, companies or communities, platforms for others to create applications on top of, and/or shared commodities for the benefit of the whole Polkadot ecosystem, among many more models.
For example, Calamari Network is a plug-and-play privacy-protection protocol designed to support the whole Kusama DeFi stack (and Manta Network on Polkadot). The protocol provides a set of tools and services that provide privacy for blockchain applications, based on Substrate for interoperability and zkSNARKs for scalable privacy.
Calamari Network provides private payment and a private decentralized exchange, MantaSwap, as part of its own product package. Manta’s founding team includes numerous cryptocurrency veterans, academics, and researchers from Harvard, MIT, and Algorand.
The platform has also secured 7.5 billion $KMA in its decentralized treasury, accounting for 71.5 percent of total $KMA supply. Binance Labs led the strategic funding round for Manta Network (its sister protocol on the Polkadot network.)
Parachains allow the Polkadot network to scale
Polkadot’s parachain approach enables blockchains to achieve scalability at the layer-1 level rather than depending on layer-2 solutions. This method is more decentralized and efficient for establishing blockchain scalability. Transactions may be spread out and processed in parallel over an ecosystem of specialized layer-1 blockchains using parachains, dramatically enhancing throughput and scalability.
Parachains are interoperable
Parachains enable blockchain communities to have complete control and sovereignty over their layer-1 blockchain while also allowing them to freely trade with other parachains and other networks.
Polkadot’s cross-chain composability enables the interchange of any sort of data, including smart contract calls, verified credentials, and off-chain data from oracles like stock market price feeds.
This puts an end to the blockchain space’s silos and opens up new opportunities for apps to interoperate and establish new services. Parachains prefer open economies and free commerce over Balkanization and chain-specific maximalism.
Parachains are self-governed
Polkadot parachains are free to use whichever governance model they choose, and they have access to a variety of pre-built modules for creating multiple on-chain governance systems. The ability to use complex on-chain governance tools enables teams to dramatically limit the possibility of hard forks in their chain, which may potentially divide their communities in half.
On-chain governance also offers a form of responsible transparency for parachain communities, which is commonly required by many institutions and fiduciaries before becoming engaged in blockchain technology.
Slot Leasing on the Parachain
To operate as a parachain on Polkadot, projects must first lease a slot on the Relay Chain by winning a parachain slot auction. Auction bids are submitted in the network’s native token: DOT for Polkadot and KSM for Kusama. Teams may lease a Polkadot spot for as little as six months and as long as two years.
Teams agree to lock up the amount of DOT they bid in a parachain slot auction for the length of the set lease time, after which the entire amount is unlocked. The DOT is reserved in the original account throughout the lease duration but is not accessible for staking, transferring, or other purposes.
Teams may finance their bid in a variety of methods, including self-funding and crowd loans, which request donations from DOT holders in return for a reward.
The first Polkadot parachain spot was won by Acala, a decentralized finance (DeFi) platform, for scaling Polkadot dapps. The platform is designed to host a variety of financial applications that take advantage of smart contract technology, cross-chain interoperability, and rigorous security standards.
Bit.Country, Polkadot’s metaverse network, won the 14th Kusama parachain slot auction while securing $100 million worth of KSM in a crowdloan. Bit.Country is a platform where anybody can construct metaverses and generate money with their Map, 3D world, games, economy, and government.
Parathreads vs. Parachains
Parathreads are parachains that use a pay-as-you-go paradigm to connect to Polkadot rather than leasing a parachain slot. The parathread paradigm is ideal for applications that do not need constant network connections. Polkadot blockchains may transition between being parachains and parathreads based on their requirements and the availability of parachain slots on the Relay Chain.
Fees and the Cost of Maintaining a Parachain
Parachains that lease a parachain slot from Polkadot may access as much processing power as they need without incurring extra fees or “gas” expenditures. Because a team’s bonded DOT/KSM for a parachain slot is unlocked after the lease time, the cost of operating a parachain is best defined as the opportunity cost of not having access to the locked DOT/KSM for the length of the lease.
Teams who want to crowdfund their slot may opt to thank their contributions in any manner they deem suitable, at an extra fee. Other minor expenditures include the cost of operating collator nodes on each parachain.
Hosting apps with a high number of users and traffic on Polkadot as a parachain is predicted to be more cost-effective than running a standalone blockchain or developing on an existing smart contract platform.
What They’re Doing Now
The Rococo Parachain Testnet V1 was released at the end of 2020, with the first teams putting test parachains there in early 2021. In February 2021, the first successful cross-chain communications were delivered between parachain teams on Rococo.
Parachain auctions will be enabled on Kusama and Polkadot through on-chain governance after the code for activating parachains has been completely tested, optimized, and audited (expected for early to mid-2021). Parachain spaces will be auctioned off one at a time, with a fresh auction scheduled every two weeks. Polkadot is on pace to host several parachains in 2022.