Kusama & Polkadot parachains explained in simple terms

Hello and welcome to the Exodus channel, your
home for the best crypto videos. Hit those like and subscribe buttons and we’ll
keep the videos coming. Most of you may have heard of Polkadot, the
interoperability project that is wanting to unite all blockchains. Or you may have heard of Kusama, Polkadot’s
experimental sister chain or testnet. Right now blockchains like Bitcoin and Ethereum
do not communicate with one another. And basically Polkadot wants to enable the
DMs The team behind Polkadot are building a bridge
between chains. Scalability is the key feature that will allow
Polkadot to reside at the center of an interconnected blockchain network. And this scaling is thanks to Polkadot’s
parachain architecture. Kusama uses the same parachain architecture
as Polkadot. Ok. So what are parachains? A Parachain is basically a parallel blockchain,
also known as a shard or shard chain.

Polkadot is made up of one main relay chain
which performs governance, staking transactions and shares security with the entire network. Smart contracts and other energy-intensive
processes will take place on the other various parachains that branch out from the relay
chain. The parachains frequently communicate with
each other, which prevents the main relay chain from becoming congested with every single
transaction that comes through the network. In the current proof of work version of Ethereum
for example, every node that is connected to the blockchain has to process every transaction
in its history, which makes the process slow and expensive.

For this reason, Ethereum is moving to a Proof-of-Stake
consensus mechanism which uses 64 ‘shard chains’ so that validators can focus their
computing resources on the relevant data. What’s unique about Polkadot’s approach
is that the parachains are for sale and can be bought by other crypto projects. To secure one of these precious parachain
slots, projects will have to win an auction that will take place once the parachains have
been tested and are ready to be deployed.

The bidding currency will be, you guessed
it, the DOT token. Projects won’t know how many DOT tokens
the other competing projects are offering, so they’ll need all the help they can get
from DOT holders in the form of crowd loans. Once a project has successfully gathered and
bid enough DOT tokens to win a parachain slot, they will have to lock up or “bond” the
DOT tokens for a fixed period that will range from 6 months to up to 2 years.

Investors who loaned DOT tokens to the successful
projects will likely be rewarded with a steady stream of the project's native token for the
whole period in which their DOT is bonded, although projects may also offer compensation
in either stablecoins or DOT tokens. This compensation is primarily to make up
for the loss of DOT staking returns that participants would otherwise have been entitled to. Once a project has bought a parachain they
can customize it to suit their needs. The fact that the slots need to be won with
huge amounts of DOT means that most parachain slots will go to serious projects that are
prepared to run core elements of the Polkadot network, like scalability, privacy, smart
contracts and cross-chain DeFi protocols. The upper limit of available parachains is
expected to be 100 for the foreseeable future, although parachains can also be broken down
into shared ‘parathreads’, for smaller projects that require less computational power.

The Polkadot team estimates that it will take
several years for all of these Parachains to be deployed, but also anticipate being
able to open up more slots in the future, once the network has scaled sufficiently. Some of the projects that will be competing
for a parachain include: Moonbeam, a smart contract network that allows
developers to build applications that will be compatible with both Polkadot and Ethereum. Polkaswap, a decentralized exchange developed
by the Sora Network, which aims to be a decentralized central bank and DeFi ecosystem. Phala Network, which aims to bring privacy
to the smart contract space. Crust Network, a decentralized storage protocol
which supports a distributed cloud ecosystem. And Kylin Network, a data solution platform
that brings oracles and analytics to Polkadot. Parachains will first roll out on Kusama,
which is Polkadot’s experimental sister chain, and then on Polkadot. Are you a DOT holder? Will Polkadot dethrone Ethereum? Let us know your thoughts in the comments
below! And if this video helped you understand Kusama
and Polkadot parachains, give the video a thumbs up and subscribe to the channel for
more crypto videos from Exodus.

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