Guide to Polkadot
January 26, 2022
Polkadot is a network of interoperable but independent blockchains that share security. Participate with confidence based on Coinbase Cloud's experience and expertise with Polkadot.
An introduction to Polkadot
Polkadot — a scalable heterogeneous multi-chain that connects blockchains — enables new blockchains to communicate in a secure environment. In order to solve the scalability and interoperability challenges facing many blockchains, Polkadot creates a sharded ecosystem that includes a main relay chain and individual parachains (shards).
The relay chain is responsible for achieving consensus and transaction delivery (message passing) among parachains. Parachains — or “parallelized blockchains” — are application-specific blockchains within the Polkadot network. Each parachain is an entire blockchain in and of itself, with its own logic and features. Parachains also share software and security with the other parachains. The main Polkadot relay chain connects these parachains by sharing state and validation logic to provide a secure environment for trust-free message passing. This shared security model across chains represents a big draw for developers to work with the Polkadot ecosystem.
Early testing suggests that Polkadot, when multi-threading and parachains are included, could reach as high as 1,000,000 transactions per second.
A Substrate-based protocol
Substrate is the modular blockchain framework on which most parachains will be built; it is the foundation for the whole Polkadot ecosystem. It allows developers to quickly build and launch a blockchain with a variety of feature options available for a wide range of project needs. These options include WebAssembly smart contracts, multi-level permissioning, encrypted transactions and state, account-level locking, and governance tools. Substrate-based protocols can easily interact with Polkadot, allowing them to become parachains in the system and to share security.
How to participate on Polkadot
Polkadot uses nominated proof of stake (NPoS) as its consensus method. There is a known and limited number of validators in the active set and this active set number is decided by governance. Inclusion in the active set is determined by your total self-bonded and delegated stake. The minimum stake to get in the active set varies daily, and depends upon the number of validators attempting to be included and the amount of stake on each. In a NPoS system, each elected validator has equal say in consensus.
Once included in the active set, every validator has equal voting powers and gets equal rewards. For example, if there are two validators, one with 15k DOTs and another with 100k DOTs, assuming both are in the active set, they will receive equal rewards on an annual basis.
Because of this equitable distribution of rewards, it is preferable for a DOT holder to distribute their stake and run multiple validators. Optimizing your participation on Polkadot, or any NPoS network, requires more active management than other PoS networks
There is no minimum self-bond to run a validator. It is possible to meet the minimum stake necessary to be elected to the active set with almost 100% nominated DOTs. The goal is to get in the active set without being significantly higher than the minimum. As such, many validators maintain a low self-bond, and delegate to themselves with the majority of their DOTs from a separate account. This setup allows them to remain flexible and distribute their stake as the minimum for election to the active set changes.
Rewards on Polkadot
Every validator in the active set receives the same amount of DOTs for equal work. They then take a validator fee (a percentage commission) before distributing the remaining rewards to their nominators (delegators to the validator) and to the validator’s self-bonded stake on a pro-rata basis. All rewards are distributed automatically on-chain.
Risks of participation on Polkadot
Validators can be slashed for misbehavior, such as being offline or equivocation (producing two blocks in the same slot or sending conflicting pre-vote messages for two chains at the same time). The slashed amount is a fixed percentage. A validator with more stake gets slashed more total DOTs. Since rewards are evenly distributed among validators elected to the consensus group, there is no economic advantage in staking more DOTs than required to be in the active set. In fact, staking excess DOTs increases the loss in the event of slashing.
In general, Polkadot slashing is based on security threat levels. Threat levels increase based on malicious intent and security risk, usually exemplified by the number of validators misbehaving at the same time:
Max % slashed
Low security threats, such as isolated cases of unresponsiveness
0.1% (or kicking the validator out of the active set)
Misconduct that occurs in good faith but is due to bad practices
Misconduct unlikely to happen in good faith or by accident, but does not lead to serious security risks or resource use
Misconduct that a) poses a serious security risk to the system, b) shows large levels of collusion among validators, and/or c) forces the system to spend a large amount of resources to deal with it
The two key misbehaviors are unresponsiveness and equivocation, which escalate slashing amounts based on the percentage of total validators participating in the behavior at the same time (called correlated slashing risk). For example, if 25 out 200 validators are down, the slashing penalty is less than half a percent, but, if 50 out of 200 are down, the slashing penalty is over 3%. Penalties for equivocation are more severe than unresponsiveness due to the increased harm to the network of equivocating.
Using a Managed Controller on Polkadot
A controller is a 1-to-1 proxy for your stash (where your tokens live). It acts on behalf of the DOTs in your stash to nominate validators and participate in consensus—without being able to access your funds. Using a controller allows you to participate in staking and securing the network without accessing the stash account that controls the custody and movement of your funds.
Setting your stash as the controller is risky and not advisable. Controllers on Polkadot allow you to manage your nominations while keeping your stash account offline. Using a Bison Trails managed controller provides those benefits of additional security with additional ease of use, while still ensuring you maintain full custody of your assets.
Governance on Polkadot
DOT holders can use their DOTs in Polkadot governance to:
propose a public referendum
prioritize public referenda
vote on all active referenda
vote for council members
become a council member
Every change to the protocol is done through a referendum. Once approved, the referendum must wait a period of time before it is enacted on-chain. This delay allows DOT holders who disagree with the change an opportunity to leave the network, while those who voted in support have their DOTs locked until the upgrade is enacted. All voters must lock their DOTS up for at least 4 weeks beyond the end of the referendum but those willing to lock them for longer get the votes weighted more heavily. The amount of tokens under ownership by the voter also weights the votes.
A 6-24 member council represents the interests of passive stakeholders who may not be able to vote on every referenda. Council members are selected through rolling elections, with one council member up for election every two weeks. The length of their tenure depends on the size of the council, where a term equals 2 weeks times the total number of council members.
Why run Polkadot nodes with Coinbase Cloud?
Participate with confidence based on Coinbase Cloud's experience and expertise with Polkadot. We run validators across other major Substrate-based chains, cross-leveraging optimizations and security best practices.
We make it easy to participate in Polkadot’s nominated proof of stake consensus mechanism, regularly monitoring our customers’ clusters and scaling validators based on changes to customers’ stake and network economics, and making it possible to automatically respond to the demands of managing Polkadot infrastructure with high volume.
Our new staking dashboard for Substrate networks Polkadot and Kusama offers insights about the performance of your validators, so you can be confident about your participation.
Easily manage infrastructure and react to changing network dynamics
Optimize uptime and participation
Participate in staking and securing the network without accessing your stash account
Reduce the risk of slashing by distributing stake across multiple nodes
Access data from the Polkadot blockchain to analyze trends and build robust applications
Stake your tokens with Coinbase Cloud's non-custodial Polkadot validators
Use the Polkadot Indexer to efficiently access and query data with fewer requests, and from a single API
Manage participation with insights and guidance from our protocol specialists