The Launch of a Polkadot Parachain Is Good News
Polkadot (CCC:DOT-USD) just had the dubious distinction of being the biggest weekly loser among the top 30 altcoins when ranked by market capitalization. This puts the price of DOT token to less than $16. For context, the altcoin hasn’t been this low since January.
You expect volatility when investing in cryptocurrency. However, when you’re the ninth-highest ranked altcoin by market cap, you’d hope for a little more love from investors. So why is Polkadot dropping?
In the case of Polkadot, I’ll offer that it may be that investors were waiting on a successful launch of the company’s parachains. In that scenario, Polkadot could be handle as many as one million transactions a second. As a comparison, Visa (NYSE:V) processes around 4,800 per second.
However, with the company’s first successful launch in the rear-view mirror (and more on the way), Polkadot is providing a compelling proof of concept that should propel its DOT token higher.
The Blockchain of Blockchains
Polkadot is more than a blockchain-powered network (although it is that as well). Rather, Polkadot is an ecosystem of connected blockchains. The central chain provides security for the entire network, while the side chains (which are called parachains) make the Polkadot network more scalable than say, Ethereum (CCC:ETH-USD).
And speaking of Ethereum, a key objective of Polkadot is the ability to build “bridges” that will let parachains connect to external networks such as the Ethereum or Bitcoin (CCC:BTC-USD) blockchain.
The real-world utility for this means that, in a Polkadot future, smart contracts created on the Ethereum blockchain can interact with a blockchain that is geared toward a different kind of information and the transactions can be processed in parallel.
If it sounds like I know what I’m talking about, I assure you I’m not doing Polkadot justice. But that’s because I don’t see it yet. But as I was reminded, that was also the case when the internet was created.
Invest in the Future of the Internet
I was recently talking to someone about the utility, or lack thereof, of altcoins. Since we were both of a certain age, this person asked me to think back to 1999. His point was at that time, the internet wasn’t what it is today. There were things we couldn’t see. But things were always moving in the background, and those were the things investors were buying.
Did they all work? Of course not. Will all cryptos have a long term future? Maybe not. But if I let that thought kick around my brain, then I believe that Polkadot has a better-than-average chance. And I don’t say this out of a belief that it will replace Ethereum.
I see a lot of comments with people referring to Polkadot as the Ethereum killer. I think that’s overstating not only Polkadot’s capabilities, but also its intent. The reality is that Polkadot and Ethereum do, and will continue to, co-exist. For many developers, Ethereum will remain the blockchain of choice.
Is Now a time to Buy DOT?
One concern I have is that Polkadot may be one of the more recent “competitors” for Ethereum. But it’s not the only one. Far from it. In fact, an article in the Daily Hodl on June 26 was making the case for two obscure altcoins that could unseat Ethereum and, among others, Polkadot.
That’s the thing about the crypto sector right now. New coins are entering the field nearly every day. And many of the coins have a similar purpose. As I see it that invites a game of Whack-a-Mole. As one coin pops up, other coins get whacked.
Right now, DOT is getting whacked. But if you’re looking at altcoins that should survive the inevitable day of crytpo reckoning, Polkadot looks like one that will prove its worth.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.